As the U.S. economy emerges from the shadow of the pandemic of the last two years, South Carolina’s commercial real estate market remains strong and poised for continued growth across all sectors, but especially in the industrial segment.
In the industrial sector, the story across South Carolina has been supply and demand, said Allen Wilkerson, vice president for Colliers International in Columbia.
“When you look at rental rate growth and you look at construction across the entire state, it has been at the highest clip it has been at in probably the history of the state,” he said.
And growth is not likely to be curbed anytime soon, even with an anticipated rise in interest rates.
While economists and analysts at Wells Fargo expect long-term interest rates to gradually climb higher over the next few years, they predict only modest increases.
They believe slowing labor force growth and an aging population adding to a global savings glut are powerful structural factors that will likely keep a ceiling on rates in the years ahead. That said, interest rates do appear to be rising toward levels that are more consistent with those seen before the pandemic, the economists said in a recent report.
They contend, however, that a step-up in cap rates, a measure of the rate of return expected to be generated on a real estate investment property, is unlikely. At the onset of the pandemic, cap rates did not fall as quickly as interest rates did, meaning there is likely enough room for interest rates to rise without materially affecting cap rates, the economists said.
Meanwhile, growth in the industrial, office, and retail segments is forecast to continue in the state’s metropolitan markets of Greenville-Spartanburg, Columbia, and Charleston.
Greenville
In the Upstate, Colliers reported that for 2021 10 million square feet of new industrial projects were announced and another 5 million-plus is planned. The annual net absorption for 2021 was a record-breaking 10.2 million square feet, with 2022 expected to follow the same path.
The return of in-person shopping also bodes well for the Upstate, with Colliers reporting that vacancy rates dropped to 4.2 percent in the fourth quarter of 2021 from 5.8 percent a year earlier. “The market’s positive retail environment will continue to boost retail activity throughout 2022,” Colliers said.
And on the office front, commercial real estate firm Cushman & Wakefield’s fourth-quarter report on the Upstate market noted that “despite minimal construction completions for 2021, Greenville-Spartanburg’s pipeline remains robust with more than 945,000 square feet of new product expected to be delivered in 2022 and 2023.”
Columbia
In the Columbia industrial market, Colliers reports that demand is strong, and available space is scarce. “Tenants are considering executing leases a year or more in advance of delivery to secure space in buildings under construction or planned,” Colliers said in its fourth-quarter report.
Columbia’s retail market is also performing well as shoppers return to stores as the pandemic lessens. Colliers reports that retail vacancies in the market steadily decreased over the past year to 4.75 percent.
In the office market, Colliers reported that although vacancy increased to 15.5 percent, largely because of the pandemic, Class A rents remained stable. And Colliers noted that buildings which have been renovated and added amenities have performed well as tenants look for high quality space to encourage their staffs to return to the office.
Charleston
Spurred by an increase in on-line shopping during the pandemic and an emphasis by the S.C. Ports Authority on warehousing and distribution operations, as well as continued support for the state’s manufacturers, Charleston is poised for steady industrial growth.
For the fourth quarter of 2021, commercial real estate firm CBRE reported that the Charleston industrial market had nearly 10 million square feet of space under construction. The market also continued its expansion up the Interstate 26 corridor to I-95 and beyond.
A recent CBRE report, “Supply Chain Disruptions Create New Opportunities for Industrial and Logistics Real Estate,” noted that “demand will be greatest in logistics hubs that can reach large population concentrations with lower transportation costs.”
Strong demand in the industrial sector also helped Charleston’s office market rebound in 2021, with CBRE reporting 275,000 square feet being positively absorbed. The Charleston retail market saw a positive net absorption of nearly 176,000 square feet in the fourth quarter of 2021, according to Colliers, boosted by tourism and a return to in-person shopping.
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