Year-over-year industrial absorption in the Upstate climbed from 4% in the first quarter of 2016 to more than 9% in the first quarter of 2017, according to a report from Avison Young.
From the first quarter of 2016 to the first quarter of 2017, nearly 800,000 square feet of industrial space was completed in the market, but the amount of industrial space under construction has dropped to under 100,000 square feet during Q1 2017.
While absorption has risen over the last year, vacancy has remained steady at around 6.9% year over year.
“Vacancy rates have not changed significantly with the amount of new inventory coming to the market,” the report said.
The report noted that the region continued to see build-to-suit projects and the expansion of facilities already in place in the first quarter.
“As these facilities become available, the impact of this increased production will be a demand on warehousing space for raw materials and finished goods,” the report said.
Asking rental rates for industrial property in the region have jumped from slightly over $3 per square foot to $3.74 per square foot. The rate in the Upstate was less than the $5.33 per square foot in Charleston. The average asking rental rate in the Atlanta metropolitan area was $3.94 per square foot and $4.15 per square foot in Charlotte.
Both the Atlanta and Charlotte markets have seen a year-over-year increase in square footage under construction. Charlotte has 2.4 million square feet under construction while Atlanta has 18.1 million square feet of industrial space under construction. Vacancy rates in both markets have declined steadily over the last four years, according to the report.
In Charleston, vacancy dropped to 5.9% in the first quarter — down from more than 9% in the same quarter a year ago. The report suggested most of the demand for space comes from the automotive sector as demand from aerospace “seems to have diminished.”
The automotive demand is being driven by Mercedes-Benz Vans, Volvo Cars and Bosch, according to the report. Additionally, Santee Cooper is working on a 2,500-acre parcel near Volvo’s location for larger suppliers to potentially locate.
“Demand has continued to be strong in the Charleston region despite the fact that there is minimal quality inventory for smaller users or requirements in the 10,000- to 40,000-square-foot range,” the report said.
The report said an increase in tenant activity is expected in the Charleston market for the remainder of the year, “especially in the automotive manufacturing sector as well as general services sectors and, possibly aerospace.”
Looking ahead to the remainder of the year, the report suggested trade policy changes and infrastructure maintenance could be factors for manufacturing in the Upstate.
“Vacancy is expected to remain low,” the report said. “Rental rates will likely rise slightly with demand as there will be less class B and C inventory to bring down the average.”