By Liz Segrist
Published March 20, 2013
The Upstate is virtually out of Class “A” industrial space.
“There are no 100,000-square-foot industrial buildings left in the market,” said Grice Hunt, a broker with NAI Earle Furman’s industrial division. “Class ‘A’ industrial space is really what we’re looking for and what the standard is now.”
Most investors and developers aren’t comfortable with the “if you build it, they will come” mentality. They want lease rates to be justifiable — at least $4 per square foot, according to industry experts — before building in the area.
AID Co. plans to move into a spec building, above, in Oconee County in May. This is the county’s second spec building constructed since 2006, both of which have been filled. (Photo/Provided)
Demand for these buildings continues as the Upstate’s advanced manufacturing hub continues to grow. Thalhimer’s industrial group is currently tracking around 3 million square feet in user demand, and of that, at least 700,000 square feet would have to go to a build-to-suit.
Companies often want to move quickly and see a move-in ready building during a visit. Despite the Upstate’s numerous certified or pad-ready sites that could complete construction within six months, the lack of Class “A” industrial space can hurt economic development efforts in the area, according to experts.
“The lack of buildings impacts a company’s perception when they’re considering markets and looking at sites,” said Brian Young, managing broker at Thalhimer. “There’s this perception of speed that it will take longer for them to get into the building and start making a profit.”
Class “A” industrial space generally refers to buildings built in the last 20 years that include: square footage ranging from 50,000 to 250,000; expandable options; ceiling height clearance of 25 feet and above; wide column spacing; numerous dock doors; and Early Suppression Fast Response sprinkler systems.
“Industry filled up what we had and there’s been a flight to quality over the last 18 months,” Young said. “All of our Class ‘A’ space was leased or sold up. Even much of our Class ‘B’ has been sold up. There are very few Class ‘B’ buildings over 100,000 square feet currently available.”
Developers have been showing more interest recently in building Class “A” space in the Upstate, Young said.
Liberty Property Trust for example, a Thalhimer client, has four, roughly 150,000-square-foot pad sites in Greer off Interstate 85 near BMW. With enough proposals to fill out at least the first multitenant building, Liberty is interested in getting at least the first pad site vertical, Young said.
Developing more speculative, build-to-suit and general Class “A” space in the Upstate will likely require collaboration. Developers have to believe in the demand and take a risk, while companies have to be willing to pay the lease rates. Public-private partnerships are another option.
Moncks Corner-based Santee Cooper’s board of directors recently approved a $1.5 million loan for a shell building in Laurens County. The $2.1 million project, also funded with $600,000 from the county, could attract new industry, jobs and investment to the area.
“In today’s global marketplace, industry is looking for sites that are practically move-in ready,” said Santee Cooper President and CEO Lonnie Carter in a news release. “Santee Cooper has a responsibility to promote business opportunities across the state, and this loan will help build a shell structure that will, in turn, help attract good jobs for many South Carolinians.”
The 50,000-square-foot industrial shell building will go in the Owings Industrial Park Phase II, which features adjacent rail and provided infrastructure. The building will sit next to ZF Transmissions’ recently finished transmissions manufacturing plant.
Last year, Oconee County completed its second spec building since 2006, funded by county economic development funds and utility tax credits. The first sold in 2008 to Oconee-based Lift Technologies, and the second sold in August to AID Co., a division of RBC Bearings. The company plans to relocate from Clayton, Ga., by May following the ongoing upfit of the building.
Other developers and companies are looking to come into the market as well. The S.C. Inland Port, which broke ground March 1 in Greer, is expected to attract distribution companies and manufacturers to the area.
“The inland port is going to be huge for our market over the next 10 to 15 years,” Young said.
With more than 250 acres of private land surrounding the inland port, Greenville-Spartanburg International Airport and BMW, industry leaders expect development, industry and new construction along the Interstate-85 corridor.
“We will probably see a build-to-suit project or two land in the Upstate sometime this year and those developers will see someone is willing to pay that rate,” Hunt said. “It will help spur additional growth for build-to-suit and spec buildings. It will help get people’s attention.”
Justifying the build
In 2009 and 2010, the Upstate had both Class “A” and Class “B” vacancies and companies were vying for spots, removing the need for new construction at the time.
Now, the demand is there, but lease rates need to support new construction. The majority of recent activity has been with existing inventory.
Some companies had to build their own space since there was not a large enough building to meet their needs, which was the case with the new 1 million-square-foot buildings for Amazon in Spartanburg County and ZF Transmissions in Laurens County.
Following the recession, financial markets have decreased investment and willingness to finance spec or build-to-suit buildings. Confirmed tenants are preferable.
Investors and developers are nervous to take the plunge with these buildings in the hopes that a tenant will come. On the other hand, companies aren’t necessarily willing to sign for the higher lease rates or longer-term leases that often accompany these new buildings.
Companies can generally negotiate five-year or less lease rates for existing buildings, but new buildings generally require 10-year lease rates at the minimum to ensure return on investment for the developers, Young said.
“Developers need more confidence that the market will bear those rates,” Hunt said. “At some point, they’ll get a commitment ahead of time. There will be enough demand where a build-to-suit will happen, and it will bridge the gap to spec construction. Public-private partnerships can help that growth, too.”