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Growing automotive cluster tightens S.C. industrial market

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Staff Report
colanews@scbiznews.com
Published Aug. 26, 2015

South Carolina’s industrial market recorded a net absorption of more than 1.7 million square feet of space in the second quarter of 2015, according to a commercial real estate report by Colliers International.

The firm’s quarterly forecast added that the tightening of the industrial market drove up rental rates and appears to be sparking interested in speculative construction as tenants “seek move-in ready space.”

Demand will likely grow in the wake of recent announcements of major investments by automotive manufacturers Volvo and Mercedes-Benz, which were announced during the first half of the year. In addition, the announcements will trigger further growth in South Carolina’s existing automotive cluster, which includes more than 250 companies.

South Carolina's industrial inventoryTo cut transportation costs, more suppliers are locating close to their customers, a trend known as localization, Colliers said.

“As a result, automotive suppliers and third-party logistics providers are expected to flock to the region in an effort to better serve their customers. Additionally, existing suppliers will likely see a surge in demand, which will generate a need for additional labor and space, benefiting the state’s industrial market,” Colliers reported.

The demand for industrial space reduced the statewide industrial vacancy rate to 8.5% at the end of the second quarter compared with 8.8% for the previous quarter and 9.3% one year ago.

“Leasing velocity was solid as evidenced by a net absorption of approximately 1.7 million square feet during the second quarter of 2015,” Colliers said. “Activity was widespread as all major industrial regions experienced positive absorption and lower vacancy rates.”

About a third of the net absorption of space occurred in the Midlands, according to the report.

In the second quarter, the Midlands notched a net absorption of 614,878 square feet, which lowered the total vacancy rate to 8.9%.

Meanwhile, the Lowcountry market absorbed 366,179 square feet; the Upstate, 557,774 square feet; and the Interstate-77 corridor — which includes Chester, Lancaster and York counties — 195,213 square feet.

New speculative construction is finally gaining momentum as more companies aim to shorten their time to market and are looking for move-in ready space, Colliers added.

Approximately 1.1 million square feet of new, class A space has been added to the existing inventory over the past year. About 2.6 million square feet of high-quality speculative space remain under construction in South Carolina, the firm added.

Although rental rates for new construction usually are higher, the increasing rents for existing space make speculative space an option for customers, Colliers said.

“Developers are also finding that it is important to have pad-ready sites available for construction in an effort to reduce construction time,” the report said.

Buildings constructed on pad-ready sites take about five fewer months to complete than those built on sites that need to be prepared for construction due to entitlements and permits, among other items.

South Carolina’s industrial market is poised for continued success through the remainder of 2015, the report said.

“Strong demand for industrial space will continue as manufacturers and distributors look for ways to cut transportation costs. E-commerce growth will generate a demand for warehouse space, while automotive manufacturing growth will bring suppliers and manufacturers to the region,” the report said.

Demand for industrial space likely will grow in the wake of recent announcements of major investments by Volvo and Mercedes-Benz, Colliers International reported. About a third of the 1.7 million square feet of space that was absorbed in the second quarter was filled in the Midlands.

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