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Upstate commercial real estate market pulses through COVID-19 shutdown

Molly Hulsey //May 11, 2020//

Upstate commercial real estate market pulses through COVID-19 shutdown

Molly Hulsey //May 11, 2020//

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Vermeer's finished plant at the South Greenville Enterprise Park is expected in 2021. (Photo/Molly Hulsey)Even as South Carolina’s economy continues to shutter under the weight of the COVID-19 shutdown, site selection, construction and new commercial real estate leasing press on across the Upstate — if not in new directions.

“I’m not Pollyannish. It’s just in my world, I’m busy,” said Kyle Sox, vice president of industrial development of Spartanburg’s Economic Futures Group. “It’s coming from the Department of Commerce, it’s coming from site consultants, it’s coming from real estate brokers, it’s coming from real estate developers: the industrial market is strong, e-commerce, logistics, supply chain and parts and manufacturing that are part of a larger supply chain — they are all looking at how they can be more effective and resilient, because COVID-19 has exposed some real weaknesses.”

Sox reports that since he and his team began to work from home in early March as new coronavirus cases began to crop up across the state, they have fielded more site queries than in the first quarter of 2019.

“And 2019 was not a bad year,” he said, adding that Spartanburg has seen unprecedented levels in industrial growth over the past decade.

While several new additions to the county’s lineup are in the works, Sox pointed to Tindall Corp. and Global Transplant Solutions, who are growing into larger facilities.

Concrete manufacturer Tindall Corp. announced plans to build a utility division manufacturing facility off 2877 Fairforest Clevedale Road in mid-April, according to a news release. The $27.9 million project is expected to bring 20 new jobs once completed in early 2021.

Global Transplant Solution, an organ preservation and transplant company, previously occupied an office at Spartanburg Community College’s Spark Center — the launching pad for more than 100 businesses, according to Sox. A 2018 S.C. Research Authority grant helped the Canadian-based company add products to the U.S. market as they awaited Food and Drug Administration clearance, according to a news release. The company’s products represent 99% of all organ preservations solutions used worldwide, the release said.

Global Transplant Solutions moved into an 11,3000-square-foot flex space in the Corporate Center Business Park off Interstate 85 on April 1.

Keeping Green

Greenville County has also witnessed continued construction and development.

“Certainly, we’re not poised for the kind of years-long reduction in activity many people may have thought,” said Mark Farris, CEO and president of the Greenville Area Development Corp. “Who knows, there is still a lot of uncertainty associated with it, but in a time when I would have thought there would be no activity, we are still picking up certain projects, certainly at a slower rate, but the activity is still there.”

He reported ongoing site selection queries, including one Italian company seeking to expand its American base. Even before COVID-19 began to spotlight weak points in the global supply chain, Farris saw an uptick in food processing plants interested in the Greenville vicinity.

“The Upstate, and South Carolina in general, is not known as a food production or processing kind of state,” Farris said. “That has been the Midwest and West Coast to some extent, but a lot of companies are interested in making sure that they have access to a food supply system that is regional in nature.”

Vermeer’s planned $19.8 million manufacturing plant, the first project in Greenville County’s flagship South Greenville Enterprise Park, moves every day toward construction, according to Drew Stamm, a broker with NAI Earle Furman. The Iowa-based agricultural and industrial equipment manufacturer purchased 43 acres at the new park in December.

“They haven’t really slowed down at all,” Stamm said. “They’ve graded the site, and Roebuck Builders out of Spartanburg is building the building. I’ve talked to those guys, and they’re still very much full-tilt forward with trying to deliver this building. They’re going to triple in size from 50 to 150 (thousand square feet) plus or minus,” Stamm said.

Vermeer expects a completed building by the second quarter of 2021, he said.

A 300, 645 square-foot speculative building in Augusta Groves sits near the new Grove Reserve site. (Photo/Molly Hulsey)“If there was some real heartburn caused by the market or the coronavirus, just kind of the world we’re living in, you’d think they’d hit a pretty big pause on spending $15 to $20 million on a new building, but they haven’t done that yet, so it makes me think that the manufacturing side is still pretty active,” he said.

Construction on a multi-tenant speculative property has also continued at one of Greenville’s pre-existing industrial parks, Augusta Grove. Stamm reports that the 158,886 square-foot- property, known as Grove Reserve, was built for maximum flexibility and is being marketed to both future distribution and manufacturing tenants.

First Round Results

According to a Colliers International report (.pdf) for the first quarter 2020, 3.96 million square feet, comprised of 20 buildings, were under construction by the end of the quarter with 838,567 square feet being delivered to the market and 930,277 square feet being absorbed by tenants during this time.

“Due to continuing demand, construction will be delayed but continues despite COVID-19 setbacks,” according to the report. Still, it warned that reverberations from the COVID-19 outbreak wouldn’t be felt until several quarters down the road.

Despite the economic shutdown prompted by the virus, about 1.12 million square feet in construction has been proposed for the future, while the vacancy only increased by .06 percentage points. Moreover, the report said that the overall weighted rental rate increased after the fourth quarter of 2019.

Area sales included a $5 million 80,000-square-foot manufacturing facility to Connelly Builders and $184 million in Weston Inc. purchases across the Carolinas.

While office workers operating from home during the outbreak may lend itself to a trend away from office space, the report notes that “essential” in-person workplaces still bustled with renewed activity as personnel delivered critical needs across the nation. Other industrial spaces housed stores of medical supplies.

Garrett Scott, vice president of Colliers International’s Spartanburg office, said the landlord he represents at a 51,248-square-foot building in the Fairforest Industrial Park has been willing to donate the space to those who could use it for efforts to combat the new coronavirus for the time being, whether for the manufacturing or storage of personal protective equipment or other critical needs goods.

“I think we have an innate desire to try to help one another,” Scott said. “And this is this company’s way of doing just that.”

Social distancing, high ceilings and small footprints

Moving forward, Jon Good, CEO of NAI Earle Furman foresees greater movement to the periphery of the Greenville-Spartanburg market, especially in less-developed areas like Laurens and Anderson County, as labor shortages return to the industrial market.

Office and retail space may experience a slow-down, but deurbanization, reshoring suppliers and stimulus money funneling into infrastructure will only boost and evolve industrial property development and sales. E-commerce and distribution centers, especially along the Interstate 95 corridor, will be king, he said.

“In the first Cares act, a tremendous amount of that $2.2 trillion, you know $300-something billion, went to replenishing the PPP,” Good said. Besides the Paycheck Protection Program, a lot of the rest went for infrastructure in areas such as airports, clean water, roads, government apartments and the postal service, paving the way for downturns in other areas.

“So we think construction will have its slowdowns in office, maybe multi-family,” Good said, adding that he expects single-family developments to see growth after families experience months of social distancing.

Similar to a flight of families from cities following the Spanish Flu pandemic in 1918, Good predicts a migration to more rural and suburban areas, sweetened with greater potential for working online from home.

Large retail spaces lying empty after the pandemic’s economic knell could be repurposed for ever-automating manufacturers in the years to come, he said.

“Highly automated new buildings, they may have a smaller footprint, but they are going to have to have higher ceilings,” Good said. Stamm said he also has seen a trend over the past few months away from one-size-fits-all “big box shell space” to smaller, more specialized buildings.

Farris also nodded to shrinking industrial space due to technological innovation as an ongoing trend over the past few decades, a movement that could be sped by a social distancing era.

“Manufacturers: their first duty is EBITA (earnings before interest, taxes and amortization). They’re trying to increase profits and reduce costs of operations, and they’re doing that through technology,” he said.

Farris thinks that Greenville’s retail and hospitality economy will rebound to its former level but also believes that warehousing and logistics companies will experience an explosion of growth across the Upstate.

Both Farris and Scott anticipate that medical and critical needs suppliers will have a jumpstart ahead of a reawakening economy.

“In the mid or longer term, I do believe that the supply chain that did service our consumptive needs are going to get noticeably deeper and more sophisticated,” Scott said. “The result in supply chain reconfiguration and augmentation and its related effects on the industrial real estate demand curve will likely shape our market for some time to come.”

This story originally appeared in the May 4, 2020, print edition of the GSA Business Report.