Trey Pennington, CBRE
Greenville-Spartanburg is first and foremost an industrial market with approximately 160 million square feet of manufacturing, warehouse and flex space. This is larger than the industrial markets in Columbia and Charleston combined. For five consecutive years vacancy has declined and absorption has been consistently positive. Vacancy currently sits at a record 7.3 percent and has been there for several quarters, not moving down further mostly due to lack of product. Annual net absorption topped 4.3 million square feet in 2012 and 2013, and dropped down to 2.5 million in 2014. Space that does not exist cannot be absorbed.
Developers are aggressively responding to this lack of product with more than 3 million square feet of space expected to be built in 2015. Over 1.3 million square feet of that space is considered speculative, meaning construction started before occupancy was achieved. Both numbers represent the highest amounts of construction since CBRE began tracking the Greenville-Spartanburg industrial market in 2001. Absorption in 2015 is predicted to be the strongest since the recession, although it is possible for vacancy declines to be more modest based upon the amount of space being delivered to the market.
Growth in the Greenville-Spartanburg market is being driven by two factors: the presence of manufacturing and the attractiveness of the location as a potential distribution hub. Increasing demand for goods in emerging markets and a strong U.S. economy is accelerating manufacturing.
In 2013, China emerged as the biggest importer of goods manufactured in South Carolina. Additionally, over half of the goods manufactured in the state are from the Greenville-Spartanburg region. The rapid growth of the middle class in China is only going to increase the importance of South Carolina’s most important international trade partner in the coming years.
In addition to manufacturing, the area is being perceived as an attractive location of distribution due to its ideal location on the I-85 corridor, nestled between the Atlanta and Charlotte metro areas. A distribution hub in the Greenville-Spartanburg market has access to over 12.5 million people within a three-hour drive. The development of the South Carolina Inland Port (SCIP) has only added to the attractiveness of the area as a distribution location. Even if a tenant is not actively using the SCIP, the fact that they have options helps to mitigate the operational risk of relying too heavily on one mode of transportation. An example of this is Rite Aid’s intention to consolidate distribution operations from four states to a new 900,000-square-foot facility near the SCIP.
As it became operational in the fourth quarter of 2013, the SCIP continues to be a catalyst for market evolution. Unlike any other inland port in the country, SCIP is located in the heart of a manufacturing hub. This means the facility is positioned to be an asset to local manufacturers, not simply a staging area for manufacturers in other areas of the country. Along with low-unionization rates, low cost of living and high quality of life, the SCIP is one more magnet to help attract companies to the region.
That is not to say the benefits of the facility will be limited to exporters of goods. Importers of goods are likely to use the facility as a staging area for operations up and down the East Coast. As such, we envision strong growth for the distribution market as a result of activity at the SCIP over the next decade, with the pace of that change quickly accelerating after Post-Panamax ships arrive at the Port of Charleston with regularity. The widening of the Panama Canal is expected to be complete in 2016 and the Port of Charleston is racing to increase the depth of its port to 50 feet to accommodate the larger ships.
Over the next 24 months, the Greenville-Spartanburg industrial market is expected to remain highly active with more than 4 million square feet of market absorption and vacancy rates to decline modestly as absorption is offset by new product being delivered to the market. The manufacturing and warehouse sectors are both poised for growth as a result of activity related to the development of the SCIP.
— By Trey Pennington, First Vice President, CBRE Industrial Services. This article originally appeared in the March 2015 issue of Southeast Real Estate Business.