There’s an age-old adage known to every Economic Development professional: “You can’t sell pine trees!” The reference relates to the inability to secure the next industrial prospect with the “promise” of a new building on a green field site. The modern economy moves too fast, as companies seeking new space have a speed-to-market directive to achieve their occupancy within a timeframe (3 mos.) much shorter than that required for permitting, site work and new construction (12 mos.).
Over the past 24 months, we have witnessed a significant swing in supply and demand. Call it “The Boeing Effect” certainly; but give credit to a recovery upswing fueled by our diverse industrial base. At the depths of the recession (late 2009 through early 2012), new construction was non-existent with the exception of the occasional build-to-suit. The absence of new speculative development allowed for the slow and steady absorption of the existing base of older product. We’ve absorbed a building a month for the past two years. This drawdown in supply eventually swung market fundamentals positively in favor of new investment. Our project at Crosspoint was the first new “spec” development in the Charleston Industrial market in over five years!
The reasons we decided to build a spec building included the falling vacancy rate, shortage of Class A options, proximity to Boeing, Palmetto Parkway completion, an increasing number of build-to-suits, rising lease rates and the emergence of pre-leasing.
Our lower basis in the land allowed our investors to take some leasing risk. Our firm hustled to land tenants and we’ve essentially filled our first two specs, with more on the way! Exit cap rates remain low, especially for Class A industrial, and are expected to remain there at least for the balance of the year. Let’s go vertical!
Next Month: “What to Expect in the Second Half of 2015”