While Charleston’s residential real estate industry struggles with excess inventory, its market for quality industrial space has the opposite problem.
There’s simply not enough so-called Class A space available to show companies interested in doing business here. And that’s an issue with broad implications because businesses that need large, quality industrial buildings such as manufacturing plants and distribution centers tend to be companies with lots of jobs to fill.
“We, in Charleston, have been active on the demand side, but not on the supply side,” said industrial real estate broker Mike White, vice president of Charleston-based CBRE|Carmody. “Since the recession started, we’ve had no new construction of industrial speculative space.”
There are plenty of new industrial buildings, particularly along the “Boeing corridor” between the Boeing Co. facilities at Charleston International Airport and on Patriot Boulevard in North Charleston, but they are being built for specific companies and have not added vacant space to the market.
As a result, the vacancy rate for modern, top-quality industrial dropped in 2011 to just 3.2 percent, a more than decade-low, according to White’s company. A rate between 8 percent and 10 percent would be a healthier balance, experts say.
“It’s a bad thing because we need to be able to offer prospects a bundle of different benefits to move here, and not having functional, readily available buildings available detracts from that,” said Hagood Morrison, senior vice president at Colliers International in Charleston. “Large bulk buildings and smaller warehouse buildings are in short supply.”
Morrison, White and others say a lack of financing is a key reason for the lack of development.
Kenneth Seeger, president of the MWV Community Development and Land Management Group, said financing is not an issue for the MeadWestvaco Corp. subsidiary, which has 10 commerce parks throughout the Charleston area. Rather, Seeger said, caution about the economy is the key.
“I think the real issue is, at what point in time will the industrial developers feel comfortable building those buildings speculatively,” he said. “I think we’re getting close to that time.”
Statewide issue The space issue extends beyond the Lowcountry.
“It’s not limited to just the Charleston market,” said Jack Ellenberg, vice president of cargo development at the State Ports Authority. “It’s really a statewide challenge.
“On the surface, it appears to be a negative, but the situation exists because of a lot of positives,” said Ellenberg, who was previously deputy secretary for new investment with the state Department of Commerce.
Industrial space is scarce, he said, because companies have leased or purchased so much of it.
“That’s great, that’s what you want,” said Ellenberg. “The problem is, because of the state of the economy and financing challenges, that square footage was not replaced.”
He said other port markets such as Savannah and Jacksonville have more space available, but that raises questions about how robust the economy is in those locations.
A benefit of the tight market for existing industrial space has been robust new user-driven construction.
Along Palmetto Commerce Parkway in North Charleston, new industrial buildings are popping up in rapid succession. Safelite, Tighitco, Streit Armored, Roper St. Francis Healthcare and Charleston County are putting up a combined 383,000 square feet of Class A industrial space this year, according to White.
Other projects are under way. White said Childress Klein Properties of Atlanta is working with his firm to break ground on a new building on nearby Crosspoint Drive that will include 100,000 square feet of Class A spec space and 80,000 square feet of preleased space.
He said it’s the first Class A “spec” space built in years, and if it’s quickly leased, that will send a signal to developers and reluctant lenders.
Seeger said MeadWestvaco has been preparing sites and clearing permits, so that the company can move quickly when the timing seems right.
“We have buildings now that could be completed within seven months, which is pretty short order,” he said. “I think the trends are all very positive from what we see.”
Opportunity lost? In the wake of the recession and 2008 banking crisis, the bar has been reset higher for most commercial builders.
“In many cases, they just can’t get the financing until they have a signed tenant,” said Steve Dykes, Charleston County’s director of economic development. “We’re scratching our heads around town trying to figure out how to get people off the sidelines.”
Dykes said the scarcity of high-end space is a problem, but he wasn’t aware of any job-creating opportunities that have been lost because of it.
“What you fear is that you’ll have a prime opportunity come along with hundreds of jobs, and you’ll lose it because of the time it will take to stand a building up,” he said. “I think we have the second-best thing to having empty buildings waiting, which is having space where we can kick them off.”
Charleston Regional Development Alliance Chief Executive David Ginn said it’s an issue that’s on everyone’s mind, but having robust demand for existing industrial space seems like a better situation than having too much space available and not enough demand.
“It’s an important balance,” he said.
Ginn said it’s also worth noting that there was not a single Class A industrial park in the Charleston region in the mid-1990s. Now, there are several in each county.
Morrison of Colliers International said smart developers are clearing and preparing sites so that buildings can go up quickly.
“I think it’s getting better,” he said. “Hopefully, lending loosens.”
Seeger predicted that new spec space will be under construction soon, likely in the areas near Boeing.
“I do think you’ll see spec buildings going up over the next year, in the smaller sizes, and spec space in partially leased buildings,” he said.
Reach David Slade at 937-5552 or on Twitter @DSladeNews.