Karnes divides the industrial market is into two categories – warehouse and flex. At the end of 2013, the Tri-City markets contained a total of 105 million square feet of warehouse space and 34.6 million square feet of flex space. With over 52 million square feet of warehouse space, the Triad market accounted for approximately 50% of the Tri-City warehouse market. The Charlotte market ranked second with 34 million square feet, while the Triangle market maintained 18.4 million square feet.
The 178,250 square feet of warehouse space completed in the Triad market during 2013 accounted for all of the new warehouse space completed among the Tri-City regions. For the Triangle market, 2013 marked the fourth year in a row where no new warehouse space was delivered. Two warehouse buildings were delivered in the Triad market during 2013 with the largest being a 134,650-square-foot speculate building at 1023 Corporate Park Drive in Mebane. A total of only 564,738 square feet of new warehouse space was delivered in the Charlotte market between 2009 and 2013, while the Triangle market reported even less at 412,940 square feet. With the additional space delivered during 2013, total warehouse construction in the Triad during the same period totaled 469,750 square feet.
All three Tri-City warehouse markets reported warehouse vacancy rate decreases during 2013, with the Charlotte market seeing the greatest improvement during the period. Warehouse net absorption totaling 2.25 million square feet in the Charlotte market was reported during 2013, resulting in a 5.6%-point decrease in vacancy to 6.9%. This also marked the lowest vacancy rate reported in Charlotte in over a quarter of a century. Michelin Group’s occupancy of 346,545 square feet at Twin Lakes Business Park was the largest reported gain in the Charlotte warehouse market during 2013. Other notable gains in occupancy included Ingersoll Rand taking 260,000 square feet at 10000 Twin Lakes Parkway, Snyder’s Lance occupying 253,464 square feet at Patriot Plaza, and Conn’s backfilling the 215,000 square feet vacated by DMSI at Ridge Creek Business Center II.
With a year-end 2013 warehouse vacancy rate of 13.8%, the Triad region reported the highest vacancy rate among the three markets despite a 3.0%-point decrease from the rate reported in 2012. Net absorption totaling 1.4 million square feet in the Triad market outpaced the 178,250 square feet of new supply, resulting in the decreased vacancy rate during 2013. Ralph Lauren’s occupancy of 360,000 square feet at 6550 Judge Adams Road in the Southeast Guilford submarket was the largest reported warehouse gain in both the Triad and the Tri-City area during 2013. Procter & Gamble’s occupancy of 357,000 square feet at Bryan Park Industrial Center in Northeast Guilford ranked a close second. The 304,200 square feet occupied by Rexam at Union Cross Business Park in the Southeast Forsyth submarket was the third largest occupancy gain in the Triad during 2013.
At 11.6%, the Triangle warehouse market reported a vacancy decrease of 2.1% points during 2013 as net demand totaled 346,222 square feet. Despite the improvement during 2013, the warehouse vacancy rate in the Triangle remained 2.5% points higher than the 9.1% reported at the end of 2008. The largest gains in occupancy in the Triangle warehouse market during 2013 were reported at Woodlake Center V, where Ernest Packaging occupied 140,400 square feet vacated by Moduslink; Research Tri-Center South I, where Toshiba Global Commerce Solutions occupied 81,137 square feet; and 900 Aviation Parkway, where Recall Total Information occupied 77,125 square feet.
Flex space is relatively evenly divided between the Tri-City markets, with the Triad market ranking first in terms of flex inventory at nearly 12.7 million square feet. The Triangle market ranked second at the end of 2013 with a flex inventory of nearly 11.4 million square feet, while Charlotte’s flex inventory totaled 10.6 million square feet. No new flex space was completed in the Tri-City markets during 2013. Between 2009 and 2013 a total of only 250,064 square feet of flex space was delivered in the Tri-City markets, with the Triangle market accounting for approximately 45% of the new supply.
Flex vacancy rates decreased in each of the Tri-City markets during 2013. Positive flex net demand totaling 306,355 square feet in the Triad market during 2013 resulted in a 4.3%-point decrease in vacancy. The Triangle flex vacancy rate decreased 1.2% points during 2013 to total 14.3% as net absorption totaled 81,299 square feet. The Charlotte market reported a 0.6% of a point decrease in the flex vacancy rate as net absorption totaled 41,019 square feet.
With positive net demand totaling 306,355 square feet, the Triad region reported the highest level of net flex demand during 2013. The Triange region ranked second with 81,299 square feet of net demand during 2013. The largest gain in occupancy in the flex category in both the Triangle market and the Tri-City region was reported at Keystone Tech Park, where Bayer CropScience occupied 81,956 square feet. The largest reported gain in the Triad market and second largest flex gain overall was reported at Rock Creek Center, where Lenovo expanded into 68,000 square feet. Carolinas HealthCare System (CHS) accounted for the largest gain in occupancy in the Charlotte market after occupying 54,400 square feet at Airport Center Building H. The largest reported contraction among the Tri-City flex markets was reported at Shopton Ridge 18-B in Charlotte, where Shutterfly relocated out of 102,400 square feet and into 300,000 square feet in Fort Mill, South Carolina. Downsizing by Intersil was among the largest contractions in the Triangle flex market during 2013 as the firm vacated a total of 78,981 square feet at the Triangle Business Center.
Weighted average rents in the flex market ranged from a low of $5.46 per square foot in the Triad to a high of $10.38 per square foot in the Triangle. Average flex rents increased in all of the Tri-City markets during 2013, with the greatest increase reported in the Charlotte market. Despite the increase during 2013, the Triangle market was the only Tri-City market to report average flex rents above the levels reported in 2008.
Industrial development activity increased in each of Tri-City markets by the end of 2013, with nearly 730,000 square feet of industrial space under construction. The warehouse component accounted for a majority of the space under construction as only 78,319 square feet of flex space in Charlotte was under construction at the end of 2013. The Triad market accounted for the largest share of warehouse space under construction at the end of 2013 with the 301,910-square-foot McConnell Center 5 building still under construction. The project was completed to shell but will not complete until a tenant has been secured for the space. Three warehouse and one flex building was under construction in the Charlotte market at the end of 2013. All three of the warehouse buildings under construction were located at Steele Creek Commerce Park, with significant pre-leasing already secured. The sole flex building under construction in the Tri-City area was located at The Park – Huntersville. The 78,319-square-foot Caldwell building at The Park – Huntersville reported significant pre-leasing as Forbo Siegling will occupy 58,670 square feet of space when the building completes.
The proposed pipeline of industrial space has been relatively flat in recent years with much of the 6.1 million square feet proposed in the Tri-City markets on hold. The Triad market accounts for the largest share of the planned industrial space with over three million square feet of proposed industrial inventory, while the Charlotte market ranks second with nearly 2.25 million square feet proposed. The warehouse component accounts for a majority of the planned industrial space in the Tri-City area with 5.4 million square feet proposed. The Triad market accounts for 56% of the proposed warehouse space, while the Charlotte and Triangle markets account for 34% and 10%, respectively.
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