Leasing a building before it is even built might have seemed like an unusual business practice a few years ago, but in today’s hectic supply-chain environment it has become a common occurrence, especially in a rapidly growing market like South Carolina.
The demand for speculative industrial buildings that can also be used for distribution and logistics is growing statewide, with no significant slow down in sight.
What makes speculative buildings so popular is the fact they are built with no specific tenant in mind, but with amenities that can be useful to a wide variety of businesses. As more companies expand into South Carolina, the need for a way to distribute their products as well as places for their vendors to set up distribution grows.
“Despite economic headwinds, we continue to see strong demand and short supply for speculative buildings, with leases being executed on speculative buildings either before developers break ground or while they are under construction,” said Chuck Salley, managing director in Colliers’ Columbia office.
Build it and they will come
As an example of the high demand for speculative properties, a massive speculative distribution property at the Sandy Run Industrial Park in Calhoun County leased to a warehousing and fulfillment solutions company before construction was even completed.
Missouri-based Smart Warehousing leased the property in June 2022 in a deal cemented by Red Rock Developments, which handles built-to-suit and speculative buildings in the industrial park.
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Smart Warehousing is a warehousing, fulfillment and technology solutions company with 38 warehouses and more than 12 million square feet of warehouse space nationwide.
At 497,952 square feet, the cross-dock speculative building in Sandy Run is one of the largest speculative buildings in the Midlands, and its full lease before even being completed is evidence of the high demand for properties like it as companies seek more space to handle their growing distribution needs.
Here’s a look at the state of the speculative market statewide as of spring 2023.
Upstate. According to statistics from Colliers, more than 9.5 million square feet of speculative space is currently in the pipeline in the Greenville-Spartanburg area.
“The demand for industrial space across the state is strongest in the Upstate region, which has always had the largest and most active industrial market with more than 225 million square feet of industrial buildings in play,” said John Montgomery, managing director for Colliers’ Spartanburg office.
Montgomery noted that recent economic headwinds have tempered the pre-leasing of speculative property somewhat, but the market still remains extremely strong.
Charleston. The Charleston market currently has about 2.4 million square feet of speculative space under construction, with an increase to 3.4 million in the third quarter of 2023, according to Colliers.
“Demand has consistently been high for the past five years regarding distribution and logistics uses in the Charleston market, and we see no end in sight,” said Mark Erickson, Colliers’ vice president for industrial services in Charleston. “The bread-and-butter size of 100- to 150,000 square feet lease quicker than they can deliver.”
Securing Charleston distribution space is difficult not only because of high demand, but also because much of the available space is sold before it can reach national public networks like Loopnet and CosStar, according to Erickson.
"Class B and C spaces rarely make it to those networks because they are renewed or re-leased off market between the local brokers who than likely were involved in the original transaction, making it harder for outside brokers to penetrate a very connected and protected market,” Erickson said.
Columbia/Midlands. Demand for speculative space in Columbia is high, but the market is not as hot as Charleston and Greenville because of a lack of available speculative space, according to Salley. He also noted that in recent months speculative space in the greater Columbia area has been more in demand for manufacturing than for distribution.
Several large speculative projects focused on distribution are in the works in the Midlands, however, perfect timing considering the recent uptick in announcements about new manufacturers like Scout Motors Inc. and battery manufacturer Cirba Solutions. On April 9, Summit Real Estate Group broke ground on a new 351,540-square foot Class A industrial speculative building in Richland County’s Pineview Industrial Park.
Known as the Pineview Trade Center, the building is scheduled to deliver in the fourth quarter of this year.
The Pineview Trade Center is located on a 34-acre-site close to I-77 designed to accommodate a variety of manufacturing and distribution users, with amenities including an ESFR fire protection system, LED lighting, 36-foot clear heights, a 185-foot-deep truck court, 68 dock-high doors and 80 trailer parking spaces.
Officials from Summit noted it can be subdivided to 100,440 square feet of space. The project also offers an above-market car parking specification, and a variety of supply-chain needs can be filled with the structure’s ability to accommodate double trailer parking for users with large truck fleets or an outside storage requirement.
Another large Midlands speculative project is the 803 Industrial Park, a partnership between Magnus Development Partners and Columbia Metropolitan Airport in West Columbia. Teams from Colliers recently pre-leased two large speculative buildings at the park.
Givens has leased the entire 252,720-square-foot Gateway Three building at 803 Industrial. Givens is a top-performing warehousing, transportation and 3PL company. In addition to this new location, it owns and operates over two million square feet of warehouse space in Virginia, Nevada, Georgia and Washington.
Mattress Warehouse has leased 56,160 square feet at the Gateway One building which is set to deliver in the second quarter of this year. Mattress Warehouse carries nationally known brands like Serta, Sealy and Tempur-pedic. The company has more than 250 stores nationwide and will use their location in the 803 Industrial Park as a distribution center.
As the demand for speculative property increases statewide, developers looking to accommodate prospective tenants need to provide buildings ready-made for distribution and offering the features supply-chain tenants want, according to Colliers officials. These amenities include numerous dock doors, higher clear heights for additional storage, more trailer parking spaces, security fencing, electric charging stations for forklifts, and high-speed internet.
“Developers are stepping up and providing these improvements by adding the costs to the tenants’ base rate,” Erickson said.
Developers aren’t the only ones responding to the growing needs of companies when it comes to warehousing and distribution. Montgomery in Spartanburg said the state government is also contributing to speculative development by building up infrastructure such as roads, utilities and access to affordable housing for the workforce.