Tight Industrial Market to Benefit from Growing Automotive Cluster

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1 Research & Forecast Report SOUTH CAROLINA INDUSTRIAL Q2 201 Tight Industrial Market to Benefit from Growing Automotive Cluster Jessica Rahal Research Coordinator South Carolina Key Takeaways > > South Carolina s industrial market continues to tighten with declining vacancy, increasing rental rates and growing demand for space. > > Major investments from automotive manufacturers Volvo and Mercedes-Benz were announced during the first half of 201. Together, the manufacturers will be investing $1 billion and creating,300 jobs over the next decade in the Charleston region. > > Speculative construction is gaining momentum as tenants seek move-in ready space. > > Industrial employment is on the rise in South Carolina, nearing pre-recession levels but remains below the peak employment seen in the 1990s. > > Strong activity is setting records for South Carolina s ports. Major Announcements Grow South Carolina s Automotive Cluster Market Indicators Relative to prior period Q2 201 Q3 201* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE Note: Construction is the change in Under Construction. *Projected South Carolina Industrial Inventory I-77 Corridor 30.3 million SF Midlands 77.0 million SF South Carolina s existing automotive cluster, which includes more than 20 automotive-related companies, will soon grow. Significant announcements were made by major automotive manufacturers Volvo Cars and Mercedes-Benz Vans during the first half of 201. The manufacturers plan to invest a combined $1 billion and create,300 jobs over the next decade in the Charleston region. Mercedes-Benz Vans, a division of Daimler, announced plans earlier this year to invest $00 million in a new Sprinter van plant in Charleston and create 1,300 new jobs over the next several years. Construction on the new plant is expected to begin in The manufacturer is expanding its facility at 801 Palmetto Commerce Parkway and will use the new plant to manufacture next-generation Sprinter vans to supply the North American market. South Carolina 32.8 million SF Source: Colliers International Research, CoStar Lowcountry 33.4 million SF Upstate 18.2 million SF

2 Just two months after Mercedes-Benz Vans made their announcement, Volvo selected South Carolina for its first American manufacturing plant. The $00 million facility will be located in Berkeley County and is expected to create 2,000 new direct jobs over the next decade and up to 4,000 jobs by The facility will serve to manufacture the latest generation Volvo models for sale in the U.S. and other markets. Volvo expects to complete the first vehicle at the plant in The manufacturers will join BMW in South Carolina, which established its Spartanburg County manufacturing plant in BMW initially announced plans to invest $600 million and create 2,000 jobs in the Upstate. Today, following much success, the manufacturer has invested almost $7 billion and employs 8,000 people. The presence of such major automotive manufacturers has the potential to grow the presence of automotive-related companies throughout South Carolina. In an effort to cut transportation costs, which make up a large portion of production costs, more suppliers are choosing to locate in close proximity to their customers, a trend known as localization. As a result, automotive suppliers and third-party logistics providers are expected to flock to the region in an effort to better serve their customers. Additionally, existing suppliers will likely see a surge in demand, which will generate a need for additional labor and space, benefitting the state s industrial market. Volvo Cars considered over 60 U.S. locations before selecting the Berkeley County site. Various factors essential for growth and success give South Carolina an edge in attracting automotive and non-automotive manufacturers. The Port of Charleston s strength and experience with automotive exports, the presence of other global automotive manufacturers, a skilled labor force and probusiness environment helped attract Volvo to South Carolina. Tightening Market Conditions South Carolina s industrial market consists of almost 326 million square feet of industrial space across 4,380 buildings. The market can be thought of as four major industrial regions, the Upstate, Midlands, Lowcountry and I-77 corridor in the northern part of the state. Robust demand for industrial space in recent quarters is driving down vacancy rates in markets throughout South Carolina. The resulting statewide industrial vacancy rate was down to 8.% at mid-year 201 from 8.8% the previous quarter and 9.3% one year ago. Leasing velocity was solid as evidenced by a net absorption of approximately 1.7 million square feet during the second quarter of 201. Activity was widespread as all major industrial regions experienced positive absorption and lower vacancy rates. The Midlands region absorbed the greatest amount of space. While the state is receiving growing interest from automotive and aviation suppliers, other user-types including third-party logistics providers and light assembly operations are also looking for space in the market. A stronger U.S. economy, growth in domestic consumer spending and efficient logistics are factors driving domestic manufacturing growth. Investments & Expansions Announcements of new investments and expansions continued to fill headlines throughout the second quarter of 201. > > Techtronic Industries (TTI) is expanding its footprint in the Upstate with a new 1.3 million square-foot light assembly and distribution facility at the intersection of I-8 and Highway 81 in Anderson County. The company s $8 million investment is expected to create more than 200 new jobs. Construction is underway and expected to complete by mid-year > > Dollar Tree recently confirmed plans to open a $104.4 million distribution center in Cherokee County. The 1. million squarefoot facility will be located at Upstate Corporate Park along I-8. The company expects to be operational in 2016 and create 400 jobs over years. > > Borgwarner Inc. is expanding in Seneca, opening a second facility in Oconee County. The company is leasing approximately 100,000 square feet at Seneca Commerce Park in a 423,000 square-foot, multi-tenant industrial building. The $13.3 million expansion is expected to create 0 new jobs by > > Gerber Childrenswear is investing $33 million and establishing a new distribution center in Berkeley County. The 477,000 square-foot facility is under construction at Foreign Trade Zone, a joint-venture of The Rockefeller Group and WestRock Land Development. > > GKN Aerospace plans to expand its existing operations in Orangeburg County. The aerospace supplier plans to invest $20 million and occupy a new 126,000 square-foot facility adjacent to its existing facility at 348 Millennium Drive. GKN expects to begin operations at the facility late in 2016 and create more than 7 jobs. Industrial Vacancy Rates by Region 9.8% 9.% 9.8% 8.9% 7.9% 6.8% Source: Colliers International Research, CoStar 8.2% 8.2% 8.2% 14.% 11.2% 11.4% Midlands Lowcountry Upstate I-77 Corridor Q Q1 201 Q South Carolina Research & Forecast Report Q2 201 South Carolina Industrial Colliers International

3 Highlighted South Carolina Speculative Industrial Developments Speculative Construction Gains Momentum Despite growing demand for industrial space throughout South Carolina, the existing inventory has remained stagnant with limited construction in recent years. New speculative construction is finally gaining momentum as more companies aim to shorten their time to market and are looking for move-in ready space. Approximately 1.1 million square feet of new, Class A space has been added to the existing inventory over the past year. Over 2.6 million square feet of high quality speculative space remain under construction throughout South Carolina Recently Completed Under Construction The new space is leasing successfully given the limited options for quality space throughout the market. Although rental rates for new construction are typically higher than average rental rates, the increasing rates for existing space make speculative space a feasible option for many. Kenco Logistics Services, a third-party logistics provider, recently moved into a new 160,000 square-foot speculative building developed by Pattillo Industrial Real Estate at Hillside Industrial Park. Additionally, speculative buildings at Caliber Ridge Industrial Park saw great activity with Bosch Security Systems and Pilot Freight leasing space. Developers are also finding that it is important to have padready sites available for construction in an effort to reduce construction time. Buildings constructed on pad-ready sites on average take months less to complete than those on sites which need to be prepped for construction due to entitlements and permits, among other items. Recently Completed White Horse Industrial Center Greenville County Burnham Partners LLC & Exeter Property Group 306,000 SF Hillside Industrial Park Spartanburg County Pattillo Industrial Real Estate 161,000 SF 110 Key Road Richland County Boyd Properties 38,00 SF Building 4 at Crosspoint Charleston County Jamestown & Childress Klein 27,000 SF Waterford Business Park York County City of Rock Hill 30,000 SF River Walk Business Park York County Beacon Partners 27,000 SF Under Construction Logue Park 1 Greenville County Cothran Properties 110,000 SF Southchase One Greenville County Pattillo Industrial Real Estate 20,000 SF Hillside Enterprise Park Spartanburg County Scannell Properties & Strategic Capital Partners 1,000 SF Caliber Ridge Industrial Park Spartanburg County Liberty Property Trust 140 Caliber Ridge Dr: 16,000 SF 120 Caliber Ridge Dr: 16,000 SF Flatwood Industrial Park Spartanburg County Johnson Development Associates 363,000 SF Wingo Park Spartanburg County Becknell Industrial 17,000 SF Mid Carolina Commerce Park Newberry County Newberry County 0,000 SF Shop Grove Industrial Park Richland County Boyd Properties 60,200 SF & 70,200 SF Saxe Gotha Industrial Park Lexington County Lexington County 120,000 SF North Pointe Building C Berkeley County MWV & SunCap Property Group 30,86 SF Charleston Regional Business Center Berkeley County Childress Klein & Amstar 278,720 SF Palmetto Commerce Park Charleston County Pattillo Industrial Real Estate 142,000 SF Carolina Place York County Beacon Partners 277,000 SF 3 South Carolina Research & Forecast Report Q2 201 South Carolina Industrial Colliers International

4 Q2 201 Industrial Market Summary Statistics South Carolina COUNTY BUILDINGS INVENTORY DIRECT VACANT SUBLEASE VACANT TOTAL VACANT TOTAL VACANCY RATE (%) Q2 201 ABSORPTION LOWCOUNTRY COUNTIES Berkeley County ,433,33 1,039,688 81,180 1,120, % 319,48 Charleston County 201 1,729, , ,37 4.0% 6,221 Dorchester County 1 4,200,036 30, , % -9,00 Lowcountry Total 38 33,362,960 2,19,02 81,180 2,276, % 366,179 MIDLANDS COUNTIES Aiken County 7 10,63, , , % 20,600 Calhoun County 7 448,137 17, , % 0 Clarendon County 8 670,926 21, , % 0 Darlington County 21 3,6,9 197,00 7,120 24, % 0 Fairfield County 13 1,4, , , % 0 Florence County 10 7,84,947 1,034, ,034, % -11,434 Kershaw County 34,23,396 37, , % 0 Lee County 8 823, , , % 0 Lexington County ,894,27 341, , % 281,849 Newberry County 12 1,889,38 222, , % -1,000 Orangeburg County 69 6,922, ,969 86,298 31,267.1% -69,840 Richland County ,832,787 1,727, ,000 1,96, % 304,103 Saluda County 1, , , % 0 Sumter County 2,09,9 663, , % 104,600 Midlands Total ,991,680 6,0, ,418 6,886,82 8.9% 614,878 UPSTATE COUNTIES Anderson County ,829,822 1,009, ,009,732.4% 23,260 Cherokee County 63,874,773 1,32, ,32, % 7,000 Greenville County 1,326 72,666,193 6,018,88 0 6,018,88 8.3% 724,613 Laurens County 76 10,913,16 847, , % 900 Pickens County 84,302, , , % 0 Spartanburg County ,631,221,37,640 0,37, % -197,999 Upstate Total 2,760 18,218,011 1,11, ,11, % 7,774 I-77 CORRIDOR Chester County 37,831,682 1,26, ,210 1,492,89 2.6% 10,000 Lancaster County 48 4,919,761 1,163, ,163, % 0 York County ,09,38 783, , % 18,213 I-77 Corridor Total ,260,981 3,204,33 236,210 3,440,4 11.4% 19,213 MARKET TOTALS 4,380 32,833,632 27,020, ,808 27,719,01 8.% 1,734,044 Source: Colliers International Research, CoStar Port of Charleston Inland Port Terminal 4 South Carolina Research & Forecast Report Q2 201 South Carolina Industrial Colliers International

5 South Carolina Ports Activity is strong at both of South Carolina s ports, the Port of Charleston and the South Carolina Inland Port in Greer, and is expected to increase with the additional production of automobiles. The ports many users benefit from efficient logistics and reduced transportation costs. Port of Charleston Activity at the Port of Charleston is up over previous years according to the South Carolina Ports Authority. The port handled 169,914 twenty-foot equivalent units (TEUs) in June 201, increasing 13.9% over June Approximately 1.9 million TEUs were handled during the South Carolina Ports Authority s 201 fiscal year, 231,473 TEUs more than the 2014 fiscal year. Port tonnage is greater than recent years and activity is expected to further increase as new manufacturers and distributors continue to establish South Carolina locations. South Carolina Inland Port Market Outlook South Carolina s industrial market is poised for continued success through the remainder of 201. Strong demand for industrial space will continue as manufacturers and distributors look for ways to cut transportation costs. E-commerce growth will generate a demand for warehouse space while automotive manufacturing growth will bring suppliers and manufacturers to the region. Despite slow sales during the second quarter, sales activity is likely to pick up as investors take advantage of the current low interest rate before the speculated increase later this year. Rental rates will increase as vacancy tightens and new space delivers to the market. Momentum is likely to remain strong for speculative and build-tosuit construction. Port of Charleston Twenty-Foot Equivalent Units (TEUs) June The South Carolina Inland Port (SCIP) in Greer is exceeding expectations. SCIP posted a new record in May 201 with,84 rail lifts. The port s users include BMW and Adidas. The inland port offers direct rail service to the Port of Charleston via Norfolk Southern. Industrial Employment Industrial employment, which includes manufacturing and wholesale trade, is growing in South Carolina. As of June 201, approximately 302,00 individuals were employed in the industrial sector, accounting for 1.1% of total non-agricultural employment. Approximately 4,100 new jobs were added to the industrial employment sector between June 2014 and June ,914 TEUs June % since June 2013 Source: South Carolina Ports Authority +13.9% since June Fiscal Year +14% over 2014 fiscal year 1.9 million TEUs handled Although industrial employment is growing over recent years, levels remain below pre-recession and 1990s employment. The pre-recession peak was at 322,00 industrial jobs in June Prior to the recession, there was a dip in manufacturing employment in South Carolina and throughout the United States as manufactures chose to locate their plants abroad where labor and production costs were less expensive than in the United States. Manufacturing employment in South Carolina was its highest level in 1990 when employment reached 403,700 jobs and made up 26.6% of total non-agricultural employment. Annual Change in Industrial Employment by Month South Carolina Number of Industrial Jobs Added 2,000 1,800 1,600 1,400 1,200 1, Industrial employment is expected to bounce back in the near future as a result of increasing labor costs abroad, rising transportation costs and the strengthening U.S dollar. Additionally, technological advancement is requiring a specific skill set, which is driving some manufacturers to the United States. Locally, recent announcements from Volvo and Mercedes-Benz will play a key role in growing industrial employment /01/ /01/2012 0/01/ /01/ /01/ /01/ /01/ /01/2013 0/01/ /01/ /01/ /01/ /01/ /01/2014 0/01/ /01/ /01/2014 Source: Bureau of Labor Statistics, St. Louis Federal Reserve 11/01/ /01/201 03/01/201 0/01/201 South Carolina Research & Forecast Report Q2 201 South Carolina Industrial Colliers International

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