Southeast Stats & Insight: 1Q2018

Atlanta, Charlotte, Plant City, Orlando, Palm Beach, & Savannah

Currently, McCraney Property Company has more than 7 MSF of active speculative industrial projects under development in Florida, Georgia, and the Carolinas. In addition to providing industrial market stats, the following includes real-time insight from brokers on leasing, investment, tenancy, and construction, in the region in which they specialize.

Atlanta – Industrial Market Experienced Nearly 3M SF of Net Absorption

  • Total Vacancy: Down – Overall vacancy decreased from 7.3 to 6.8 percent; Shallow Bay product decreased 70 bps and Warehouse decreased 40 bps
  • Lease Rate: Up – Overall rental rates have risen 8.2 percent year-over-year to $4.74 PSF NNN
  • Net Absorption: Down – Net absorption was close to 3 MSF; this follows record-setting 2017 total of over 21 MSF
  • Completions: Up – Over 19.4 MSF of spec space is under construction, due to deliver soon

Market Insight from Rick Spiller, Partner, SIOR, Wilson Hull & Neal Real Estate, LLC

We see the market as being very active – big boxes are being developed for large logistics and e-commerce type tenants, but projects that can suit the needs of 30,000 – 60,000 SF tenants are not being constructed. McCraney Property Company’s 985 Lanier Logistics project fits the bill for these tenants, and we have seen good activity although grading only started a few weeks ago.

Brokers tell us first class industrial development is what is needed in the market and with two rear loading buildings and one front-loading building featuring 32’ ceiling heights with 185’ deep truck courts and plenty of trailer parking we can accommodate virtually any tenant requirement.

A great labor market makes this area attractive for businesses looking to avoid congestion and commute times for employees living in the NE Atlanta area as we are conveniently located a mile off I-985.

Charlotte – Healthy demand from tenants leads to upward pressure on rental rates

  • Total Vacancy: Up – Overall warehouse vacancy rate was 4.9 percent
  • Lease Rate: Rising rental rates are expected over the next three quarters to keep up with rising construction and TI costs
  • Net Absorption: Total absorption was 1.1 MSF in 1Q2018 – tenant demand remains strong
  • Completions: 1.2 MSF of spec projects were delivered in 1Q2018 on top of 2.7 MSF of new industrial construction completed in 2017

Market Insight from Warren Snowden, Managing Director | Principal, SIOR, and David Hanna, Senior Vice President, Industrial Representation, Foundry Commercial

The Charlotte industrial market results at the end of the first quarter of 2018 continues to show the strength of the I-85 corridor with nearly 1.1 MSF of absorption with deliveries of 1.2 MSF. Of the 2.7 MSF of speculative development delivered in 2017, approximately 31 percent was leased upon completion with 81 percent leased to date. At the end of the first quarter of 2018, the market has delivered 2.1 MSF of spec development of which 42 percent has been leased. We have seen a record 16 leases executed over 300,000 SF in the past 24 months.

Charlotte proper (Mecklenburg County) has limitations on land positions for significant new industrial parks, but we have noted an increase of interest in new industrial pockets, which can deliver two to five shallow bay industrial buildings. Many of the larger projects are securing locations on the fringes and surrounding counties, including York County, SC, just 8 miles south of the CBD and Concord, NC, just 12 miles Northeast. We are noting an uptick in the demand for vertical efficiency with clear height and image driving the ultimate location decisions. We do not currently have an available building over 400,000 SF with clear heights above 24’ clear in the Charlotte market. Looking forward, we expect upward pressure on rental rates and robust investor interest in the few investment sales brought to market as land values climb and construction costs continue to rise.

Tampa / Plant City – Trade, Transportation & Utility sectors see State’s highest annual job growth

  • Total Vacancy: The vacancy rate increased from 5.3 to 5.8%; tenant demand has kept the vacancy rate below 6% for 8th consecutive quarters
  • Lease Rate: Up – Rental rate up from $5.72 to $5.74 PSF
  • Net Absorption: Net absorption was 46,941 SF
  • Completions: Down from the previous quarter, Tampa’s new construction had 137,500 SF delivered and has another 1,094,270 SF under construction.

Market Insight from Julia Rettig, Senior Director of Cushman & Wakefield’s Tampa’s Industrial Team

The industrial market in Tampa/Hillsborough County continued to post strong market fundamentals through the first three months of the year. The direct vacancy rate for warehouse/distribution increased by +70 bps year-over-year from 5.4 to 6.1 percent, driven by occupancy losses on the Eastside. Direct triple net rate for warehouse/distribution increased from the previous quarter from $5.00 to $5.09. The limited amount of available space in newer Class A buildings, coupled with the higher amount of inferior-quality product in the market, have combined to depress asking rental rates. However, Class A, new construction warehouse/distribution rates are ranging between $4.95 to $5.75PSF depending on product type.

Overall absorption is down, in the first quarter of 2018 compared to numbers posted in 2017. This was due to Southern Wine & Spirits vacating 365,000SF in a distribution center on the Eastside. Despite that large new availability, absorption remained positive in the first quarter with several large move-ins as well as new-to-market tenants. The first quarter marked the fifth consecutive quarter with positive absorption. Leasing activity was down when compared to the first quarter of 2017, but historical trends indicate that first quarter activity was usually the slowest point of any year with the expectation that the market will pick up significantly in the latter half.

New construction was a key driver for the market with nearly 137,500SF of speculative warehouse/distribution product breaking ground on the Eastside in early 2018. There was a total of 1.1MSF under construction by the quarter’s end, all of which should be delivered in the next nine months. Pent-up tenant demand for new product led one speculative project to land a tenant before even breaking ground, a first for the Tampa/Hillsborough County market. McDonald’s 301 Business Center signed Bunzl a 212,900SF lease in the 342,000SF building.

Orlando – Construction grows to keep pace with demand

  • Total Vacancy: Down – Vacancy rate stood at 5.6 percent; down 70 bps from Q1 2017
  • Lease Rate: Up – $6.35 PSF – NNN; two percent increase from Q4 2017
  • Net Absorption: Up – Net absorption 1,253,692 SF
  • Completions: Down – Five industrial construction projects were completed in the Northwest Orange County submarket totaling 449,986 SF

Market Insight from Bo Bradford, Co-President/Principal, CCIM, SIOR, Lee & Associates Central Florida

At the end of the first quarter of 2018, in Orange and Seminole County alone, we absorbed 58 percent of what we absorbed for all of 2017. The market showed incredible strength, not in just core areas like Southeast and Southwest Orlando but also in new emerging markets like Northwest Orlando where nearly half of the positive absorption took place. Developers with solid, well-located land positions that are close to major road arteries whose basis is reasonable will reap the rewards, as both are increasingly very difficult to find.

Looking forward, we anticipate steady growth as the supply side slows down. One cloud on the horizon that could hinder and slow our progress is affordable land and increased construction costs on both the labor and material side.

Palm Beach County – Vacancy reaches new level, rate below 3 percent 

  • Total Vacancy: Down – Vacancy declined to 2.8 percent, a fall of 70bps year-over-year
  • Lease Rate: Up – Overall rental rates increased 3.5 percent year-over-year to $10.74 PSF
  • Net Absorption: Up – Net absorption was 187,468 SF
  • Completions: None. Duke Realty plans to start construction on Building 5 spanning 146,253 SF at Turnpike Crossing.

Market Insight from Michael Falk, President, CCIM, SIOR, Michael Falk & Co.

While the overall market is strong, developers have been reluctant to flood the market with over-building. Both Liberty Property Trust along Southern Boulevard, and Duke along Belvedere Road and Jog Road have the ability to add multiple buildings but instead have elected to add one building at a time. Additionally, the only other new product was added by Exeter Property in Boynton Beach with 53,000SF of new speculative space on a site purchased from Yellow Freight along Congress Avenue south of Woolbright. All of these projects are looking for tenants in excess of 15,000 to 20,000SF.

This has created quite a demand for the smaller user looking for dock high space under 15,000SF and the flex user looking for pockets of space under 5,000SF. In those markets with limited supply, rates have jumped dramatically with the smaller dock high units requiring over $10.00PSF NNN to cover the much inflated improvement cost on such a small space and as well the flex market tenant of under 5,000SF where rental rates have been pushing into the mid to upper teens for quality space on a gross basis. Turnpike Business Park, with the ability to provide spaces from 15,000 to over 51,000SF with possible one or two spaces even under 10,000SF, covers a niche in the market. That and Florida’s Turnpike exposure and immediate access to a full interchange of I-95 and the Turnpike via Southern Boulevard make Turnpike Business Park a demanding location in this ever shrinking market of quality industrial space.

Savannah – Fastest growing port in the Country / 2nd busiest on East Coast

  • Total Vacancy: 1.3 percent vacancy
  • Lease Rate: Rising rental rates is expected over the next three quarters to keep up with rising construction and TI costs
  • Net Absorption: Total absorption was 1.1 MSF – tenant demand remains strong
  • Completions: Down – 1.2 MSF of spec projects were delivered. However, 10MSF were delivered (spec + BTS) between 2017 and 2018

Market Insight from William Lattimore, SIOR, First Vice President, CBRE

The success of the Port of Savannah has been instrumental in the growth of Savannah’s industrial market. The port continues to experience record TEU throughput and is expected to continue for the foreseeable future.

Larger, high-volume import distribution centers are growing the market at a rapid pace (50MSF to 60MSF in 12 months; expected to go to 70MSF by 2019).

Available space has been the only growth constraint, with 2.8MSF of spec space being leased prior to completion in late 2016/early 2017. Approximately 3.5MSF of spec space will be delivered in late 2018 / early 2019, which is expected to be absorbed quickly.

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