Strategically located on Interstate 85 between the major commercial centers of Charlotte and Atlanta, the Greenville-Spartanburg (Upstate) metropolitan area is the largest in South Carolina approaching a population of 1 million. The origin of this growth stems from a strong commitment on the part of community leaders to diversify from a traditional textile-based economy into a conglomeration of economies, including automotive, plastic, metalworking and chemicals.

With the highest per capita international investment of any area in the country, the Greenville-Spartanburg metropolitan area is truly a melting pot, blending Southern culture with dashes of German, Swiss, Hispanic, French and Japanese influences. The by-product of this economic and international diversity has been a thriving industrial base, a vibrant service sector and a virtual smorgasbord of retail development.

Industrial: A Multi-Billion Dollar Year

More than a third of the companies that made major capital investments in South Carolina last year did so in the Upstate totaling almost $2.5 billion dollars in commitments. From Slovenia to Greer, new and existing companies invested in the Upstate. In fact, approximately 1600 existing companies announced expansions, creating in excess of 2400 new jobs in 2000. As J. Earle Furman, president of NAI Earle Furman notes, "There is a critical mass within a local economy where both the economic health and growth is fed to a significant degree by internal expansion." All this good news translates into a growing and maturing industrial real estate market.

The Upstate industrial market, consisting of Greenville and Spartanburg counties, has approximately 160 million square feet, and approximately 14 million square feet is currently vacant. Segmenting this space, an impressive 100 million square feet is manufacturing, 56 million square feet is distribution, with the remaining 4 million square feet primarily consisting of multi-tenant office/warehouse. The dominance of manufacturing in the Upstate is further reflected in the fact that over 27 percent of its workforce is employed in a production-related job, exceeding the 15 percent national norm.

One of the major trends in the industrial market has been to move away from pre-engineered metal construction with ceiling heights of 20 feet or less. "With the recent growth of many new industries in the area, and the construction of new buildings picking up, the market is seeing higher quality properties of brick and concrete tilt wall construction, ceiling heights above 24 feet, and enhanced architectural and landscaping features," says Bill Streyer of Colliers Keenan Goldsmith. Beacon Partners out of Charlotte has developed several of these class A projects in the Upstate. Their 125,000- square-foot and new 142,000-square-foot concrete tilt wall, multi-tenant, bulk distribution facilities located just off I-85 in eastern Greenville County are excellent models of the this type of product. These projects exemplify the product prevalent in Atlanta and Charlotte for years that is starting to develop in the Upstate. Alongside these signs of the industrial market maturing, Upstate efforts to attract more industry have never been more aggressive.

At the infrastructure level, I-85 between Greenville and Spartanburg has been widened and the completion of the Southern Connector, a major road facilitating easier access from I-385 to I-85 will open up significant land for new development. Creating Šready-made' sites for industrial development, a Greenville County government entity has purchased and developed a 1,200-acre plus tract on the Connector for a technology park known as The Matrix. Recently, The Matrix announced the location of its first resident, Toyoda-Koki, a member of the Toyota family of companies, which will provide various automotive and machine parts to such companies as Ford Motor and Dana Corporation. Other notable industrial parks with new activity include Hillside Industrial Park just off I-85 and Fairforest Business Park fronting I-85. At Hillside, two class A, 200,000 and 308,000-square-foot cross dock facilities were built for a third party logistics group, and in Fairforest, the developer recently leased two class A, spec industrial facilities to Tyco International and Copper & Brass with more spec product planned.

Office: A Dynamic Market

Greenville County with its strong and growing service sector, comprises approximately 86 percent of the total office market in the Upstate. In recent years Greenville's office product has grown at a very healthy rate, but by 2000 a slowdown in new construction began as developers sensed a slight oversupply. According to Jan Cross, president of Cross Commercial Properties, "The Greenville office market has seen steady growth for the past several years, gradually getting tighter and tighter each year, but now it appears that noose is loosening. This year may find us in a soft market especially in the suburbs, unless absorption increases and development slows."

On the other hand, Steve Smith of Grubb & Ellis-The Furman says, "the Greenville office market will continue to prosper, but we will experience less new construction providing breathing room from the heightened levels of new construction of 1998 and 1999." Regardless of the current market situation, the Greenville office market is quite resilient. With major companies such as Michelin and Bowater having their North American headquarters here and major firms such as Fluor Daniel and Jacobs Engineering also having a significant presence here, this market has national and international credibility and depth, which is further evidenced by its dynamic Central Business District and suburban markets.

The Greenville office market consists of approximately 7 million square feet with the central business district comprising just under 3 million square feet of the total or about 43 percent, and the remainder in the suburbs. In 2000, the occupancy rate decreased 2 percent from 1999 levels to approximately 77 percent. This reduction primarily resulted from an increase in new product in the suburbs.

The CBD continues to be the strongest segment of the office market. Overall the CBD occupancy rate is 82 percent, but the class occupancy stands at an impressive 96 percent. The overall occupancy rate has been depressed in part from consolidations of financial institutions while class occupancy has remained strong due to the growing attraction of downtown. With amenities such as upscale restaurants, an expanding retail base, the opening of the Westin Poinsett Hotel and the Bi-Lo Center, Greenville's entertainment arena, Greenville's downtown is revitalized and many companies want to be a part of this. Another shining star in the downtown revitalization story has been the Landmark Building's, Greenville's tallest office building, comeback as a downtown home for companies. Occupancy at the Landmark has gone from 20 percent in 1998 to 75 percent in 2000. The only major setback for the CBD market was the announced canceling of the Easlan/Highwoods' 250,000-square-foot high rise on the former Memorial Auditorium site.

With regard to the suburban office market, an influx of new construction, build-to-suits, and sublease space softened this sub market. In fact, sublease space comprised almost 70 percent of the entire sublease space available in the Greenville office market. With a number of telecommunications and dotcom companies downsizing and/ or going out of business, coupled with an uncertain economy in the first half of this year, many expect the suburban sublease vacancy to further increase.

While the picture is mixed when analyzing the broad sub markets of the CBD and the suburbs, Greenville's office parks are generating renewed interest. The Brookfield Corporate Center, the southernmost major office development in Greenville County located just off I-385, used to be perceived as too far way from the Greenville CBD. Today it is one of Greenville's larger office parks serving as home to Jacobs Engineering, Carolina Phone, Ahold Technology Center, and two new residents - Ford Motor Credit and Metropolitan Life.

Alongside Brookfield Corporate Center, another major office development, Independence Pointe, owned by Liberty Property Trust, has revitalization plans well underway. Liberty has two 32,500-square-foot single-story, multi-tenant office buildings under construction with plans for at least one more similar facility in the near future. Seeking to bring the amenities of downtown to their park, Liberty is also constructing a commons building complete with a food court, workout room, and conference facilities. Some market observers believe this move will enhance its competitive position with parks like Brookfield which are only minutes away from the major retail center of Woodruff Road.

Retail: Gaining National Exposure

The Upstate retail market is gaining national exposure. Boosted by strong demographics and a diverse economy, the Upstate posted over $19 billion in retail sales in 2000, and is well positioned to remain South Carolina's leading retail market. In fact, the retail market's strength under girded by the bustling industrial and office markets has caught the attention of and resulted in the location of a number of new national chains into the area. Old Navy, B.J.'s Wholesale Club, Bed, Bath and Beyond, Zainy Brainy and Party City have invaded the power centers and malls throughout the Upstate. These are exciting times for the Upstate retail market.

With nearly 11 million square feet in Greenville County and approximately 5 million square feet in Spartanburg County, both counties boast significant retail development. Market observers estimate a 10 percent vacancy rate in Spartanburg and a slightly lower 8 percent vacancy in Greenville. As both counties have experienced significant growth in recent years, much of the vacancy has resulted from the relocation of retailers into newer growth areas. One notable exception to this vacancy trend has been the permanent closing of more than five Winn Dixie grocery stories in the Upstate.

One of the major retail trends has been redevelopment. In Greenville, the new 400,000-square-foot power center known as Cherrydale Point exemplifies this redevelopment renaissance. Formerly a cut and sew manufacturing site, this northern Greenville County area was underserved and the new center, complete with Old Navy as anchor, will fill this gap. Jamie Lominack, a retail broker with the Spartanburg brokerage firm of Cleveland White & Associates, notes a similar trend in Spartanburg. He cites the redevelopment of a Spartanburg County high school site located in the middle of a well-established retail district into a Super Wal-Mart and strip retail center.

Overall, these redevelopment efforts also reflect some broader retail market trends. The Upstate is experiencing a general slowdown in new retail construction. Some of this slowdown can be attributed to the end of the CVS and Eckerd battle for hard corners, the scarcity of new sites in many of Greenville's major retail areas like Woodruff Road and rising land prices. In the future, redevelopment of sites in both underserved and older, established locales will become more the rule than the exception.

Investment: High Demand, Low Supply

The tax-free exchange or Š1031' remained as popular as ever in the Upstate in 2000. In turn, this popularity has created a strong demand for income producing properties, a demand that has not been met by the local market. With most tax-free deals less than a million dollars in value, local investors are quite limited in their product choices. Due to the ease of maintenance, many investors would prefer a net leased industrial product; however, most of these deals are well over a million dollars. So many investors have turned to small retail centers that are fully leased with cap rates ranging between 9.4 percent and 10.3 percent. Most of the investment market Šchurn' has been among this product. On the other hand, the Upstate still generates numerous large investment deals. In 2000, two of the larger investment deals included the sale of a 200,000-square-foot single tenant, cross-dock facility in Spartanburg, and a 33,000-square-foot suburban office building in Greenville.

One of the other major trends in the investment market has been the dramatic reduction in the proliferation of drugstores on every street corner. Due in part to their problems on Wall Street and as some observers argue, an over saturation in many markets, the national drugstores have suffered from substantially reduced credit ratings. Many investors have turned away from buying a "CVS bond," and are actively pursuing other types of credit income product. John Boyd, a local specialist in tax deferred exchanges, stated "many of my clients turned to an eclectic mix of deals ranging from International House of Pancakes, Advance Autos, and big box industrial facilities that are often outside the Upstate market." Brokers all agree that even looking outside the box for attractive investment product has become quite difficult. Nonetheless, the Upstate investment market continues to offer many opportunities, and as the industrial, office, and retail markets continue to strengthen more credit tenants will enter this vibrant market.

Michael E. Greer and Ford H. Borders, SIOR are with NAI Earle Furman, LLC in Greenville, South Carolina.


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