Industrial Market on the Rise

Southeast Industrial Construction Should Jump 11 Percent in 2006

By Debra Wood

After a relatively flat 2005, industrial construction seems on a rebound in 2006, with new distribution centers in Georgia and Florida and manufacturing facilities in the Carolinas.

Kim Kennedy, manager of forecasting for McGraw-Hill Construction Research and Analytics, projects a stronger Southeastern commercial and industrial market in 2006, with the value of starts totaling $13.7 billion, up 11 percent from 2005's $12.3 billion tally.

North Carolina

"There is an increase in activity," said Chris Daly, partner in the Industrial Division of Childress Klein Properties, a real estate and property management firm in Charlotte. "General contractors are busy and seem to have a lot of work. More of that is coming from the private-sector, owner-occupied buildings."

Daly said North Carolina has targeted industries, including defense contractors and automotive suppliers, to locate clean manufacturing facilities in the state.

Last fall, Whiting-Turner Contracting Co. of Charlotte completed a $100 million, 750,000-sq.-ft. manufacturing plant in Winston-Salem, N.C., for Dell. The computer company reported that its decision to build in North Carolina's Piedmont Triad region spurred at least seven logistics, packaging and automation firms to also locate in the area.

National Gypsum of Charlotte announced it will build a $125 million wallboard plant in Mount Holly, N.C. Construction is expected to begin this year, with completion scheduled for fall of 2007.

Overall, "It's replenishment manufacturing," said James B. Sineath, CEO and chairman of the board of Commercial Carolina Corp., a real estate firm headquartered in Raleigh, N.C. "The state's making an effort, successfully so, because of the depletion of textile and furniture industries over the last five years."

Despite North Carolina's good road and air transportation systems, Sineath reported little speculative development and few distribution centers, except for a FedEx hub planned for Greensboro. The Greensboro Economic Development Partnership reports that the 1 million-sq.-ft., $500 million FedEx Mid-Atlantic Hub has not broken ground.

On the other hand, Daly said more speculative development is going on this year than last, but tenants still are not willing to pay rents high enough to recoup the building costs.

For example, Childress Klein is building a 300,000-sq.-ft. manufacturing or distribution facility in Winston-Salem. It has 30-ft.-high clear ceilings and the ability to cross-dock with bays on both sides of the structure, features tenants are demanding.

"It's a calculated risk," Daly said. "At the time, we felt there was enough absorption that another building could be justified."

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South Carolina

South Carolina also is experiencing some warehouse and manufacturing growth.

"We've seen more industrial work in the past year than in the previous three years combined," said Mac Carpenter, vice president of BE&K Building Group's Greenville, S.C., office. "That's been great. We love industrial construction."

BE&K is building two structures at Charleston International Airport. One is a 328,000-sq.-ft., airplane assembly and integration facility for Global Aeronautica of Charleston, a joint venture between Alenia North America of Washington, D.C., and Vought Aircraft Industries of Dallas. The other is a 450,000-sq.-ft. fuselage production building for Vought.

Both design-build, structural-steel structures are under way. As part of the contract, BE&K is constructing a taxiway so fuselages can be flown to Washington State for further assembly. Carpenter said the ability to taxi to a waiting plane at Charleston airport was an important factor in the companies selecting this location.

CH2M Hill Lockwood Greene of Spartanburg, S.C., broke ground last March on Eastman Chemical Co.'s IntegRex facility in Columbia, with completion expected later this year.

The Korte Co. of St. Louis is building a $180 million, 680,000-sq.-ft. Anderson, S.C., distribution center for Walgreen Co. of Deerfield, Ill. The drug store company's project is scheduled for completion in 2007.

Georgia

Georgia also enjoys an active industrial market, with distribution centers in Atlanta and Savannah and manufacturing in more rural communities.

For example, Honda Motor Co. of Torrance, Calif., broke ground in May on a $100 million, 250,000-sq.-ft. transmission plant in Tallapoosa, Ga. Joan Young, executive director of the Haralson County Development Authority, said Honda sought a site in a small community with easy access to its Lincoln, Ala., assembly plant. The development authority purchased the adjacent 250 acres to create an industrial park.

Also, Patillo Construction Co. of Stone Mountain, Ga., recently completed a 400,000-sq.-ft. tractor-implements manufacturing plant for Kubota Corp. in Jefferson, Ga. And Tensar Corp. of Atlanta is expanding its Morrow, Ga., plant south of Atlanta. The plant produces Biaxial Geogrid used for road projects.
DPR Construction of Atlanta began construction last year on a 185,000-sq.-ft., two-story, tilt-up blood processing and distribution facility in Douglasville, Ga., for the American Red Cross.

"[The industrial market] is showing some real good signs of growth," said Raymond A. Stache, senior director of Cushman & Wakefield's Atlanta Industrial Global Supply Chain group. "There seems to be pretty good demand on all levels."

Stache predicts a decrease in Atlanta vacancy rates this year, from about 12 percent last fall, despite about 4 million sq. ft. of newly constructed industrial properties coming online. Developers have more speculative buildings planned or under way.

"Demand is coming from users who have been hesitant over the last several years to make changes because of an uncertain future with the war in Iraq, terror and the overall economy," Stache said. "They have finally gotten to the point they need to execute modifications in their distribution networks."

Much of the new development is taking place west and south of the city, near the airport and new intermodal rail yards, bringing goods from the Port of Savannah. Easy access to interstates also attracts distribution centers.

Minneapolis-based Target is building two facilities in coastal Georgia-a 1.5 million sq. ft. distribution center under construction in Midway and a 2 million-sq.-ft. import warehouse at the Savannah River International Trade Park, near the Port of Savannah, scheduled to open in 2007.

Ron Tolley, CEO of the Liberty County Development Authority, said Target investigated several locations along the Interstate 95 corridor before selecting Midway. It sought a site within 1 mi. of an interchange in a community with a trainable labor force.

Additionally, home furnishings retailer IKEA announced plans to build a 1.7 million-sq-ft. distribution center near the port. The facility will provide inventory to stores in the Southeast and Texas.

Florida

Industrial construction exists in Florida, but it is not the state's strongest market segment.

"We're out of dirt," said Chris Metzger, senior director of Cushman & Wakefield's Fort Lauderdale office. "The land market for industrial product is diminishing. That has climbed asking prices for industrial-zoned dirt to $10 to $15 per square foot. "Two years ago, it was $5 to $7 a square foot."

Industrial-zoned land also has become scarce in Miami-Dade County, with prices in some areas topping $15 per sq. ft. Last year, Lincoln Property Co. of Miami and Morgan Stanley purchased 39 industrial acres in Medley for $17 million, according to Cushman & Wakefield reports. Lincoln plans to build warehouses on the property.

Many developers are scooping up what land is left for condo-warehouses. Metzger has seen condo-warehouses double in value in just a few years, and he said his company is now marketing eight projects.

"People interested in owning their facility want to make sure they have it long term," said Russ Blackwell, CEO of CalEast Industrial Investors of Orlando.

Vacancy rates on existing Broward and Miami-Dade county properties averaged 7 percent in 2005, with Metzger predicting that Fort Lauderdale vacancy rates will decline to 4 percent this year. He said industrial development will move up the coast to St. Lucie County.

Land still exists in Orlando and other parts of the state. CalEast is developing speculative distribution space in Central Florida.

"We're very bullish about Orlando," Blackwell said. "It's a great regional distribution hub. The highway system is excellent. We think the demand is strong and the growth opportunities excellent."

Useful Sources:

Cushman & Wakefield
http://www.cushwake.com