South Carolina Prepares for Industrial Expansion

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1 Research & Forecast Report SOUTH CAROLINA INDUSTRIAL Q South Carolina Prepares for Industrial Expansion Bryana Mistretta Research Coordinator South Carolina Key Takeaways > > Robust interest led to record absorption in the second quarter. South Carolina s industrial market absorbed nearly 4.9 million square feet leading to a vacancy rate of 7.0%. > > South Carolina s logistics infrastructure is set for improvements with several projects underway to expand and enhance roads, the Inland Port in Greer and Port of Charleston. These improvements plus the expansion of the Panama Canal will attract future investments to South Carolina. > > Impressive absorption from the strong demand in the market has raised construction levels. Speculative construction is commonplace in Greenville and Charleston whereas Columbia s construction is currently limited to build-to-suits. Robust Interest Led to Record Absorption The industrial market in South Carolina remains active and is expected to continue throughout the remainder of the year. Approximately 4.9 million square feet of industrial space was absorbed during the second quarter of 2016, nearly matching the total net absorption for 2015 of 5 million square feet. The market is expected to continue this expansion as the local and state economies strengthen, the job market continues to grow and South Carolina completes its many infrastructure improvements. The market vacancy rate was down to 7.4% from 7.9% one year ago, despite the delivery of several vacant buildings to the market at the end of the quarter. These spaces, concentrated in the Lowcountry and Upstate, are in high demand and not expected to stay vacant for long with the current level of absorption. There is an opportunity in the Midlands for significant capital investment and job creation as the former Bose and Knauf Insulations facilities have not been filled. However, demand for space is not limited to large users. Smaller warehouse users are absorbing spaces in multi-tenant buildings while flex space users are struggling to find leasable spaces due to competition with office users. Market Indicators Relative to prior period Q Q3 2016* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE Note: Construction is the change in Under Construction. *Projected South Carolina Industrial Inventory I-77 Corridor 31.5 million SF South Carolina million SF Source: Colliers International, CoStar Midlands 82.8 million SF Lowcountry 35.4 million SF Upstate million SF

2 Industrial asking rental rates are steadily rising in all markets but the Lowcountry has the highest industrial asking rental rate at $5.18 NNN per square foot per year (PSF/YR), up from $4.98 NNN PSF/ YR last quarter. The asking rental rate for industrial space in the Midlands was $3.36 NNN PSF/YR compared to $3.49 NNN PSF/YR in the Upstate. The I-77 corridor reported the lowest average asking rental rate at $3.26 NNN PSF/YR, up from $3.18 NNN PSF/YR at the end of the first quarter of Efficient Logistics Set for Improvements South Carolina s logistics play a vital role in the continued success of the companies investing in the industrial market. Industrial users producing high volumes of product spend large portions of their budgets on transportation of goods. The state s central location along the United States Eastern coast, the Inland Port s direct connection to the Port of Charleston and network of interstates and rail, provides companies access to regional and global markets. The Inland Port in Greer, South Carolina adds to the connectivity of the state by providing a direct route via a Norfolk Southern rail line to the Port of Charleston. The Inland Port recorded 8,620 rail lifts in May 2016, a 32.2% increase from a year ago. Companies are taking advantage of rail as it provides faster delivery times at a reduced cost, especially for companies regularly delivering multiple truckloads a day. The combined success of the Inland Port and increased demand in South Carolina markets has led the South Carolina Ports Authority (SCPA) to announce plans for a second inland port facility. The SCPA is working with CSX in Dillion County and plans to finalize their decision by the end of the year. Growing popularity of intermodal facilities has led to a growing demand for rail-access buildings, particularly in Charleston. Growing demand of these buildings will increase not only the number of buildings, but the volume of shipments along these railroads. The Port of Charleston s volume for the fiscal year to date was over 1.7 million Twenty Foot Equivalent Units (TEU), a 2.2% increase over the previous fiscal year. The Port of Charleston continues to grow as it undergoes the construction of a new terminal in North Charleston and a planned deepening of its harbor to 52 feet by The recent completion of the Panama Canal expansion is spurring a shift in shipments from the West coast to the East coast through the Panama Canal and is expected to increase the amount of shipments moving through Charleston. Construction at the Port of Charleston is in direct response to the widening of the Panama Canal and will allow the port to accept more post-panamax vessels. Additionally, The Port of Charleston recently added a direct service route by Maersk and MSC to Vietnam that will provide companies direct and affordable access to global markets. South Carolina is crossed by five major interstates I-95, I-85, I-26, I-20 and I-77 linking the industrial market to the rest of the nation. Heavy traffic along these routes is impacting the quality of the road infrastructure. After months of debate, the South Carolina Legislature approved a roads bill contributing $4 billion over the next ten years to fix key bottlenecks along heavily trafficked South Carolina Logistics Infrastructure Upstate I-77 Corridor Midlands Lowcountry Greer Inland Port Monthly Rail Moves Source: South Carolina Ports Authority, Colliers International Port of Charleston Fiscal Year-to-Date (Jul-May) Volume (TEUs) 1,268,267 1,311,342 1,434,860 1,535,725 1,746,468 1,785, Source: South Carolina Ports Authority, Colliers International 2 South Carolina Research & Forecast Report Q South Carolina Industrial Colliers International

3 interstates. Improvements to these bottlenecks will ease travel, providing companies more efficient transport routes throughout the state. In addition, Berkeley County has developed a project, funded by the county, the South Carolina Transportation Bank, and a grant from the South Carolina Ports Authority to widen I-26 and install a new interchange at Sheep Island Parkway and State Road 16 (Jedburg Road). Once completed, the roads will serve as direct access for transport trucks from several industrial parks between North Charleston and Ridgeville, alleviating traffic along the main I-26 corridor Newton Way Berkeley County Notable Transactions South Carolina s Industrial market offers ideal conditions for investment with low interest rates, rising rental rates and moderate capitalization rates. These conditions are creating a disparity between the cost of leasing versus owning. In some cases, it is more affordable for tenants to purchase the buildings they currently lease. 68 properties sold this quarter, 15 were investments and several tenants purchased the buildings they occupy. > > 1103 Powderhouse Road, an 89,727 square-foot building in Aiken County, sold to Jones Development Company for $14.49 PSF. > > Reger Holdings purchased 2500 St. Matthews Road, a 319,000 square-foot facility in Orangeburg County for $27.59 PSF. > > Farrow Road in Richland County is a 285,000 square-foot building that sold for $12.46 PSF. > > Gerber Childrenswear LLC purchased the 477,000 square-foot building they occupy at 100 Trade Zone Boulevard in Berkeley County for nearly $67.09 PSF in April. > > CenterPoint Properties purchased the 342,926 square-foot building at 1124 Newton Way in Berkeley County as part of a three property investment portfolio for $62.1 million. The other two properties were in Georgia and Alabama. > > Pattillo Industrial Real Estate invested $1.4 million (9.81 PSF) to buy the 142,648 square-foot building at 9470 Patriot Boulevard in Berkeley County. > > 2040 Bushy Park Road in Berkeley County, a 415,000 squarefoot building, sold to Pacolet Milliken Enterprises, Inc. for $16.87 PSF. > > STORE Capital Corporation invested $61.54 PSF for the 61,750 square-foot facility at 5711 Old Buncombe Road in Greenville County. > > 101 International Boulevard in Laurens County sold to Johnson Controls, Inc. for $44.01 PSF. The property has two buildings totalling 340,814 square feet. Industrial Inventory Swells Several large build-to-suit facilities were delivered this quarter and even more speculative spaces. Although industrial space is available, Charleston and Greenville/Spartanburg have started to see interest from developers in areas previously uncharted 2500 St. Matthews Road Orangeburg County Source: Reger Holdings 5711 Old Buncombe Road Greenville County Source: CoStar 3 South Carolina Research & Forecast Report Q South Carolina Industrial Colliers International

4 for industrial development, pushing the borders of their local industrial markets. This quarter, 3.8 million square feet delivered and there are an additional 3.7 million additional square feet under construction statewide which will bring the South Carolina industrial market to over 355 million square feet. The market has available speculative space but very few quality options for flex spaces creating demand for new construction. Demand for flex space is driven by the overall economic expansion within the South Carolina industrial market. The influx of tenants in need of flex space has pressured developers to bring these types of buildings to market quickly, opening opportunities for investment in older spaces or and creative development of new flex buildings. In Charleston, industrial users are competing with office users whom are taking advantage of the cheaper rental rates for flex spaces to avoid the historically high rental rates on traditional office spaces. In Greenville/Spartanburg the rental rates on flex space are rising due to the lack of available options and the high demand for such spaces. Construction in the Midlands is restricted to build-to-suit developments further showcasing the areas need for not only smaller industrial and flex spaces, but speculative facilities as well. Second Quarter Deliveries > > 1 Guardian Way in Fairfield County, the former Knauf Insulation building, recently delivered following a full renovation to return the building to a shell state. The renovations included a new roof and other improvements to the 676,500 square-foot building. > > Saxe Gotha, located at 222 Old Wire Road, is a 120,000 squarefoot speculative building in Lexington County. > > Techtronic Industries s 1.3 million square-foot distribution center located along the I-85 corridor in Anderson County delivered. > > The 1.5 million square-foot distribution center for Dollar Tree delivered this quarter in Cherokee County. The $104 million distribution center will create 400 new jobs. > > The 50,000 square-foot Cherokee County Speculative Building, funded by the Santee Cooper Economic Development Loan Program, delivered this quarter. > > Construction of 545 Brookshire Road, a 240,020 square-foot speculative building in Spartanburg County, is now complete. > > Rite Aid s $90 million distribution center in Flatwoods Industrial Park delivered this quarter, adding 90,000 square feet and 600 jobs to Spartanburg County. > > A 142,000 square foot speculative building, developed in Palmetto Commerce Park on Cross Point Drive in Berkeley County delivered at the end of Q The building was fully leased by AHT Cooling Systems. > > The 351,000 square-foot Building 1 at the North Pointe Business Campus delivered this quarter in Berkeley County. > > A 50,000 square-foot flex building in the Banks Commerce Park on Industrial Center Drive in Charleston County delivered. > > Two 10,000 square-foot buildings, located at 7593 Sandlapper Parkway in Dorchester County, delivered this quarter. 545 Brookshire Road Spartanburg County Source: CoStar Saxe Gotha Speculative Lexington County Source: LCK, LLC North Pointe Spec Building Berkeley County Source: SunCap Property Group 4 South Carolina Research & Forecast Report Q South Carolina Industrial Colliers International

5 Q Industrial Market Summary Statistics South Carolina COUNTY BUILDINGS INVENTORY (SF) DIRECT VACANT (SF) SUBLEASE VACANT (SF) TOTAL VACANT (SF) TOTAL VACANCY RATE (%) Q NET ABSORPTION (SF) LOWCOUNTRY COUNTIES Berkeley County ,120,087 1,685,627 17,500 1,852, % 149,618 Charleston County ,001, , , % 20,000 Dorchester County 50 4,234, , , % - Lowcountry Total ,357,005 2,456,155 17,500 2,431, % 169,618 MIDLANDS COUNTIES Aiken County 63 10,356, , , % 25,273 Calhoun County 9 562,737 11,200-11, % - Clarendon County 9 695, , , % - Darlington County 21 3,565, , , % - Fairfield County 15 2,342, , , % - Florence County 110 8,608, , , % 14,611 Kershaw County 45 7,835, , , % - Lee County 8 823, Lexington County ,396, , , % 113,019 Newberry County 17 2,485,425 16,800-16, % - Orangeburg County 74 7,459, ,850 86, , % - Richland County ,102,035 2,271,842 32,000 2,303, % 143,769 Saluda County 3 400, , , % - Sumter County 56 5,165, , , % 133,700 Midlands Total 1,014 82,800,805 6,642, ,298 6,761, % 430,372 UPSTATE COUNTIES Anderson County ,860,635 1,107,911-1,107, % 1,598,540 Cherokee County 66 7,442, , , % 1,472,000 Greenville County 1,325 74,003,250 4,779,061 43,741 4,822, % 170,183 Laurens County 82 11,000,637 36,928-36, % 150,950 Oconee County 53 4,336, , , % (161,080) Pickens County 87 5,494, , , % 93,849 Spartanburg County ,759,190 6,669,503-6,669, % 949,695 Union County 27 3,890,010 95,020-95, % (18,000) Upstate Total 2, ,788,266 14,156,536 43,741 14,200, % 4,256,137 I-77 CORRIDOR Chester County 41 5,973,744 1,183, ,210 1,420, % -225,010 Lancaster County 48 4,925,098 1,078,689-1,078, % 56,650 York County ,561, , , % 172,665 I-77 Corridor Total ,460,069 2,544, ,210 2,780, % 4,305 MARKET TOTALS 4, ,406,145 25,800, ,749 26,173, % 4,860,432 Source: Colliers International, CoStar Port of Charleston Inland Port Terminal 5 South Carolina Research & Forecast Report Q South Carolina Industrial Colliers International

6 New Construction > > Construction has begun on the first building of the Charleston Trade Center in Berkeley County. The building will be 307,350 square feet and is expected to deliver by the end of > > Construction of Building Two at Atlas Commerce Center is underway in Berkeley County. The speculative building will be 67,500 square feet expected to deliver by Q > > Brookwood Capital Partners are developing two speculative buildings and one 100,000 square-foot build-to-suit space in Airport Commerce Center in Charleston County. The speculative buildings will be 144,000 square feet and 154,000 square feet. > > Clearing and grading began in Q2 at Caliber North, Liberty Property Trust s new planned development in Greenville County. It is located behind the recently filled Caliber Ridge Industrial Park on SC-101. > > A 234,000 square-foot building is under construction in the White Horse Industrial Center in Greenville County and is expected to deliver in > > Magna International is building a 165,000 square-foot facility along the I-85 corridor in The Matrix Park in Greenville County. > > Building 3 at Wingo Park, a 251,100 square-foot facility for Phillips Pet Food, is still under construction in Spartanburg County. A 101,200 square-foot and a 314,500 square-foot building is also planned in the park. > > The second building in Flatwood Industrial Park is under construction in Spartanburg County and will be 363,000 square feet. The park has potential for nine more industrial buildings. > > Protective Packaging is expanding their facility by 60,000 square feet at 255 Standard Warehouse Road in Kershaw County. > > Husqvarna s 513,000 square-foot expansion is still under construction at 172 Old Elloree Road in Orangeburg County. The facility is expected to be completed by the end of > > Sensor Electronic Technology s 20,000 square-foot expansion at 10 Atlas Court remains under construction in Richland County. The project is part of a $20 million investment they announced in 2011 and set to deliver in the fourth quarter of > > Continental Tires is building a 720,000 square-foot expansion to their campus at 1805 Highway 521 S in Sumter county. The building is set to deliver in the first quarter of Charleston Trade Center Rendering Berkeley County Source: Post and Courier via The Keith Corp. Atlas Commerce Center Rendering Source: Atlas Capital Group Husqvarna Expansion Orangeburg County Recent Investments and Expansions The state s central location means it is well-positioned to access other regional, national, and global markets by rail, interstate, or port. The combination of location and recurring recognitions for strong workforce, efficient logistics, and low cost of doing business encourages companies to stay and attracts new companies to the state. Additionally, South Carolina was awarded another Gold Shovel for 2015 by Area Development magazine. The market is growing quickly with interest from companies outside of the market intensifying. Not only are external companies looking to enter the Source: Beacon Development Company 6 South Carolina Research & Forecast Report Q South Carolina Industrial Colliers International

7 market, existing companies are expanding their operations holds promise for another Gold Shovel award as over $1 billion in capital investments were announced in the second quarter of 2016 throughout the state, activity that is expected to continue through the remainder of the year. Companies related to the automotive sector are growing in number throughout South Carolina. One such company is Jushi USA, a fiberglass manufacturing company, announced a $300 million investment in Richland County in May. The company plans to begin construction on a new 80,000 ton fiberglass production facility in the Pineview Industrial Park and expects to add 400 new jobs to the county. Strong Industrial Employment Industrial employment, those jobs related to the manufacturing and whole sale trade sectors, is strengthening in South Carolina. According to the most recent data from the Bureau of Labor Statistics, 52,600 non-farm jobs were added in South Carolina between June 2015 and June Industrial employment in South Carolina has risen to jobs, a 3.1% increase over the same time period. Industrial employment in South Carolina accounted for 15.1% of total non-farm employment in June The Upstate Region consisting of the combined Greenville- Anderson-Mauldin and Spartanburg, SC metropolitan statistical areas (MSAs)., accounts for 36.4% of total industrial employment in South Carolina. The Charleston- North Charleston MSA makes up 11.4% of South Carolina s total industrial employment with 35,400 industrial employees, a 3.8% increase over the last 12 months. The Columbia, South Carolina MSA contributes 15.5% to total industrial employment in South Carolina adding an additional 1,700 industrial jobs over the last 12 months. Industrial employment is expected to continue an upward trend as demand con continues and planned transportation infrastructure improvements are completed. Market Outlook Although there is political uncertainty in global and national markets due to the upcoming United States presidential election and the recent separation of the United Kingdom from the European Union, the South Carolina industrial market is expected to see a strengthening market. Investment conditions are expected to continue to improve with high rental rates, moderate capitalization rates and low interest rates. Demand for space will continue to heighten as newly delivered spaces are absorbed and vacancy rates drop over the next quarter. As quality, available space dwindles in the market additional construction will be necessary to meet the demand. Long-term, the market expects positive growth from the expansion and investment of new and existing companies. Q Highlighted Capital Investments COMPANY INVESTMENT JOBS COUNTY Jushi USA 300,000, Richland Tower International 75,000, Greenville Yangfeng Automotive Interiors 71,000, Laurens BASF Seneca 60,000,000 0 Oconee Jiangnam Mold Plastic Technology 45,000, Spartanburg Viva Holdings Group 28,000, Berkeley Pure Power Technologies 15,000, Richland Annual Change in Industrial Employment by Month South Carolina Source: St. Louis Federal Reserve, Bureau of Labor Statistics, Colliers International Commercial Real Estate Growth Cycle: Where the market stands and where it is going. NEW CONSTRUCTION RENTAL RATE EMPLOYMENT OCCUPANCY PHASE 4: RECESSION PHASE 1: RECOVERY COMMERCIAL REAL ESTATE GROWTH CYCLE PHASE 3: HYPERSUPPLY PHASE 2: EXPANSION For more statewide commercial real estate news check out our market reports at: SOUTH CAROLINA S INDUSTRIAL MARKET is moving along in the expansion phase. Rental rates, occupancy and employment are strong and continue to increase. New construction is gaining momentum with several build-to-suit and speculative buildings under construction. Current demand has the ability to support additional development. 7 South Carolina Research & Forecast Report Q South Carolina Industrial Colliers International

8 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.5 billion in annual revenue 2 billion square feet under management 16,000 professionals and staff About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. FOR MORE INFORMATION: Liz H. McCary Director of Marketing South Carolina Liz.McCary@colliers.com Bryana Mistretta Research Coordinator South Carolina bryana.mistretta@colliers.com CHARLESTON INDUSTRIAL PROFESSIONALS: Hagood Morrison, MBA, SIOR Simons Johnson, CCIM, MCR, SIOR John Beam Peter Fennelly, MCR. SIOR, SLCR Colliers International Charleston 25 Calhoun Street, Suite 220 Charleston, South Carolina USA COLUMBIA INDUSTRIAL PROFESSIONALS: Chuck Salley, SIOR Dave Mathews, SIOR Sam Myers Colliers International Columbia 1301 Gervais Street, Suite 600 Columbia, South Carolina USA GREENVILLE INDUSTRIAL PROFESSIONALS: Givens Stewart, SIOR Garrett Scott Richard Jackson Brockton Hall, MRED Richard Barrett Brannan Hudson Colliers International Greenville 55 E. Camperdown Way, Suite 200 Greenville, South Carolina USA colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.