COVER STORY, JUNE 2005

RISING IN THE INDUSTRY
Outlining trends and development in southeastern industrial markets.
Dan Marcec

Industrial development is on an upswing throughout the Southeast, as market trends across the board are beginning to advance favorably after periods of stagnation. Southeast Real Estate Business discussed various markets and projects with four companies involved in industrial development, all of which are impacting significantly the market’s movement.

Expanding Its Presence Through the Southeast

Indianapolis-based Duke Realty Corporation is an active developer throughout the nation, and recently it has been breaking new ground in several southeastern markets. In Atlanta, it currently is developing Camp Creek Business Center, a 454-acre industrial park located in the city’s airport submarket. Overall, Atlanta retains approximately 500 million square feet of industrial space, and three or four areas encompass roughly 80 million square feet each. The Airport submarket and the Northern submarket on Interstate 85 have been Atlanta’s two most active sectors in the last 6 months. Atlanta has a lot of developers, and currently, they generally are building speculative bulk warehouses in business parks.            

Duke Realty Corporation developed a 600,000-square-foot project for Clorox at Camp Creek Business Center in Atlanta.

Camp Creek Business Center not only provides space for tenants in a  flourishing submarket, but also it retains unique features uncommon to most industrial parks. “Across the street from our development is the Camp Creek Marketplace, which is a large lifestyle retail center,” explains Bob Fessler, executive vice president in charge of the Southeast region at Duke Realty. “That development is doing great, and we have a Class A industrial facility on one side of Camp Creek, and on the other side sits a Class A lifestyle center that has all the amenities an employer would want for his or her employees.” In addition, the park features unique landscaping. “[Camp Creek] has the right infrastructure for modern distribution, and we have worked very closely with the Georgia EPA and the Army Corps of Engineers to create walking paths for the employees in our park,” Fessler says.

Duke also is developing strongly in Central Florida. In Tampa, it holds roughly 1 million square feet of industrial space, which is 100 percent occupied. Since the company already has a strong presence on Tampa’s east side, it was looking to expand on the west side. “This particular submarket is very well occupied, which led us to purchase a 29-acre site,” explains Fessler. “We have a lot of interest in what we’re going to build there because the market has a lot of older product; many companies are looking to update into more modern facilities, and we think this park will be very successful for us.”

Duke plans to build three buildings on the new property, totaling 250,000 square feet. Fessler notes, “This particular market services the Tampa population, so unlike Atlanta, the regional hub of the Southeast, your buildings are going to be smaller in size.”

Providing Substantial and Unique Industrial Opportunities

Atlanta’s flourishing Airport submarket has yielded development opportunities for Atlanta-based McDonald Development Company as well. At its Westlake industrial park, located at Camp Creek Parkway and Fulton Industrial Boulevard, McDonald is preparing to break ground on a 295,190-square-foot cross-dock facility, set for completion in first quarter 2006. In addition, a 197,000-square-foot rear-loader is under construction, and it will be complete in third quarter 2006. The park contains 2 million square feet, of which McDonald owns 1 million; all of that space currently is leased. At Southmeadow industrial park, located at Camp Creek and Interstate 285, McDonald is planning 4 million square feet of construction; a 355,000-square-foot building is underway.

McDonald Development Company currently is planning 4 million square feet of industrial development within Southmeadow industrial park; this project is located at 4131 Southmeadow Parkway West in Atlanta.

“Companies have been locating in our parks because of their close proximity to I-285,” explains John McDonald, president of McDonald Development Company. “They need to be able to distribute within the Atlanta market, and they easily can navigate and access the city from a location on the perimeter.”

At the Georgia Commerce Center in Savannah, Georgia, McDonald is developing this building, located at 175 Brampton Road and currently leased to Capital Cargo.

Aiding Charlotte’s Road to Recovery

Crescent Resources recently has been active in the Charlotte industrial market, which is improving overall; over the last three or four quarters, the market has started to see positive absorption and improvement. As a result, vacancy rates have been dropping, leading to a positive upswing for a market that had remained stagnant for some time. In general, activity in the market has picked up, especially in larger deals encompassing more than 100,000 square feet. 

“The reasons for this improvement could be the combination of a couple things,” explains Ned Austin of Crescent Resources. “The business is improving, but people have sat back and waited for the recession to subside; now that they’ve done so they’ve started to act. Definitely expect companies to consolidate their assets; in general, people are thinking about consolidating two or three projects into one or two, and that’s where you see some of these larger deals.”

Charlotte also has seen a surge of big box development. The market never has boasted a high density of this type of development, so as the industry grows, bigger boxes are being built up. In addition, trends are leaning toward higher clear heights, 30 feet to 32 feet as opposed to the traditional 24 feet.

“Charlotte will always be a distribution facility because of its location on Interstate 77, and its proximity to interstates 85 and 40,” Austin continues. “The manufacturing industry always has been centered in the southwest quadrant of the city, and now with the opening of the outer belt, Interstate 485, there is direct distribution access to that corridor on I-485 between I-77 and I-85.”

And in that corridor, Crescent is developing AirPark West, an 800,000-square-foot industrial park situated on 65 acres. The company already has constructed a 75,000-square-foot building, but in general, Austin says that Crescent is waiting on the market to come to them. “In general, if Crescent were to construct anything of a speculative nature, we would probably do it there,” he explains. “This development would, of course, be dictated by the rental rates, which are starting to rise, but construction pricing is still a little too high to pull the trigger on a new building.”

Also within the southwest quadrant, Crescent has the Lakemont industrial facility, which is situated on a couple hundred acres. In general, the company is marketing this space as more of a build-to-suit option as opposed to that of speculative nature, targeting larger users seeking 500,000- to more than 1 million-square-foot development sites.

In addition to the southwest quadrant, activity is beginning pick up outside of Mecklenburg County, an area that has not seen much development in the last 5 years.

Following Trends in the Nashville Industrial Market

The Nashville industrial market has had a strong beginning to 2005, having turned around very strongly in early 2004 and carrying its healthy trends through the first quarter of this year. Last year, a number of large transactions took place; however, early this year trends were leaning toward more medium-sized deals, such as those from 50,000 square feet up to around 100,000 square feet. Right now there aren’t any big box spaces available other than a couple subleases, but the market is seeing a lot under construction.

“The demand in Nashville is high and there is no reason for the trends to fall off; if the overall national economy holds up, expect the market to continue moving at the same pace,” explains David McGahren, industrial division leader for the Nashville office of Colliers Turley Martin Tucker (CTMT). “In 2002 and 2003, we had the same stagnant market that the rest of the country experienced, but at the end of 2003 and in 2004, it really took off again. Manufacturing continues to be strong, our employment base is solid and the Nashville economy is balanced, so there’s no reason why the benefits should not continue.”

User sales still are seeing strong activity as well. During the slowdown in leasing activity a couple of years ago, a lot of industrial activity began to take place. Taking advantage of lower interest rates, tenants were buying buildings, so a lot of projects in the 20,000-square-foot to 60,000-square-foot range are more difficult to find; yet there is still a market demand for this product.

“We are the largest third-party service company in the state of Tennessee, lending services in industrial business, property management, leasing, and a large amount of sale work in both user sales and investment sales,” explains Whitfield Hamilton, managing principal for CTMT’s Nashville office. “The company retains 13 industrial brokers, and it has the largest market share of any firm in the area. Therefore, market activity translates to business activity for CTMT.”

A couple major leases recently were signed in the market. Federal Mogul had a manufacturing and distribution facility in a neighboring city, but the plant caught on fire, forcing them into Nashville. The company originally signed a sublease that it rolled into a 300,000-square-foot direct lease. In addition, Tennessee Farmers Co-op has expanded its 60,000-square-foot lease to a 100,000-square-foot lease. It is another company that continues to grow in the area.

Several industrial buildings currently are under construction in Nashville, all of which are speculative developments. Panattoni Construction is developing two buildings; the first is located in Rutherford County, in the southeastern submarket, and it encompasses 240,000 square feet. The other Panattoni project is located to the east of Nashville in Wilson County, and it retains 456,500 square feet. Both projects were completed in late May.            

Duke has broken ground on a 500,000-square-foot development in the north submarket of Davidson County. This project is unique because it’s the first big box being built close to town in a number of years. Most of the big box construction has been located in the Southeast and Eastern submarkets, and Duke has owned this land for a number of years, so it planned a big box roughly 3 miles from downtown.

“With three or four buildings coming out of the ground at the same time, the market is about to see an environment that it’s going to test for the first time,” adds Hamilton. “For Nashville, this is a lot of new product; hopefully, this test on the bulk market will be healthy. The market saw approximately 4 million square feet absorbed last year, and if this activity continues, the market certainly will be in good shape.”

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