SOUTHEAST SNAPSHOT, MARCH 2006

Charlotte, N.C. Industrial Market

Modest gains were experienced during the past year for the 117.76 million square foot Charlotte industrial market as the economy continued to slowly recover. Currently, the most significant trend in the Charlotte industrial market is that market lease rates are currently lower than what most developers will require to justify new construction.

Recently, the only significant construction has been two large cross-dock properties, Lauth's 423,000-square-foot speculative building and ProLogis' 260,350-square-foot speculative facility at West Pointe Business Park in the northwest submarket of Charlotte. Last year, 826,980 square feet of industrial space was completed in comparison to 874,874 square feet built in 2004.  

Major developers expected to start new buildings this year include Koll, Childress Klein, American Asset Corp. and Crescent Resources. Many of the new projects will be built near the Charlotte-Douglas International Airport, especially along Interstates 85 and 485. DHL Holdings is slated to begin construction on an 80,200-square-foot facility at the airport this quarter. It will be the largest DHL airport service center in the country. As well as development around the airport, outlying areas such as Gaston and Cabarrus counties along with Statesville will also see more development due to the increasing scarcity of available land.

Charlotte's industrial vacancy rate has dropped to 8.1 percent, including Lauth's vacant speculative building, and showed strong improvement from the 5-year high of 9.6 percent in the fourth quarter of 2002. Vacancy is decreasing more quickly in the north and northwest submarkets where newer Class A properties are located. The southwest submarket is witnessing the highest vacancy rate due to the availability of older Class B and C properties.

Absorption for the fourth quarter of 2005 was 435,288 square feet with total absorption for the year checking in at 1.16 million square feet. A majority of the leases signed were for tenants occupying 60,000 square feet or less.

Leasing rates increased by approximately 0.5 percent in the fourth quarter. The average rate for warehouses is $3.85 per square foot, while the average rate for flex properties is $8.35 per square foot. Leasing rates are expected to increase due to tightening vacancy, increases in construction costs and a lower availability of land. Some of the larger leases recently signed, before rates increase, include Detroit Diesel's 104,000 square feet at Transwest, Bonded Logistics' 103,000 square feet at Harris I, Ryder Integrated Logistics' 102,000 square feet at Long Creek, APX's 55,440 square feet at Airport Commerce Center and Moldings & Millwork's 50,400 square feet at Charlotte Distribution Center South.    

In conclusion, lease rates are expected to increase this year with large, well-located tracts of land for industrial development continuing to be difficult to find. Although rates are rising, a considerable increase would be necessary to stimulate significant speculative construction.

— Anne Johnson is first vice president in CB Richard Ellis' Charlotte office.

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