Marcus & Millichap

Charleston Industrial Research Report

Charleston Metro Area, Second Half 2017

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Mercedes, Volvo Poised to Rev Up Charleston Industrial Market

Auto industry and port growth bode well for metro's industrial sector. Deliveries reach a 10-year peak in 2017, due in large part to the completion of a 1 million-squarefoot production plant for Mercedes Benz in Ladson. Developers are scheduled to remain active into 2018, when Volvo opens a 2.3 million-square-foot facility in Ridgeville. The two auto companies will directly employ more than 3,000 workers, generating further employment and demand for industrial space as suppliers locate nearby. The port in Charleston also spawns the need for warehouse and distribution space. A deepening of Charleston Harbor and upgrades to the port's infrastructure will allow the facility to handle more Post-Panamax vessels upon completion in 2019. The added cargo volume supports the expansion of logistics firms, many of which locate in the high-growth area along Interstate 26 from North Charleston to Summerville. Despite the surge in construction this year, industrial absorption reaches a six-year high, tightening vacancy to the lowest level in four years and encouraging rent gains.

Positive economic outlook has investors searching for assets in Charleston. Buyers are following developers into Berkeley and Dorchester counties where the availability of land at a lower cost is encouraging industrial development. Many investors are coming from out of state seeking newer assets that encompass more than 125,000 square feet. Buildings in industrial parks with convenient interstate access are especially desired at cap rates that typically start in the mid-6 percent area but may dip below that for prime properties. Investors seeking higher yields are active in West Ashley or North Charleston. Here, first-year returns for flex properties are generally in the 7 percent range, while older manufacturing buildings can trade at cap rates above 8 percent.

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