Business

Spec development continues as local demand stays strong

Ronnie Bryant

By Erica Batten.  With decreasing vacancy rates, rising rental rates and a net industrial absorption rate well above historical averages, the Golden Crescent—Lake Norman to Kannapolis and the Speedway area—is a promising locus of investment for speculative development.

According to the 2018 third-quarter report from Colliers International Group, a global real estate services and investment management company, the net absorption for industrial space in Mecklenburg and surrounding counties was 1,040,399 square feet.

“The statistics tell the story of just how important spec buildings are,” said Ronnie Bryant, president and CEO of Charlotte Regional Partnership. An average of 77 percent of all projects in this region request existing buildings in the early stages, he said.

“Of course, the project dictates what type of buildings clients need,” Bryant said. “Spec buildings are usually built with the necessary flexibility for users to eventually expand and/or upgrade them.”

York County led absorption this quarter, while Cabarrus actually posted a negative absorption of 50,697 square feet.

However, Cabarrus had the highest absorption in the first quarter of 2018 with 460,890 square feet. The I-85 corridor near Concord Regional Airport continues to see large-scale industrial development.

The Silverman Group, based in New Jersey, is investing $56 million to develop Phase III of its 170-acre Concord Airport Business Park along Derita Road, where speculative development is explosive. Phases I and II of the business park are completely leased. Avante Health’s lease of 156,899 square feet there were among the third quarter’s notable moves.

Griffin Industrial Realty, based in Bloomfield, Ct., has invested $12.8 million in two new industrial spec buildings in Concord’s International Business Park, a 500-acre complex at I-85 and NC-73. When complete, the firm’s Carolina Tradeport will comprise 560,000 square feet in a three-building industrial park.

Colorado-based Fortius Captial Partners is developing 21 acres on Pitts School Road as an industrial park with 16,000- to 40,000-square-foot spaces for medium-sized tenants, a market segment managing partner Harris Morrison called “underserved” in this region. Fortius’s total investment is $9.9 million.

“Cabarrus County and the Lake Norman area are well positioned to continue to reap the benefits of this development,” said Steven Pearce, director of business development for the Charlotte Regional Partnership. “With the expected completion of the I-77 widening project, industrial developers will be encouraged to consider this area in coming years,” Pearce said, explaining that development around Lake Norman tends more toward mixed-use, multi-family and retail investments, Pearce said.

But there are two notable commercial spec projects under way.

At Bryton Town Center in Huntersville, Charlotte-based Foundry Commercial is developing 48 acres as a 700,000-square foot industrial complex, hoping to attract light manufacturing or research and development tenants. Three of the six planned buildings will be complete by early 2019.

Also set for completion in mid 2019 is a 169,000-square foot Class A building in the Huntersville Business Park near I-77. The property is being offered by real estate services firm Avison Young.

Vacancy rates and average rental rates impact investment in speculative development, said Ryan McDaniels, executive director of Lake Norman Economic Development.

The Charlotte region’s overall industrial vacancy rate, which includes warehouse and flex space, was 5.1 percent for the third quarter, a 0.3 percent decrease from the second quarter, according to the Collier’s report. It said that e-commerce is “fueling industrial fundamentals,” and while new development of large warehouses continues, the supply of industrial buildings “continues to be a challenge.”

The average industrial rental rate moved up seven cents this quarter to $4.69 per square foot.

Nationally, economists say demand for big warehouses and other large-scale industrial projects hasn’t peaked. Wells Fargo’s Annual Economic Outlook report said that occupancy rates have been “steadily increasing for most categories” and there is “little fear of overbuilding,” as demand for industrial space is growing.

Although the overall economic outlook is good for speculative development, investors must also consider the political climate when choosing a location.

Companies often make a location decision based on ability to find labor, to move closer to their customers, to reduce costs or to enter a new market. “Incentives are important, but are often much lower on the list than things like availability of talent, cost of doing business, quality of life [and] infrastructure. Spec development is a barometer of how the real estate community feels about a location,” Pearce said.

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