The Columbia industrial real estate market faces a “flex space dilemma,” according to a recent report released by Newmark Grubb Wilson Kibler.
“While many industrial firms are eating up warehouse and manufacturing space in the Midlands, there is a notable lack of flex industrial space currently in the market,” according to a report on second quarter 2016 activity by John Anderson, Wilson Kibler research director.
The flex market in Columbia amounts to only 7% of more than 54 million square feet of industrial space, the report said.
“Compounding the lack of sheer inventory is the vacancy rate, which is currently under 9%,” the report added.
The flex space shortage impacts tenants who may need as little as 5,000 square feet. These tenants might be planning to set up businesses like a small distributorship, paint shop or manufacturing operations, Anderson said.
In some instances, businesses might be able to construct their own building, he said. But those that can’t afford to build might decide to find another location to set up shop.
Large industrial buildings currently sitting empty could be renovated and subdivided to provide flex space, Anderson said in an interview. However, construction costs are high and a landlord might run the risk of renting to a startup that goes out of business in a couple of years instead of waiting for a national credit tenant who might sign a 10- to 15-year lease, Anderson said.
Also, attracting investors to build new flex space buildings can be challenging. In today’s market, investors can enjoy higher returns by putting their money into the hospitality sector, big-box retail stores and multi-family residential housing, Anderson said.
“As companies search for usable flex space in the area, development and investment opportunities may exist to deploy capital in that market,” the report said. “Space is needed from 5,000 to 20,000 square feet.”
Other highlights in the Wilson Kibler report include:
- Overall rental rates remain steady at an average of $3.74 per square foot. The average rate in the St. Andrews submarket, which is near downtown Columbia and traversed by Interstates 20 and 26, was $12.25 per square foot. The total vacancy rate in the St. Andrews area, which has nearly 1.6 million square feet, was 3.3%.
- The market’s highest vacancy rate of 36.8% was in Fairfield County, which has about 2.5 million square feet of space and featured average rents of $2.38 per square foot.
- The Cayce/West Columbia submarket, which has more than 14 million square feet of industrial space, had a vacancy rate of 3.1% with average rents of $3.76.
- Lexington, with more than 5.3 million square feet of space, had the lowest vacancy rate at 0.6%.