Industrial rates could justify spec building in 2014

By Liz Segrist
lsegrist@scbiznews.com
Published March 3, 2014

Speculative development could occur in Charleston in 2014 as the industrial market continues to improve, according to local real estate firms in their fourth-quarter reports.

Looking to 2014, Colliers International Charleston predicts spec development will begin by the third quarter of 2014. Lease rates are expected to rise to $4 per square foot, spurring national investors to team with land users to fund several spec buildings in the region, Colliers said.

Product larger than 75,000 square feet is almost completely absorbed, Colliers reported.

“While there is certainly positive momentum in the industrial market, new development is necessary sooner than later to keep the market competitive,” Colliers’ Principals Peter Fennelly and Hagood Morrison said in their fourth-quarter report.

The expansions at the Port of Charleston and Boeing are catalysts for the industrial market, said Mike Ferrer, Lincoln Harris’ vice president of office and industrial brokerage. If rental rates continue to rise, Ferrer expect Class A speculative space for the industrial market will be built in 2014.

“Demand for new space will increase supply throughout the market, and we will likely have vacancy rates remain high as companies slowly absorb new industrial space being developed in the area,” Ferrer said in his fourth-quarter report (.pdf). “With the expansion of Charleston’s port underway in 2014, we can expect a surge in industrial companies moving into the region.”

North Point Business Campus has two pad-ready sites in the 285,000- to 350,000-square-foot range. The Palmetto Commerce Park is another viable option for 125,000- to 200,000-square-foot buildings. Smaller spec buildings are needed as well for regional building trade suppliers and light manufacturers, Colliers said.

Cushman Wakefield Thalhimer said port traffic volume increase should warrant more interest from logistics firms. Pad-ready sites could come online in early 2014. Lee & Associates said industrial rates are expected to rise as more manufacturers and retailers grow and relocate here.

“Here in Charleston where vacancy rates are trending low, new development is a must,” Lee & Associates said in its fourth-quarter market report (.pdf).

Fourth-quarter highlights

Lincoln Harris reported the overall Charleston industrial market experienced negative net absorption of 82,000 square feet during the fourth quarter. This is the second consecutive quarter of negative net space demand, but it’s not as severe as the 700,000-square-feet negative net absorption during the third quarter.

During the fourth quarter, Stanley Inc. moved out of 151,000 square feet in Berkley County, and Touchstone TV moved out of 75,000 square feet off the King Street Extension in downtown Charleston, according to Lincoln Harris.

During the fourth quarter, Husqvarna leased a 450,000-square-foot building in Summerville. Leasing activity in smaller facilities continued as trade suppliers expanded and new ones moved to the area. The fourth quarter also saw leases in the 25,000- to 75,000-square-foot range.

Colliers International Charleston reported that industrial vacancy declined to 8.4% in the fourth quarter from 10.9% a year ago.

Vacancies are decreasing as average lease rates are on the rise, Fennelly and Hagood Morrison said. Colliers said as the market tightens, investors and user purchases are back in-market buying buildings.

Colliers predicts one or two build-to-suits greater than 700,000 square feet will be coming to Charleston in 2014. Older buildings could be renovated as call centers, schools, flex facilities or light assembly.

Charleston 4th-quarter industrial market reports:


Colliers International
Lee & Associates
Lincoln Harris
Cushman & Wakefield Thalhimer

Total square feet
32.76 million
48.6 million
62.94 million
N/A

Vacancy rate
8.4%
11.62%
8.8%
8.2%

Rental rate
N/A
$6.39
$4.71
$4.14

Reach Liz Segrist at 843-849-3119 or @lizsegrist on Twitter.

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