New and expanding industries have pushed the Columbia area’s industrial vacancy rate to the lowest level since before the recession took hold in South Carolina, according to a report from Colliers International.
But that has left the Midlands with few options for prospective businesses that would bring jobs to the area, experts said. And with still-tight lending standards, building more space in the hopes of luring industry – and jobs – is unlikely, they added.
“We’re really scrambling to figure out how to make a deal happen,” said Ben Brantley, senior vice president at CBRE Columbia, noting a shortage of quality buildings larger than 50,000 square feet. “We are losing deals because we don’t have that kind of product to throw in the game.”
The Colliers report found that Columbia’s industrial market ended the second quarter with the highest occupancy rate since 2008 at 93.03 percent, up from the first quarter rate of 91.97 percent.
The increase in sales of industrial space was expected, the report said, as low interest rates and higher leasing costs motivated buyers.
Growth was most dramatic in the Northeast Richland area, which finished the quarter with a vacancy rate of 15.68 percent after businesses occupied an additional 383,000 square feet of space. Most of that was from Intertape Polymer Group’s purchase of the 350,000-square-foot industrial building formerly occupied by Lamson & Sessions in Carolina Pines Industrial Park in Blythewood.
But while the Northeast submarket still has the highest vacancy rate, that could change quickly if companies start buying the few large, high-quality buildings still for sale in that market.
Charles Salley, president of Colliers in South Carolina, said there could be a shortage of space as early as the first or second quarter of 2014 if current trends continue.
In other Midlands markets, there already are shortages:• Brantley said there’s great demand for buildings in Lexington County but almost no vacant space, a mere 600 square feet with 10,500 square feet available for sublease.
• In southeast Columbia, the problem is that most of the existing buildings were built 20 or more years ago and are now “functionally obsolete,” Brantley said. Industrial spaces along Bluff Road and Shop Road often lack fire safety systems and have ceilings that are too low, among other deficiencies, he said.
As a result, businesses must either look elsewhere for quality industrial buildings or adjust their requirements for occupancy. Brantley noted a recent client who had to seek permission from corporate headquarters overseas to waive an internal requirement for fire safety sprinklers after failing to find a building with such a system.
Another challenge, Brantley said, has been that most businesses are looking to begin operating within six months, too short a time window to construct a new space built to suit.
And banks have been reluctant to finance construction of speculative space – developments without a client – unless it is partially leased. Under such an arrangement, a tenant may, for instance, agree to lease 75 percent of a space, reducing risks for lenders, while the rest is set aside as speculative space.
Right now, there aren’t any programs or public-private partnerships in Columbia to incentivize speculative construction, Brantley said, though other counties have built speculative buildings.
Ben Johnson, research director at CBRE Columbia, suggested that steps be taken to streamline the process of zoning and approving building plans to make it easier for developers to build within the timeframe tenants want.
He also noted that most existing industrial space in Columbia was built as partially-leased, partially-speculative space and that new construction would probably continue to be built under such an arrangement.
But right now the potential for Columbia to lose prospective businesses to other cities with better industrial spaces has not been enough to get construction going.
“That argument is not strong enough to get a bank to finance a building,” Johnson said.