The rapidly growing Pet Supplies Plus retail chain needed a new distribution center to serve the Southeast and Atlantic Coast, and time was of the essence. “We drew a line in the sand,” says Miles Tedder, chief marketing officer and chief supply chain officer with the company. “The building had to be ready in early 2023.”

Fortunately, Orangeburg County had already approved a 534,700-square-foot industrial building, and construction began in 2022. The developers had started to market it to potential prospects. What was a $30 million privately funded investment yielded a $54 million commitment from Pet Supplies Plus and the promised creation of 250 to 275 jobs. On schedule, Pet Supplies Plus began operations in Orangeburg in the first half of 2023.

Perhaps nothing brings the Midlands business community together like the need for industrial real estate. From manufacturing facilities to distribution centers, strong demand has been the norm since before the pandemic. In trying to meet this thirst, developers are designing and building industrial facilities before they even know who the tenant is going to be. Governments, too, are getting into the act when it comes to speculative development.

“We couldn’t wait for the private sector as new investments continued to pass us by,” says Ann Broadwater, economic development director for Fairfield County. At the beginning of 2024, the county completed an industrial “shell” building that can be upfitted to manufacturing or warehouse use. “By having a shell building available, we will be able to accommodate a variety of possible needs for investment in Fairfield County.”

It’s not unusual for a homebuilder to construct a house before securing a buyer. Planned communities of dozens, sometimes hundreds, of houses built on spec are the norm for suburban areas throughout the country. Given the costs involved in an industrial facility, those types of spec buildings are less common. However, an inventory of available buildings is crucial to economic development.

“With disruptions to the global supply chain, speed to market is a critical driver in a prospective company’s decision on where to invest,” Ann says. “By preparing a speculative building that can be completed to custom design specifications, we can help a company get its product to market much faster than if it had to start building from scratch. This makes our location much more attractive to decision-makers that are risk averse.”

Rising demand for spec buildings is a nationwide trend. In a survey of economic development consultants by trade publication Area Development, 84.5 percent of respondents said available buildings were an “important” or “very important” factor in selecting a location. Writing in Area Development, Josh Wheeler declares a “golden age” for spec buildings, with developers “willing to take on more risk given the market demand and with many projects pre-leasing months before the end of construction.”

Spec buildings have been popping up from time to time throughout the Palmetto State for more than two decades but not at the current pace. Going back to 2022, Colliers, a commercial real estate firm, reported record spec construction in the Midlands. Since then, tenants have continued to snap up products, often before buildings could be completed.

“We delivered about 2 million square feet in late 2022 and 2023,” says Chuck Salley, managing director with Colliers in Columbia, describing the Midlands spec boom. Of that, only 200,000 square feet was still not spoken for by the end of 2023. An additional 1.3 million is under construction for 2024.

A confluence of factors going back prior to 2022 set off a chain reaction fueling demand. E-commerce and the desire to move product closer to consumers for faster delivery was already creating a need for warehouse space. The pandemic supercharged that trend.

“You saw a lot of spec buildings being constructed,” says Richard Blackwell, vice president of development for the Southeast region with Agracel, Inc., a national industrial development firm. He says approximately 20 million square feet of spec industrial space was available in the Upstate in late 2023. “It’s a response to the economy. About 95 percent of spec buildings in South Carolina are being built to be a solution for e-commerce and logistics.”

The pandemic shook loose some other trends as well. Supply chain disruptions created a need to diversify operations and reshore, or bring back from offshore, some manufacturing and logistics. Layered on top of that are government incentives creating a boom in solar panel, electric vehicle, and battery production.

“E-tailers are typically moving into a spec building — they want to be moving in in six months, not 18 months,” Chuck says. “There’s been a rush of manufacturers into the United States. All those dynamics are hitting the market at the same time, especially in the Southeast.”

Numerous private developers have spec projects around the Midlands. Magnus Development Partners began its series of Midway Logistics spec buildings at Lexington County Industrial Park in 2009. The initial building was leased within six months. The company has developed spec projects in Beaufort and Berkeley counties and is developing a 210,000-square-foot spec building near the Scout Motors site in northern Richland County.

Also in Richland, a 350,000-square-foot spec building on a 34-acre site at Pineview Industrial Park is being developed by St. Louis-based Summit Real Estate Group. Cason Development Group is partnering with other firms on a 217,000-square-foot building at Shop Grove Industrial Park in Richland County. Meanwhile in Calhoun County, Red Rock Developments was able to land tenant Smart Warehousing for a nearly 500,000-square-foot spec building before construction was complete.

While success stories are plentiful, risk is still involved. Chuck points out that a 350,000-square-foot industrial building is a $40 million investment that doesn’t make a nickel until it’s leased or sold. Developers often have loan agreements that are interest-only for the first 12 months, so the sooner a tenant is secured, the better.

“You really have to know what you’re doing,” he says. “You really have to know the dynamics of the market.”

Bill Owen, a partner in Magnus Development Partners, says the company won’t start a spec warehouse project unless it is fairly certain of a market need. “A lot of due diligence goes into it,” he says. “There’s a lot of risk. We’ve got to convince our lenders as well as ourselves.”

A 2023 New York Times article mentions spec projects in Indiana, Ohio, and Texas as examples of nationwide demand. It points out that while inflation made spec buildings more costly to construct, it also may be spurring demand because potential tenants don’t want to dawdle as prices rise further.

When government entities develop spec buildings, political risk is added to financial risk. “It involves millions of dollars of public money,” Richard says. Due to the reality of election cycles, it can make some politicians uncomfortable. “They want to see immediate success. Over time it will pay off. The average spec building sits on the market for three years.”

Richard is a former president of the S.C. Economic Developers Association and economic development director in Oconee County, where he introduced spec buildings to that community. Oconee developed two buildings of 40,000 and 50,000 square feet in Westminster. RBC AeroStructures continues to operate in one of the buildings, while Lift Technologies, Inc., purchased the other and ultimately expanded it.

“We couldn’t get the private sector to put one up,” Richard says. “Our construction resulted in an economic development success. The companies wouldn’t have come to the county if not for those buildings.”

When creating a list of potential locations for a new facility, a company will often rule out communities that don’t have available buildings. “Most of the companies we’re leasing to are very large, national tenants,” Bill says. “If they can’t find a class A spec building, they’ll go to another market.”

Likewise, a spec building might entice a company to look but then decide on a different parcel in the same community once they visit and speak with local officials. Richard describes it as “bait on the hook. You’ve got to have product to get the project.”

A so called “greenfield” project starts from scratch, requiring acquisition of permits, utility connections, and site preparation before the first steel beam or ounce of concrete appears on the site. “You need to be making that decision 18 to 24 months in advance,” Miles says, while the site selection process should begin three to six months before the decision is made.

“We’re opening a lot of stores in a short amount of time, so we tend to make decisions in shorter time frames,” he says. “That drives us to the shorter, spec type opportunities.”

Pet Supplies Plus is opening 75 to 100 new stores per year, which is driving the need for additional distribution capacity. Miles says the company was conducting site selection in a geographic triangle that stretched from Atlanta to Orangeburg to Raleigh-Durham.

“We started with seven or eight sites within that triangle, then narrowed it down to three or four,” he says. Three additional factors in site selection beyond facility and geography were transportation costs, the local labor pool, and available economic development incentives.

Logistics prefers interstate highways, thus many spec projects can be found along I-85 in the Upstate and I-26 from the Midlands to the Lowcountry. Pet Supplies Plus’ new facility is at I-26 and U.S. Highway 301. Agracel has gone off the beaten path, however, with spec buildings developed in rural Allendale and Hampton counties. “We like that region,” Richard says. “It’s kind of being ignored.”

In the rural Midlands, Clarendon County is bisected by I-95. According to its economic development office, the county built its first spec building in 1990. Meritor, which was acquired by Cummins, Inc., in 2022, still occupies that building and expanded as recently as 2018.

This year, Wisconsin based Latitude Corp. is opening a specialty metal fabrication facility in Manning. It purchased a 50,000-square-foot spec building, which was developed by Clarendon County and Santee Electric Cooperative, Inc. In a project announcement, Latitude President Tom Verbos said the available building helped narrow the company’s location decision.

This process is expected to be repeated many times in the near future. Real estate data provider CoStar reports that in West Columbia alone, 1.3 million square feet of spec and build-to-suit projects were under construction at year’s end. Magnus is developing 803 Industrial Park across from Columbia Metropolitan Airport. “We’ve got it set up to build about a million square feet of industrial there,” Bill says.

The pace of construction in some markets, such as Greenville-Spartanburg and Charleston, may need to catch its breath in 2024 as tenants fill what’s already in the pipeline. Bill says some sublease space is coming back into the market as well, competing with the new construction. He says Magnus remains comfortable in the buildings and locations they’re developing.

“Columbia’s still got momentum,” he says. “During the pandemic there was a huge surge in demand. It’s slowed down since the pandemic, but we are still seeing our typical historical demand for Columbia industrial buildings.”