COVER STORY, JUNE 2011

INDUSTRIAL MARKETS CHECK-UP
Some Southeast markets are seeing improvement.
Savannah Duncan

The first quarter of 2011 ushered in improvement in many Southeast industrial markets. Leasing is picking up, particularly in cities with ports, and some sales of industrial assets are even occurring. While not a lot of new construction is taking place, there is a sense of optimism that in the next year new projects will be announced.

In Nashville, Tennessee, the industrial market is going strong, largely because of the presence of the automotive manufacturing that has moved into middle Tennessee.

“Our major factory base is growing and a lot of that is attributed to the automotive manufacturing market,” says Don Kent of CB Richard Ellis’ Nashville office.

David Creed of Cassidy Turley’s Brentwood, Tennessee, office agrees. “[The automotive industry] will continue to have a positive effect on middle Tennessee as reflected by Nissan, Hemlock Semiconductor, Federated Stores, Interstate Warehousing, NHK Seating and IB Tech either moving into the market or expanding existing operations,” he says.

In the first quarter of 2011, there was positive absorption of approximately 1.5 million square feet, the highest increase Nashville has seen since the second quarter of 2007, and vacancy rates are at about 10 percent. Additionally, Creed says Cassidy Turley had five transactions in the first quarter that were more than 300,000 square feet each, pushing vacancy rates down for the first time since the second quarter of 2006.

“Like most cities, we experienced some turbulence the past few years,” Creed says. “[In] 2010 we had nearly 4 million square feet sold and dramatic improvement in the average price-per-square-foot sold.”

Although a few sales have occurred, there has been significantly more leasing in the market. Clint Gilbreath of CB Richard Ellis’ Nashville office says that landlords have been flexible with leasing and responsive to the economic market.

“We’ve hit the bottom of the cycle and it will be slow, but improving,” Gilbreath says.

Kent believes that as existing facilities fill, new construction will occur, potentially in the next 6 to 12 months.

Another market with potential for new development is Hampton Roads in Virginia, which serves the Port of Virginia and has a total of 89 million square feet of warehouse space.

The market has shown improvement during the past couple of quarters. The first quarter of 2011 showed positive absorption of 1.1 million square feet and a decreased vacancy rate, now around 8.4 percent. Additionally, container volumes at the port were up 9 percent in 2010 from 2009 and, at the end of April, up another 4.6 percent.

Tracy White of McDonald Development Company says that demand is getting higher by the week for space larger than the market currently provides. Despite the fact that there has been no new construction in the last nine quarters, White thinks that 2011 could be the year.

“There are over half a dozen requirements currently in the market looking for more than 250,000 square feet. So with only two available [facilities] in that size range, there will be a significant number of build-to-suit projects that will be announced this year, delivering this year and into 2012,” he says.

It was also recently announced that the Port of Virginia will construct a 500,000-square-foot warehouse on one of its terminal properties.

White says that he has seen more leasing occurring than sales and landlords are considering each deal individually.

“We will continue to see an increase in port container volumes through the remainder of this year,” White says. “That really is the main driver in the market.”

Similar to Hampton Roads, the market in Savannah, Georgia, seems to be improving as well, with the industrial buildings closest to the port seeing the most activity.

Charlie Fiveash of ProLogis’ Atlanta office says that the market grew quickly in the last 5 years and then demand dropped off when the economy slowed, which in the Savannah market. He says demand is now starting to slowly come back.

Because of the large amount of space currently available, not many new developments have happened, with the exception of a few built-to-suit projects.

Fiveash says 75 percent of the transactions have been leases and landlords have been flexible with terms.

White, who also conducts business in the Savannah market, says users looking for buildings around the port that offer rail service have increased.

One concern Fiveash has is that there is still some uncertainty that the Savannah River will be deepened in time to accommodate larger ships once the Panama Canal is expanded in 2014. 

Further South, the Jacksonville, Florida, market has seen little change in its industrial market.

“The landscape is pretty much the same as it was last year with not a whole lot on the horizon,” says Michael Canella of Jacksonville-based Atlantic Commercial Properties.

According to Cushman & Wakefield, in the first quarter of 2011 leasing activity totaled 780,411 square feet, while the previous two quarters had a combined total of 722,938 square feet. Overall vacancy was 11.6 percent, down from 12.2 percent in the fourth quarter of 2010. Additionally, 279,874 square feet is under construction.

Canella is optimistic that the Port of Jacksonville will kick start the local economy. “[The port] is going to be the catalyst to get this economy, certainly the industrial sector, back on track. It’ll have a domino effect from there on. It might still be a couple of years out, but it’s something to look forward to.”

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