A Rising Tide of Containers Brings
Commercial Growth to Charleston

Charleston's strategic port location on the Atlantic coast is fueling its growing market for warehouse and distribution space.

The total industrial space available in the city has increased more than 16% since 2005 to more than 24 million square feet, yet demand continues to rise. The vacancy rate is a taut 5.8%, down from 8% in 2005, and significantly lower than the national average of 8.6%, according to Property & Portfolio Research.

"Industrial is just going gangbusters," said John Tison, president of the Charleston-based commercial real estate firm Coppedge & Tison, a member of the Cushman & Wakefield Alliance.

Manufacturing firms like Vought Aircraft Industries, Pegasus Steel and Global Building Solutions are making multimillion-dollar investments in Charleston. According to the South Carolina State Ports Authority, $55 billion of cargo passed through the port in 2006, the sixth-highest tally in the country and more than double the $22 billion of cargo recorded in 1995.

To meet the growing demand, the Port Authority on May 7 broke ground on a new container terminal that will increase capacity by almost 50%. In anticipation of the increased activity, an additional 16 million square feet of speculative industrial space is slated for development, with one million square feet already under construction.

Charleston's coastal location has its risks. When Hurricane Hugo slammed into the city in 1989, it caused $7 billion in damage, according to the Department of Commerce. In 1993, just as the city was beginning to fully recover, the Department of Defense announced that it would be closing its Charleston Navy base the next year. Because the base was Charleston's single largest employer, many feared the worst.

But the setbacks spurred economic planning efforts in the city. By focusing on attracting new jobs and industries, during the past decade Charleston has grown an average of 6.2% per year, according to Global Insight Economics.

The region remains host to both the Air Force and the Coast Guard, and the Navy's research engine, Spawar, is one of the largest employers. Fast-growing defense contractors like Scientific Research Corporation and Force Protection are also boosting employment, as the region's knowledge base continues to expand.

The Navy Yard, a 3,000-acre formerly blighted region in North Charleston, is now being transformed into a $1 billion sustainable urban revitalization project that will take nearly 20 years to complete.

The Charleston metropolitan area is a sprawling 3,200 square miles with more than 600,000 people, up from some 500,000 in 1990. North Charleston has a population of more than 80,000, making it the third-largest city in South Carolina.

But the heart of Charleston is its historic downtown, with its candy-colored mansions and a skyline dotted by churches. Height restrictions that prevent skyscrapers as well as the physical constraints of its peninsular location and the large number of historic properties have put a squeeze on space.

Office space leases for an average of $26.50 per year, 25% lower than Boston's $35 average, according to the Charleston Regional Development Alliance. The market is relatively small, with only eight million square feet of space. But a 100,000 square foot office property built two years ago by Atlanta-based Holder Properties is already 85% full, a sign that office space is a growing market.

Demand for condominiums in Charleston, as in other cities, has not kept pace with the rapid conversion of units that were formerly apartments. The nationwide pullback in lending is also making it harder for first-time buyers to afford condo properties.

Apartment rentals, on the other hand, are blossoming. The vacancy rate for downtown apartments is just 1.4%, according to Coppedge & Tison. Retail space is similarly squeezed by rising demand, and rents have risen nearly 50% since 1999, to $16 per square foot.

While Charleston's historic core continues to flourish, the region's future growth likely will be inland, as big-name national developers and firms continue to locate their operations there.

Chris Fraser, president of local real-estate firm Barkley Fraser, an affiliate of Chicago-based Grubb & Ellis, says the region has gone through a huge shift from when he first moved here more than two decades ago.

"Now, we've really started to attract some of the national players here," he said.

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