COVER STORY, MARCH 2006

A RISING INDUSTRIAL TIDE
Savannah offers unique industrial opportunities.
Annette Boyle

Last year, Savannah was Georgia's fastest growing metro area. Long a two-economy town of tourism and port activity, Savannah saw the port side of its business rise dramatically in the last year. The Port of Savannah, already the nation's fifth busiest, recorded 3 consecutive months of record growth at the end of the year. To fuel additional growth, the Georgia Ports Authority has announced plans to increase capacity 20 percent by 2010.  

High demand for warehouses for restaging and distribution has driven industrial vacancies to new lows. “You cannot get an empty warehouse in Savannah,” says Jim Bell, President of Palmer/Cay Properties.

Two huge new tenants revealed plans to build major distribution centers in the city. In December, IKEA announced its intent to build a 1.7 million square-foot facility in the Savannah River International Trade Park, scheduled to be operational in mid-2007. The IKEA distribution center will supply the Southeast and Texas stores for the home furnishings retailer.

In September, Target announced that it will build a 2 million-square-foot import warehouse, also at the Savannah River International Trade Park. Construction has already begun on the facility, which is expected to be completed in the summer of 2007. Ultimately, the new Target distribution center will serve 55 stores.

The Savannah River International Trade Park is just 4 miles from the Garden City Terminal at the Port of Savannah. Virtually all of Savannah's warehouses are within 8 miles of the port, and a short distance to Interstates 95 and 16. In addition, the relative efficiency of the port and the delays experienced by shippers in 2005 on the West Coast have made the 23-day trip to Atlanta from Hong Kong through Savannah compare very favorably to the 21-day trip to Atlanta from Hong Kong through Los Angeles, according to Sam O'Briant, senior vice president of Duke's Atlanta industrial group.

Duke Realty and Solution Property Group lead the developers looking to add Savannah industrial space to their portfolio. Jeremy Merklinger, project manager of the Savannah Economic Development Authority, says “every major developer has been looking in Savannah. They just can't find the land.”

“Last year, Duke decided to actively pursue acquisitions in port cities,” O'Briant says. In January, Duke announced that it acquired 18 buildings, totaling 5 million square feet, from Savannah developer Wrenn Blalock for $194 million—and the right of first refusal on approximately 4 million square feet of future buildings on 300 acres owned by Blalock and his partners. Sixteen of the properties are within 3 miles of the Port.

“By having a position at the port, we can service customers from point of entry into the regional distribution network. We think this will drive our warehouse business in Savannah and help us continue to grow in Atlanta,” O'Briant says. The acquisition makes Duke the largest industrial property owner in the city and marks the first major investment by a REIT in the Savannah industrial market.

Solution Property Group and developer Wayne Mason recently purchased approximately 600 acres for two business parks and have another 500 acres under contract. Solution Property Group completed the largest industrial speculative building in Savannah, a 491,000 square foot building in the Crossroads Business Park last year.

With warehouse space so tight, other developers have started to build speculative warehouse space. Nearly 260,500 square fee of “spec” industrial space was built or announced by year end, bringing the total industrial vacancy rate to 4.3 percent, according to Lynn Beam of Melaver/Mouchet. In addition, Commonwealth Properties acquired 153 acres of the Morgan land tract to develop in part for their own portfolio. Commonwealth plans to sell the remainder in 5- to 20-acre parcels. Commonwealth also announced plans to develop a 252,000-square-foot building at Tradeport Industrial Park with another 575,000 square feet to be developed later. An additional 700,000 square feet will come on line as McDonald Development constructs two industrial buildings located at Gwinnett and Telfair Streets.

With dramatic growth of the Port expected to continue for at least the next decade, expect the boom in Savannah's industrial market to continue to make it attractive to out of town developers. As the relatively little available land on the east side of I-95 builds out, the future story is likely to unfold just across the river in Jasper County, South Carolina. The State of South Carolina and Jasper County are interested in creating a port on South Carolina's side of the Savannah River, which could effectively double the area's capacity.

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