If you have been following the industrial real estate trends over the past few years, Spartanburg and many other areas across the country have had historically high transaction volume years and historically low vacancy rates.
However, the industrial picture is starting to look a little different. The rise in interest rates and general economic uncertainty have caused industrial vacancy rates to rise from 3.2% at the end of Q2 2022 to 8.1% today in Spartanburg, S.C.
So industrial vacancy rates are rising? Yes, but there’s a catch.
While the overall industrial vacancy rates have risen drastically in the past 12 months, there is a large demand for small industrial buildings in Spartanburg and in many other areas across the Sunbelt states.
I recently wrote a blog on this topic which you can read here An Unmet Demand for Small Industrial Buildings. How is the Spartanburg Industrial Market Impacted? – McDaniel and Company
Similar to my previous blog, I will break down the industrial data by square footage ranges to show the discrepancy in industrial demand across different size industrial properties.
But in this blog, I will highlight the disparity between industrial vacancy for large industrial (100,000 square feet and above) and smaller industrial properties (under 100,000 square feet) and discuss why this demand is not being fulfilled.
Here is the Breakdown:
| Square Footage Range | 5,000-15,000 | 15,000-30,000 | 30,000-50,000
| 50,000-100,000
| 100,000 Plus |
| Total Inventory (SQ FT) | 5,200,000 | 6,200,000 | 6,700,000 | 12,700,000 | 78,300,000 |
| Vacancy Rate | 3.6% | 3.3% | 3.2% | 4.2% | 10% |
| Average Price Per SQ FT (For Sale) | $67 | $63 | $62 | $54 | $71 |
| SQ FT Under Construction | 46,500 | 179,000 | 127,000 | 119,000 | 13,100,000 |
| Available SQ FT | 285,000 | 343,000 | 243,000 | 650,000 | 15,300,000 |
A Few Take Aways
Vacancy
Vacancy is probably the most obvious take away.
Although the industrial vacancy rates are rising, there is still a large discrepancy in vacancy rates among different square footage ranges.
The vacancy rates of 100,000 sq ft industrial buildings and up is well over double the vacancy rates of smaller industrial buildings.
Under Construction
There is significantly less inventory under construction for smaller industrial than larger properties.
For example, in the 100,000 sq ft and above category, 19.5% of inventory is currently under construction.
In the categories less than 100,000 sq ft, those percentages are far less. From the 5000 sq ft to 100,000 sq ft range, the percentage of inventory under construction ranges from less than 1% to around 2.9%.
Why Is No One Filling the Demand?
Major developers are not filling the demand for small industrial space because they benefit from the economies of scale of larger industrial properties.
With smaller industrial projects, the acquisition and development costs of building 30 small industrial buildings cannot be justified when a single large industrial building can be developed at far less expense.
This leaves an opportunity for smaller developers and capital sources to fill the gap in small industrial demand.
But it is difficult for smaller players to benefit from the economies of scale the larger developers could achieve if they built small industrial (it is more cost effective to build 30 small industrial buildings than 5).
So we see the dilemma, which leaves a demand that is yet to be filled….
Conclusion
While vacancy rates for industrial buildings have increased over the past twelve months, the vacancy rate is much lower for smaller industrial properties than the larger buildings.
Because of the benefits of economies of scale that can be achieved building larger industrial properties, the lack of the small industrial inventory is going to be filled by either a creative solution or by a variety of smaller developers over time.
If you’d like to discuss this blog, small industrial properties, or anything relating to commercial real estate, let’s connect!
Emma McDaniel
McDaniel and Company
864-576-4660
emma@mcdanielandco.com
Source: Costar Data
