Cushman & Wakefield’s recent Southeast Industrial Client Webinar highlighted significant gains in the region’s fundamentals and indicate strong, positive momentum going forward. Construction, which has been confined mainly to build-to-suit or build-to-own opportunities over the past several years, saw solid growth on the speculative end, with over 2.5 million square feet currently under development. In fact, many developers have dusted off old plans long forgotten since before the recession, hoping to get projects shovel-ready as the market continues its expansion.
In addition, every single market tracked by C&W in the Southeast improved over the past twelve months in terms of occupancy and/or rent growth. The majority of markets exhibited both. Overall occupancy in the Southeast stood at 91.4%, up 330 bp and overall asking rents averaged $4.32 per square foot (psf), up 0.7%.
Southeast markets had overall rental growth of 3% while overall occupancy grew just under one percentage point. Florida markets stood out in terms of both. As an attractive port-of-entry for international operators, South Florida, which includes Dade, Broward and Palm Beach counties, has the highest asking rental rates at $6.92 psf. The geographic constraints of the market combined with further growth in trade has created a landlord’s market with high occupancies and even high rents. Tampa Bay, which includes Hillsborough, Pinellas and Polk counties, has also experienced substantial growth in its market fundamentals. Occupancy there was approaching 95.0% and asking rental rates of $5.55 were significantly higher than the region’s overall average. Many large users cannot find space to accommodate expansion plans and have looked east to develop new facilities to meet future needs. Polk County, situated between Orlando and Tampa, has had a surge in development activity recently for large bulk distribution centers, including Amazon’s 1.1 msf fulfillment center near Lakeland. Polk County is benefitting from abundant available development sites near the I-4 corridor with easy access via I-75 and I-95 to most markets in the Southeast.
The markets with the largest year-over-year gains were both in the Carolinas. Greenville, with an industrial base of 162 msf, had a 350 bp increase in occupancy. Demand for space was broad based—from both new and existing tenants, and particularly third party logistics firms (3PLs). Rental rates in Greenville have reached the point where new construction is a viable alternative for many tenants with specialized space requirements. Charlotte had the highest growth in asking rents, increasing 9.2% in the past year to $4.18 psf. The surge in rents has led to an explosion in speculative development, with 1.5 msf currently under construction. Large tenants have to look outside the core market due to a lack of large-block options and have pushed construction activity to surrounding, mostly agricultural, markets.
Asking rents increased 8.5% over the past year in both Tampa Bay and Memphis, with each market benefitting from significant demand from existing users and 3PLs. Volvo just announced a 1.0 msf build-to-suit warehouse outside of Memphis and several large users in the Tampa Bay area are finishing up 2.2 msf of new industrial space.
One of the themes throughout the Southeast market is the limited options available for expansions and relocations by large users. Atlanta, the largest market at 517 msf, to some of the smallest, all report that the biggest challenge for tenants is the increasing difficulty in finding available space for larger requirements. Many are choosing to construct their own facilities to meet their needs.
Strong occupancy and rent growth trends in the Southeast are expected to continue through the remainder of the year and could accelerate if economic activity increases. One of the region’s strengths is that all markets are seeing improvement, with none benefitting solely at the expense of another. The remainder of 2014 looks to be very bright for the Southeast industrial market.