Another local warehouse building boom is coming, just not any time soon.
Vacancy rates for industrial real estate dropped below 12 percent at 2012’s end, down from 21 percent in mid-2010, according to market reports prepared by local commercial real estate firms Colliers International and Gilbert & Ezelle.
Space remains plentiful. More than 4 million square feet is available, and another 800,000 square feet is set to come on the market in April. Yet 2012 activity reflected major investment interest as Georgia Ports Authority traffic grows and the Savannah Harbor deepening progresses.
Five 100,000-plus square-foot buildings sold in 2012, and several national developers now hold industrial land in the area. At least two of those properties are “pad-ready,” meaning the infrastructure is in place.
“As far as leasing and absorption of space goes, we still have a healthy amount of space to work through,” said David Sink, who helped prepare a report published by Colliers International’s Savannah office. “That said, the market is very much poised to handle additional growth if demand warrants.”
Investor activity hints Savannah has finally shed the “oversaturated” label. A building boom tied to the Georgia Ports’ rapid growth a decade ago, combined with the recession, saw the vacancy rate go from 7.5 percent at the end of 2007 to 21 percent in less than three years.
The oversupply drove down both lease and sales prices. The absorption rate turned positive in 2012, though, after two years of declines. That activity stabilized prices: rental rates flattened out, dropping just 3.1 percent for the year, while sales prices stabilized in the $30-per-square-foot range.
“With the absorption swing, Savannah is popping up on developers’ radar screens again,” said Rex Benton with NAI Savannah, a commercial real estate firm. “Those same investors had been hesitant a few years ago because of our saturation issues. Their interest is encouraging for the market.”
The industrial market in 2012 also bucked two significant trends that marked the early days of the recovery. Much of the activity in 2011 involved build-to-suit projects, particularly those with railroad links. Three rail-served custom warehouses were constructed in 2010 and 2011.
Cold storage was a big niche in 2012. Two companies purchased properties to build refrigerated facilities last year to take advantage of poultry export business through the port.
Interest is currently “more traditional,” according to Colliers’ Sink, with the focus on trucking and intermodal facilities.
One factor that could drive growth this year is a strong housing recovery. Building permits are up 20 percent locally, and homebuilders are predicting their best year since the housing bust. Building suppliers once utilized a significant amount of industrial space. A rise in housing starts could lead to absorption of vacant space.
“We expect to see steady, continued growth overall in the market,” said Harvey Gilbert of Gilbert & Ezelle, “and that’s reason for real optimism.”
Mixed messages for office real estate market
Savannah’s office market resembles a runner on a treadmill: It's plenty active but failing to make progress.
Vacancy rates remain between 17 percent and 21 percent, depending on the survey, as tenants continue to utilize less space for a variety of reasons, from staff reductions and automation to employees working remotely.
The opening of the Cay Building on Ellis Square added 70,000 square feet to the inventory. The relocation of the U.S. Attorneys to the Cay Building from the Altmayer Building at Bull and Broughton streets opened up 32,000 square feet in that location. A large user has shown interest in leasing a portion of that space, however.
Many other buildings and complexes have already backfilled space in recent months. The Johnson Square Business Center is currently fully leased, and Chatham Center off Chatham Parkway is approaching a 90 percent lease rate.
"We're seeing quite a bit of movement in the office market. It's just with small users," said Jim Bryant with Sperry Van Ness' Savannah office. "I'm a little more optimistic about the market than the overall vacancy rate would indicate."
The flat-lining of Savannah’s vacancy rate mirrors a national trend, according to NAI Savannah’s Rex Benton. The area’s best hope at significantly reducing its vacancy rate is to tear down or reconfigure existing buildings, Benton said.
But with no new office buildings planned, vacancy rates should trickle down in 2013, according to Colliers International's Ashley Smith. He project a 3 percent drop in the vacancy rate this year, with vacant space dropping by 20 percent.
— Adam Van Brimmer
INDUSTRIAL MARKET HIGHLIGHTS
Eight significant lease transactions (over 100,000 square feet) were inked in 2012 in the Savannah warehouse and manufacturing sector.
Property .................. Tenant ................... Square Feet
Bryan Interstate Centre|Kenco Logistics|237,730
Bryan Interstate Centre|Matson Logistics|237,600
Georgia Commerce Center|DSI|190,000
Deloach Parkway|Osburn Henny Logistics|137,280
Four significant sales transactions closd in 2012 in the Savannah warehouse and manufacturing sector.
Crossroads|Georgia Cold Storage|180,100
Deloach Parkway|Port City Logistics|125,400
Effingham Industrial Park|Halstead New England|112,000
Two significant warehouse and manufacturing projects are currently under construction and are scheduled for completion by the end of the year.
Sources: Colliers International; Gilbert & Ezelle