Flex Space in Short Supply

Transcription

1 Research & Forecast Report GREENVILLE-SPARTANBURG-ANDERSON, SC INDUSTRIAL Q Flex Space in Short Supply Ron Anderson Vice President, Administration South Carolina Key Takeaways > > A shortage of flex space in the market highlights the need for new construction. > > The Cowpens submarket has room to grow. Market Indicators Relative to prior period VACANCY Q Q2 2017* Shortage of Quality Flex Space The Greenville-Spartanburg-Anderson industrial market is home to nearly 4.1 million square feet of flex space. Flex buildings, as defined by the National Association for Industrial and Office Parks, are a subtype of industrial buildings designed to be used in a variety of ways, with office space comprising 30 percent or more of the total building. Flex buildings are usually located in industrial park settings and can include service centers, showrooms, offices and warehouses. As occupancy for flex space continues to increase, the quality of the buildings remaining continues to diminish, creating a need for new, quality spaces in the market. The annual absorption for flex space between the first quarter of 2017 and first quarter of 2016 was more than 387,497 square feet in the Greenville-Spartanburg-Anderson market. This has significantly impacted the vacancy rate for flex space, which was 8.56% at the end of the first quarter of 2017, down from 11.24% a year ago. Most remaining flex availabilities are in buildings ten years or older, of lower quality and not in desirable industrial areas. Demand for these spaces has driven the average rental rate in the market up 20.4% over the last two years to $8.80 triple net per square foot per year (NNN PSF/YR). Flex users are generally distribution, industrial and business services providers or companies assembling products. It is important for these types of tenants to be centrally located, to reach their clients quickly and efficiently, as it is for large industrial users. This means developers looking to build flex buildings are often competing with industrial developers, making it difficult to secure land for the project. Additionally, industrial buildings, although larger projects, are often cheaper to build than comparable flex buildings due to the addition of office space. Although the occupancy rate NET ABSORPTION CONSTRUCTION RENTAL RATE** Note: Construction is the change in Under Construction. *Projected **Rental rates for current quarter are for CBD. Rent forecast is for metro-wide rents. Summary Statistics Q Greenville Industrial Market Industrial Vacancy Rate 6.19% Change From Q (basis points) Absorption (Million Square Feet) New Construction* (Million Square Feet) Under Construction (Million Square Feet) *New construction is buildings delivered Asking Rents NNN Per Square Foot Per Year Market $3.36 Flex $8.80 Warehouse $5.52 Manufacturing $3.06 Change From Q %

2 for flex space is at an all-time high, the rental rates in the market are not high enough to offset the increasing land and construction costs. Cowpens Submarket Interstate 85, running west from Montgomery, Alabama east to Greensboro, North Carolina, is a major industrial corridor playing a key role in the movement of goods. Industrial users, valuing proximity to the interstate and access to larger markets such as Charlotte and Atlanta, are driving the expansion of the 25-mile section stretching from the Cowpens submarket to the North Carolina border. In addition to proximity to I-85, the corridor has large certified land sites available and two intermodal facilities within an hour drive. Additionally, the South Carolina Department of Transportation is increasing lane capacity from Spartanburg to the North Carolina border. The availability of certified sites is increasingly important to enhance the speed-to-market for industrial users entering the Greenville-Spartanburg-Anderson industrial market. There are nine certified industrial sites totaling 1,300 acres along the 25-mile stretch of Interstate 85 from the Cowpens submarket to the North Carolina border. The sites will accommodate buildings ranging from 100,000 square feet to 1,000,000 square feet. Sites such as the 431-acre Clearwater of Cherokee County site, the 355-acre Sunny Slope Corporate Park site and the 105-acre Crescent site are large enough to accommodate industrial parks. Interstate 85, connecting Montgomery, Alabama to Greensboro, North Carolina, is a major industrial corridor. The interstate plays a key role in the movement of goods, providing quick access to two-thirds of the United States population within a day s drive and direct access to two of the nation s largest 20 metro areas. The South Carolina Department of Transportation is currently widening the entire length of Interstate 85 through Cherokee County. The Cowpens submarket is halfway between two intermodal facilities, Inland Port Greer and the Charlotte Regional Intermodal Facility at Charlotte Douglas International Airport, connecting companies to the Port of Charleston and the Port of Wilmington. Inland Port Greer opened in 2013, 212 miles inland from the Port of Charleston and halfway between Atlanta and Charlotte. In 2016, rail lifts at the intermodal facility increased 38% from 2015, reaching 103,644 rail lifts. As of April 2017, the year-to-date rail lifts were nearly 42,000, 27% higher than the same period in 2016, and are expected to continue to see growth as demand strengthens. The 200-acre Charlotte Regional Intermodal Facility at Charlotte Douglas International Airport opened in 2014 with the capacity for 200,000 rail lifts per year. The location of the facility allows the movement of goods by air, rail or truck. Intermodal facilities are attractive options for companies due to lower costs, higher capacity, reliability, flexibility and a reduced carbon footprint when compared to truck transportation. Increasing demand for space in the expanding I-85 industrial corridor will drive the expansion of the Cowpens submarket. The accessibility to the interstate and intermodal facilities, opportunity afforded by the availability of certified sites and access to utilities, as well as the planned improvements to I-85 will continue to market the area as the next powerhouse industrial submarket CHARLOTTE INTERMODAL 26 INLAND PORT GREER COWPENS SPARTANBURG Distance from Cowpens 28 miles to Inland Port Greer 60 Miles to Charlotte Intermodal 2 South Carolina Research & Forecast Report Q Greenville-Spartanburg-Anderson Industrial Colliers International

3 Highlighted Construction A total of 8.5 million square feet of new industrial inventory delivered in 2016, and an additional 2.7 million square feet are currently under construction in the eight Upstate counties. Highlighted Deliveries > > Greenco Beverage Company completed a 130,000-square-foot distribution center in Greenville County at 912 Poinsett Highway in March Highlighted Construction > > A 50,000-square-foot build-to-suit for EuWe Eugen Wexler US Plastics Inc. in the Alliance Business Park is set to deliver in the third quarter of > > Greenco Beverage Company is building a 130,000-square-foot distribution center in Greenville County at 912 Poinsett Highway. > > Phase I of Michelin s 3.3 million-square-foot distribution campus is currently under construction in Spartanburg. > > The 62,500-square-foot build-to-suit for Advanced Ceramic Coatings is currently under construction at Hillside Enterprise Park in Duncan. The building is being developed by Scannell Properties and will deliver in Q > > The build-to-suit for Plastic Omnium s new manufacturing facility is currently underway in Greer, SC at Velocity Park. > > Construction of Magna International s new seating plant is currently underway at Tyger River Industrial Park. The 230,000-square-foot facility is being developed by SunCap Property Group and will deliver in Q Investments & Expansions Significant Transactions Strong leasing velocity led to the net absorption of more than million square feet of industrial and flex space across the eightcounty region. Sales activity this quarter was a mix of users and investors, a trend expected to continue throughout Leases > > Senator International leased 181,440 square feet at 769 Flatwood Industrial Drive in the Flatwood Industrial Park in Spartanburg County. > > The Master Gardner Company, LLC leased 6 Nesbitt Drive, an 86,000-square-foot building, as well as 12 Nesbitt Drive, a 66,000-square-foot building in Spartanburg County. > > Walmart leased the remaining 52,000 square feet at 2819 Wade Hampton Boulevard, a 156,000-square-foot building in Greenville County. Sales > > Johnson Development sold 780 Flatwood Industrial Road, a 901,350-square-foot facility, to Eaton Vance Real Estate Investments this quarter for $65 million, or $72.11 PSF. > > 34 Commerce Drive was purchased by Tempus Real Estate Investments for $14 million, or $25.63 PSF. The 546,180-squarefoot facility is in Cherokee County. > > Somera Road, Inc purchased 5024 Pelham Road, a 223,250-square-foot facility in Greenville County for $6 million, or $26.88 PSF. > > Circuit Board Medics bought the 60,000-square-foot building at 15 Pelham Ridge Road for $3.5 million, or $58.33 PSF. More than $1.5 billion were invested and 4,700 jobs were added in the Upstate region in So far in 2017, $271,564,000 have been invested and almost 2,000 jobs have been announced to be added in the Greenville market. Capital Investments COMPANY INVESTMENT JOBS COUNTY Pacific Industrial Development Corp $13,000, Spartanburg Response Packaging $5,000, Greenville Sencorables LLC $3,500, Greenville Verizon Wireless $3,500, Greenville Moore s Food Resources $15,000, Greenville Itron $8,000, Oconee Stern-Flex $1,000, Greenville Electrolux $200,000,000 - Anderson Caristrap International $5,500, Greenville JSI Store Fixures Inc $2,100, Greenville Source: SC Commerce, Upstate Alliance Magna International Source: SunCap Property Group 3 South Carolina Research & Forecast Report Q Greenville-Spartanburg-Anderson Industrial Colliers International

4 Efficient Logistics South Carolina s efficient logistics provide companies quick access to suppliers and customers through the state s ports, rail lines and interstates. South Carolina ports play a vital role in the continued success of the companies investing in the Midlands industrial market by expediting delivery of imports and exports, as well as reducing the cost on the transportation of goods. Port of Charleston Fiscal Year-to-Date TEU Volume Total volume for the Port of Charleston during the 2017 fiscal year to date (July 2016 April 2017) was 1.8 million TEUs, a 10.2% increase from the 1.6 million TEUs moved in the 2016 fiscal year to date (July 2015 April 2016). The Port of Charleston continues to grow with no signs of slowing down, as it undergoes the construction of a new terminal in North Charleston and a recently funded deepening of its harbor to 52 feet by The location of the inland port extends the reach of the Port of Charleston and its customers beyond South Carolina s borders. The Inland Port in Greer, South Carolina adds to the connectivity of the state by providing a direct route via a Norfolk Southern rail line to the Port of Charleston. The Inland Port recorded 11,125 rail lifts in April 2017, a 36.0% increase from a year ago. The combined success of the Inland Port and increased demand within South Carolina markets have led the South Carolina Ports Authority (SCPA) to announce plans for a second inland port facility in Dillion County. 1,178,848 1,295,721 1,374,071 Warehouse/Distribution 1,564,663 1,608,101 1,772, Source: South Carolina Ports Authority, Colliers International June-April South Carolina is crossed by five interstates, I-95, I-85, I-26, I-20 and I-77, creating heavy traffic that impacts the quality of the road infrastructure. A recent legislative bill signed by the government will commit $4 billion to fix the most heavily trafficked sections of South Carolina s interstates, including the intersection of I-26 and I-20 in Columbia. The completion of the improvements along these interstates will be key in the expansion of companies reliant on these routes for distribution of goods. Market Conditions At the close of the first quarter, the overall market absorption was 2.4 million square feet, bringing the overall vacancy to 6.19%. The average asking rental rate was $3.36 triple net per square foot per year (NNN PSF/YR), relatively unchanged from the average asking rental rate of $3.52 NNN PSF/YR at end of The warehouse/distribution sector comprises the largest portion of the Greenville-Spartanburg-Anderson industrial market, with slightly more than 171 million square feet. At the end of the first quarter of 2017, occupancy stood at percent. Rents were stable, with many properties in the development pipeline and 2 million square feet absorbed in the previous quarter. Manufacturing There were 15 million square feet of manufacturing buildings at the end of the quarter. Occupancy was 94.7%, and rents were stable over the quarter. Flex Vacancy in the flex market dropped to an historic low of 8.56% in the first quarter of ,000 square feet were absorbed. The overall market was comprised of 4 million square feet. Inland Port Greer Monthly Rail Moves April ,182 June ,869 August ,932 October ,211 December ,180 February ,540 April ,125 Sources: South Carolina Ports Authority, Colliers International 4 South Carolina Research & Forecast Report Q Greenville-Spartanburg-Anderson Industrial Colliers International

5 Q Industrial Market Summary Statistics Greenville-Spartanburg-Anderson, SC MARKET ANDERSON COUNTY BUILDINGS INVENTORY DIRECT VACANT SUBLEASE VACANT TOTAL VACANT TOTAL VACANCY RATE (%) NET ABSORPTION Flex/R&D 1 38, % 0 Manufacturing 12 2,678,489 33, , % 0 Warehouse/Distribution ,976,675 1,048, ,048, % 139,351 Anderson County Total ,693,164 1,081, ,081, % 139,351 AUGUSTA ROAD DONALDSON Flex/R&D 4 74,687 10, , % 0 Manufacturing ,404 31, , % 0 Warehouse/Distribution 163 9,613, , , % 36,700 Augusta Road Donaldson Total ,476, , , % 36,700 COWPENS Manufacturing 5 163, % 0 Warehouse/Distribution 21 2,934,959 95, , % 0 Cowpens Total 26 3,098,415 95, , % 0 GAFFNEY Manufacturing 2 43,904 5, , % 5,000 Warehouse/Distribution 51 4,463,606 1,039, ,039, % 0 Gaffney Total 53 4,507,510 1,044, ,044, % 5,000 GREENWOOD COUNTY Flex/R&D 2 34,528 3, , % 12,000 Manufacturing 21 2,975, , , % 0 Warehouse/Distribution 31 1,030,783 76, , % 62,060 Greenwood County Total 54 4,040, , , % 74,060 HWY 101 CORRIDOR Flex/R&D ,396 8, , % 246,101 Manufacturing 2 78, % 0 Warehouse/Distribution 149 6,384, , , % 169,650 Hwy 101 Corridor Total 176 7,154, , , % 415,751 HWY 221 CORRIDOR Flex/R&D 1 73, % 0 Manufacturing , % 0 Warehouse/Distribution 50 3,827, , , % 163,080 Hwy 221 Corridor Total 68 4,411, , , % 163,080 HWY 29/129 CORRIDOR Flex/R&D 1 29,880 2, , % 1,200 Manufacturing , % 0 Warehouse/Distribution ,245, , , % 44,100 Hwy 29/129 Corridor Total ,659, , , % 45,300 HWY 290 CORRIDOR Flex/R&D 2 62,690 10, , % 0 Manufacturing , % 0 Warehouse/Distribution 80 8,411, , , % 298,582 Hwy 290 Corridor Total 92 8,792, , , % 298,582 HWY 585 CORRIDOR Flex/R&D ,045 41, , % 0 Manufacturing ,803 30, , % 22,000 Warehouse/Distribution 100 9,191,231 1,073, ,073, % 262,154 Hwy 585 Corridor Total ,464,079 1,144, ,144, % 284,154 5 South Carolina Research & Forecast Report Q Greenville-Spartanburg-Anderson Industrial Colliers International

6 HWY 81 CORRIDOR Flex/R&D 1 14, % 2,623 Manufacturing 4 141, % 0 Warehouse/Distribution 28 4,226,038 3, , % 0 Hwy 81 Corridor Total 33 4,381,820 3, , % 2,623 MAULDIN Flex/R&D ,369 15, , % 25,000 Manufacturing , , , % 15,500 Warehouse/Distribution ,016, , , % 38,012 Mauldin Total ,894, , , % 78,512 PELHAM ROAD Flex/R&D ,568 65, , % 10,500 Manufacturing 7 193,806 26, , % -1,000 Warehouse/Distribution 97 4,713,738 30, , % 31,900 Pelham Road Total 122 5,345, , , % 41,400 PIEDMONT Flex/R&D 5 94,374 32, , % 0 Manufacturing 8 179,557 12, , % -5,000 Warehouse/Distribution 80 3,795,755 43, , % -6,800 Piedmont Total 93 4,069,686 87, , % -11,800 SIMPSONVILLE FOUNTAIN INN Flex/R&D 4 77,776 3, , % 5,400 Manufacturing 8 228, % 0 Warehouse/Distribution ,834, , , % 366,738 Simpsonville Fountain Inn Total ,140, , , % 372,138 WHITE HORSE Flex/R&D 1 18,502 18, , % 0 Manufacturing 1 23,665 23, , % 0 Warehouse/Distribution 73 5,031,081 1,203, ,203, % 138,000 White Horse Total 75 5,073,248 1,246, ,246, % 138,000 WINGO Flex/R&D 1 30, % 0 Manufacturing , % 0 Warehouse/Distribution 57 8,171, , , % 662,389 Wingo Total 74 8,687, , , % 662,389 OTHER SUBMARKET Flex/R&D 46 1,587, , , % 9,002 Manufacturing 118 4,780, , , % -1,895 Warehouse/Distribution ,169,302 2,771,896 80,462 2,852, % -343,803 Other Submarket Total 1,076 58,537,214 3,187,871 80,462 3,268, % -336,696 MARKET TOTAL Flex/R&D 139 4,082, , , % 311,826 Manufacturing ,307, , , % 34,605 Warehouse/Distribution 2, ,038,096 10,568,817 80,462 10,649, % 2,062,113 Market Total 2, ,427,859 11,700,743 80,462 11,781, % 2,408,544 Source: CoStar, Colliers International In January 2017, Colliers International benchmarked its industrial data set statewide. The new standard for collection is all industrial buildings 10,000 square feet or larger that can be readily adapted to an alternative industrial use. All properties were placed into a revised set of markets and submarkets and divided into three categories. Warehouse/Distribution, a facility primarily used for the storage or distribution or both of materials, goods and merchandise. Manufacturing, a facility used for the conversion, fabrication or assembly of raw or partly wrought materials into products or goods. Flex/R&D, a building designed to be used in a variety of ways with at least 30% of the rentable building area used as office. It is usually located in an industrial park setting. Specialized flex buildings can include service centers, showrooms, offices, warehouses and more. Due to the adjustments of the building inventory, comparison of data included in previously published market reports should be avoided. 6 South Carolina Research & Forecast Report Q Greenville-Spartanburg-Anderson Industrial Colliers International

7 Industrial Employment Industrial employment, the combined manufacturing and wholesale trade employment sectors, is increasing in the Upstate. The number of jobs added year over year is decreasing, leading to the assumption that industrial employment is reaching a plateau in the Greenville-Anderson-Mauldin and Spartanburg MSAs. As of April 2017, approximately 113,500 people were employed by industrial jobs in the Greenville-Anderson-Mauldin and Spartanburg Metropolitan Statistical Areas (MSA), an addition of 900 jobs over the last 12 months. Industrial jobs contribute 20.2% of total nonfarm employment in the Upstate area, one of the largest sectors in the region s economy. Capital investment is driving the growth of industrial jobs in the MSA, which is expected to continue this trend throughout Market Forecast Continued strength of construction in the Upstate industrial market can be expected in the coming quarters. Over the last few years, undeveloped industrial land has been acquired by developers and investors, who will likely begin to capitalize on the demand for Class A, tilt-wall space within the market. Additionally, developers will begin to develop speculative buildings large than the market has seen historically. The recent capital investment of several companies in the advanced materials manufacturing, automotive and logistics sectors will continue to promote rapid absorption of new space coming to the market. Market indicators will remain agreeable to investors and landlords as rents and lease terms remain at their current rate for new buildings and occupancy increases across the market. Around South Carolina Industrial Employment Upstate Region Number of Industrial Jobs Added (Thousands) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Source: Bureau of Labor Statistics, St. Louis Federal Reserve, Colliers International Sep-14 Industrial Jobs Added Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Industrial Employment Commercial Real Estate Growth Cycle: Where the market stands and where it is going. NEW CONSTRUCTION RENTAL RATE EMPLOYMENT OCCUPANCY PHASE 1: RECOVERY COMMERCIAL REAL ESTATE GROWTH CYCLE PHASE 2: EXPANSION Jun-16 Sep-16 Dec-16 Mar Total Industrial Employment (Thousands) The South Carolina Industrial market is strengthening, with interest from investors and global and national tenants. Large available speculative buildings in Charleston and several road enhancements in Columbia will continue to spur growth for the state. Charleston, South Carolina PHASE 4: RECESSION PHASE 3: HYPERSUPPLY > > Manufacturing activity has increased substantially in recent quarters, driven by proximity to the Port of Charleston, the ability to attract skilled labor, a high quality of life, competitive incentives and a proactive Department of Commerce. 200 Carolina Pines Richland County Columbia, South Carolina > > Asian manufacturers have been active in the region, attracted to a growing cluster of companies from the same region, a strong transportation network, low costs and a strong track record of successful foreign direct investment. For more statewide commercial real estate news check out our market reports at: Source: Robert Oswald Design 7 South Carolina Research & Forecast Report Q Greenville-Spartanburg-Anderson Industrial Colliers International

8 396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111 FOR MORE INFORMATION: David Feild, CCIM Market President Greenville David.Feild@colliers.com Liz H. McCary Vice President, Marketing South Carolina Liz.McCary@colliers.com Ron Anderson Vice President, Administration South Carolina Ron.Anderson@colliers.com GREENVILLE INDUSTRIAL PROFESSIONALS: $2.6 billion in annual revenue 2 billion square feet under management 15,000 professionals and staff Givens Stewart SIOR Principal Givens.Stewart@colliers.com Garrett Scott Senior Brokerage Associate Garrett.Scott@colliers.com Brockton Hall, MRED Brokerage Associate Brockton.Hall@colliers.com Colliers International Greenville 55 E. Camperdown Way, Suite 200 Greenville, South Carolina USA Richard Jackson Brokerage Associate Richard.Jackson@colliers.com Richard Barrett MCR Brokerage Associate RO.Barrett@colliers.com Brannan Hudson Brokerage Associate Brannan.Hudson@colliers.com About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 15,000 professionals operating from 396 offices in 68 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com or follow us on Twitter (@ColliersIntl) and LinkedIn. colliers.com Copyright 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.