SOUTHEAST SNAPSHOT, JUNE 2008

Greenville Industrial Market

The industrial market in South Carolina’s Upstate continued to expand throughout last year and into 2008, totaling 142,459,142 million square feet in Greenville, Spartanburg and Anderson counties. During the first quarter, the region absorbed more than 600,000 square feet of space, bringing vacancy down from 10.5 percent at year-end to 9.3 percent in March. Recent large transactions include the 600,000-square-foot lease of the former Woolworth Building by Louis Dreyfus in Greenville County, the 85,000-square-foot lease in Spartangreen Industrial Park in Duncan and the 45,000-square-foot lease by Iron Mountain in the Caliber Ridge Industrial Park in Spartanburg County.

Several new trends have emerged in the Upstate market over the past 12 to 18 months. Developers are building larger Class A facilities with clear heights of 28’ or greater. There has also been an interest in the construction of “green” facilities as energy costs continue to impact rental rates and profit margins.

The largest project currently under construction is the 1.9-million-square-foot multi-building Adidas Distribution Center in Spartanburg County. This facility will consolidate several of Adidas’ national distribution facilities and relocate operations to the Upstate. The first building in the project is expected to be occupied this year, with complete build out scheduled for next December. Adidas executed a sale/leaseback transaction on their current 563,210-square-foot facility in Spartanburg, which sold for $18 million.

Rental rates in the Upstate market continued to exhibit a divergence between existing space and new construction, which partially caused a lag in absorption of new speculative developments. While existing space has achieved lease rates ranging from $2.75 to $3.50 per square foot, new Class A construction has been marketed for $4.50 to $5.25 per square foot. It is likely that new speculative construction will not see large amounts of activity until existing quality and functional space is taken off of the market.

The aforementioned gap in rental rates proved to be a slight market deterrent during the past 6 to 9 months. As tenants from larger markets have become accustomed to lower rental rates achieved through larger developments and economies of scale, the reality in the Upstate market is that space ranging from 50,000 square feet to 150,000 square feet commands a higher rental rate, thus some tenants experienced frustration when shopping the local market.

As industrial activity continued to grow along Interstate 85 from Atlanta to Charlotte last year, the market experienced a geographic push southward into Anderson County. As Atlanta continues to grow northward along I-85, geographic growth in the Upstate industrial market is expected to continue.

The Upstate market also shows signs of growth southward along Interstate 385. With the Columbia, South Carolina, industrial vacancy of 2.4 percent being the tightest in the United States at year-end, this market’s geographic boundaries are stretching northward and industrial product is being delivered in Newberry County. Therefore, the Upstate and Columbia markets should continue to converge along the I-385/I-26 corridor in the future, pending the resolution of utility issues in Laurens County.

BMW and its Tier 1 suppliers have significantly expanded in the Upstate industrial market over the past decade, and automotive-related industries continue to fuel the market. Since opening its Upstate facility during the 1990s, BMW has attracted 22 suppliers to the region. Several new international prospects in the automotive industry began searching for space in the Upstate in 2007 and are expected to take occupancy of space this year. Additionally, BMW has started efforts to expand the Greer facility to include the production of the X3 sport utility vehicle. This comes at a time when the automotive manufacturer is downsizing globally, demonstrating the continued robustness of the Upstate market as it relates to both the automotive industry and its international presence in the Southeast market.

Over the next 12 months, the Upstate industrial market will continue to expand in terms of volume and geographic boundary. A small amount of speculative development will come online, most notably the Commonwealth development at Hillside, which will total 220,000 square feet. Absorption will remain strong over the course of the year as new tenants absorb the large amount of space that was delivered last year. As this occurs, the market should once again be poised for speculative development in 2009.

— Givens Stewart is an industrial specialist at Colliers Keenan in Columbia, South Carolina.

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