Speculative construction challenges the region’s industrial property landscape
In my 15-plus year career in Greenville/Spartanburg, I have never seen this much speculative construction driving the Upstate market.
From 2013 through mid-2014, we saw an unprecedented level of leasing activity; many of the Class A and B buildings leased, which drove down vacancy and helped to drive up rental rates. Since the start of 2015, we have seen a significant uptick in the number of speculative announcements, as we are currently tracking over 1.7 million square feet under construction.
Add in the number of build-to-suits currently under construction in the market, and you have close to 7 million square feet of new product coming online in 2015 through 2016. This amount of growth will have a significant impact on our market in the coming years and will keep pressure on the labor markets, which will lead to substantial new employment and requirements for other types of services.
I believe there is enough differentiation among the product that all will be leased over the last half of 2015 and first half of 2016. Enough users are currently looking in the market to fill all of the space coming online.
However, some of the users are looking for a lot of flexibility, including expansion pads, excess trailer parking, more employee parking, etc., and some of the buildings won’t work for different reasons. So several of these users are going the build-to-suit route and designing more flexibility into their buildings. I don’t think there is too much spec space; however, I would be patient before constructing anything in addition to what’s on the market now.
I would expect to see several hundred thousand square feet of the spec space leased this year, and most of the remaining space leased in the first half of 2016. With the ramp-up of BMW, we would anticipate many of the spec buildings to be leased by their suppliers during that time.
Speaking of BMW, another interesting trend is in the automotive sector. Currently, BMW is producing about 350,000 vehicles per year or about 1,000 per day. With their expansion and the Volvo announcement, almost 250,000 additional vehicles are going to be built in South Carolina by 2018.
This will have a tremendous impact on auto suppliers, many of which are already running at capacity and will need to expand to meet the needs for the additional 70 percent in vehicle production. To put that in perspective, we’re talking more than 700 additional vehicles per day, and for a product like tires, the number is quadruple at 2,800 tires per day. That is a lot of new parts that will have to be built here in the state.
Our biggest challenges in the region will be to meet the demand all this new investment will fuel. The roads, utilities and labor force will need to be bolstered in order to meet demand over the next 10 years.
More people are working in South Carolina now than ever in our state’s history, and the region will need even more people trained in fields like robotics, engineering, welding and technology going forward. The municipalities also need to take a hard look at the utility infrastructure, including sewer and water and road improvement funding, to handle the future volume and traffic for this new industry.
If we work smart and work together, our region has the potential to grow substantially over the next decade and resolve these challenges, providing a world-class market for manufacturing and distribution.
