Beacon Newsroom
Some see promise in industrial real estate
March 06, 2009
The Charlotte ObserverBy Doug Smith
In a real estate slowdown, the project illustrates faith in “the resilience and diversity of the Charlotte region's economy,” said Jon Morris, Beacon's industrial partner.
But through the first two months of this year, his competitors in the industrial market have been on the sidelines. No permits were issued in January and February, typically slow months for construction, compared with four permits during those two months in 2008.
The warehouse vacancy rate rose to 11.8 percent at the end of last year after starting the first part of the year at 11.2 percent, according to Karnes Research Co.
Sales and leasing, too, are slow as potential distribution, manufacturing and warehouse tenants curtail growth plans and wait for a recovery.
Still, Morris said, “The industrial market's glass seems half full relative to the rest of the industry.”
That sales and leasing market hasn't seen as big a drop as the residential and commercial markets and potentially could bounce back quickly. But with retailers closing or slowing expansion, the market also could see an increase in vacancies as demand slows for warehouse and distribution space.
Beacon was able to lease 50 percent of one building in its 77 Overlook development before construction, enough interest to enable the development team to secure financing.
“Obviously, we are in a dip,” said industrial broker Lester Osborn of Piedmont Properties/CORFAC International. “But landlords are in good shape. We don't have high vacancies, and we are not overbuilt in industrial or office.”
The Charlotte industrial market includes 29.55 million square feet of multi-tenant warehouse space, about 3.47million square feet of which is vacant.
Only one warehouse project – Sykes Industrial Park West's two buildings totaling 250,000 square feet – was completed in the fourth quarter.
That's a good thing, according to Karnes Research's fourth-quarter market analysis, because it means landlords won't have to compete with a slew of new space.
Also, having space available for immediate occupancy increases Charlotte's chances of landing a large company, business recruiters say.
But industrial developers are being careful not to get ahead of themselves after experiencing earlier economic downturns.
“We got shelled pretty hard in 2002 and 2003,” Morris said, when overbuilding pushed the industrial vacancy rate to nearly 20 percent.
The top year of the decade for industrial construction was 2006, when 25 permits valued at $28.2 million were issued. The lowest point was in 2001, when developers pulled seven permits valued at $814,501.
“Speculative industrial developers in this market have always been pretty conservative,” said Jeff Edge, senior vice president of economic development at the Charlotte Chamber.
“The credit markets have tightened up enough to challenge some developers, but I think we will see things announced this year,” he said.
Edge said the chamber normally gets about nine or 10 inquiries a week from companies about doing business in Charlotte, and “four or five actually visit each week.”
Tenants in the industrial market range from foreign chemicals and plastics manufacturers seeking a United States foothold to regional food, apparel and general merchandise distributors.
“We are not seeing the big logistics projects,” Edge said. “The trend today is to break up the big distribution centers and put smaller – maybe 250,000-square-foot centers – in strategic locations closer to customers.”
At Piedmont Properties, Osborn said his team is concentrating on leases coming due soon to try to keep tenants.
“We might even get lucky with a company that needs space to grow,” he said.
Doug Smith: 704-358-5174; dougsmith@charlotteobserver.com
