Demand Exceeds Supply, Drives Development of New Retail Space
COLLIERS INTERNATIONAL | SOUTH CAROLINA
Q4-2014 CHARLESTON RETAIL MARKET REPORT
· Downward trending vacancy rate. Rental rates steadily increasing.
· New construction and redevelopments are strong throughout the market.
· Grocery wars continue.
· Grocery stores and outdoors sporting goods stores anchor new suburban developments.
· Tourism drives downtown growth. Suburban growth is driven by job creation and population growth.
· 2015 likely to bring new retailers and continued success.
2014 was a significant year for the Charleston, SC retail market, full of new construction, redevelopments and new tenants opening or announcing plans to enter the market. Vacancy rates declined and rental rates climbed, especially along downtown’s King Street, throughout the year. The fourth quarter ended with an overall vacancy rate of 5.02% for the market, down from the third quarter vacancy rate of 5.44% and year-end 2013 vacancy rate of 6.91%.
Shop space asking rental rates averaged $19.51 NNN at year-end 2014, up 3.5% from the third quarter, largely due to spikes in rental rates along King Street. Tenants along King Street are seeing rates vary from $30 to $70 NNN, with the lowest rates along Upper King Street and highest rates along Middle King Street. Asking rental rates for suburban shop space averaged $16.70 NNN, holding steady over the third quarter average, but increasing from $16.34 NNN a year ago.
Job creation and population growth over recent years has motivated grocery stores, outdoor and sporting goods retailers and other retailer types to open stores bringing redevelopment and new ground up construction to the market. Recent big box closures provide an opportunity to redevelop centers, recycling the space for new tenants. However, with successful leasing, few redevelopment opportunities remain, encouraging new ground-up construction in suburban submarkets.
New construction is gaining momentum to meet the growing demand for retail space throughout the Charleston market. The new shopping centers are successfully attracting national retailers and grocers as anchors.
· Earth Fare is currently under construction in Summerville. The specialty grocer, the first new development for Earth Fare in the area, will anchor Horizon Square, a planned 63,000 square foot shopping center, which will also house Petco. Up to 10,000 square feet of junior anchor space and 10,000 square feet of shop space remain available for lease. Outparcel lots are available and can accommodate up to 6,500 square feet of space.
· Construction continues at Midtown, the cornerstone of Upper King Street. The development will consist of approximately 16,000 square feet of retail space, a dual-branded Hyatt House and Hyatt Place Hotel, and a seven-story parking garage. Construction is anticipated to complete in 2015.
· Early this year, The Corner at Wescott delivered in the Summerville submarket. The shopping center is anchored by Harris Teeter and co-anchored by Marshalls. Marshalls relocated from The Promenade at Northwoods in North Charleston, a space which has been backfilled by Gander Mountain’s first South Carolina location.
· Summerville Towne Centre, a planned 230,000 square foot center for Summerville, will be anchored by Hobby Lobby and Aldi.
· The Shoppes at Oakland, a planned 104,800 square foot shopping center, is coming to Mount Pleasant. The center will be located along US Highway 17 and anchored by Aldi.
ADAPTIVE REUSE & TENANT UPGRADES
Several big box and smaller retailer closures left space available for redevelopment and use by new tenants struggling to find existing space.
· The Cigar Factory, a five-story building on the corner of Columbus Street and East Bay Street, is being redeveloped into a mixed-use property to include office, retail and restaurant space.
· The Millennium Music Building, located at the intersection of Calhoun Street and King Street, attracted major tenants, Walgreens and Carolina Ale House. Carolina Ale House plans to occupy the top two floors of the three-story building. Walgreens will occupy the ground retail space and feature a neighborhood market theme. Chipotle plans to occupy 3,000 square feet adjacent to Walgreens along the building’s King Street side.
· Two Charleston K-Mart locations have closed this year. The first to close was at Johnnie Dodds Boulevard and Bowman Road in Mount Pleasant with the most recent closure in West Ashley.
· The former Johnnie Dodds Boulevard and Bowman Road is being redeveloped and will be known as Bowman Place. The 131,000 square foot shopping center will be partially demolished and redesigned for updated storefronts and landscaping. Dick’s Sporting Goods and Nordstrom Rack announced plans earlier this year to anchor the center. Most recently, Kitchen & Company announced plans to open a 19,000 square foot store, its first South Carolina location, in the center. Dick’s Sporting Goods will be the first major retailer for athletic apparel and equipment in Mount Pleasant. Nordstrom Rack’s store will be the third in South Carolina and first in Charleston.
· The former K-Mart site in West Ashley is home to a new Hyundai dealership.
· Harris Teeter opened a 25,000 square store at the Island Center, a redeveloped shopping center at 1513 Palm Boulevard, Isle of Palms.
· Planet Fitness backfilled the former Food Lion space in Mount Pleasant. The 31,000 square foot gym is located at 601 Belle Station.
· Starbucks and Firehouse Subs found a new home in the former Atlanta Bread Co. location at 8966 University Boulevard in North Charleston. Both stores are open to customers.
· Hibbett Sports backfilled the former Blockbuster Video store at 111 S. Highway 52 in Moncks Corner.
· King Street continues to be a top shopping and entertainment destination and attracting several new retailers throughout the year.
· TINA Stephens opened a 3,000 square foot store at 278 King Street.
· Vineyard Vines opened a 5,500 square foot store at 275 King Street.
· LUSH Cosmetics opened its first South Carolina store along King Street.
· Tuesday Morning opened a new store at Belle Hall Shopping Center at 680 Long Point Road in Mount Pleasant. The retailer leased 24,305 square feet of space adjacent to Petsmart.
· H&M opened their 20,000 square foot store at Tanger Outlet. The store is the company’s second location in South Carolina. The first store is located along King Street.
· Bass Pro Shops Outdoor World announced plans to open an approximately 140,000 square foot store at the planned intersection of Interstate 26 and Northside Drive. The store will anchor a 2 million square foot mixed-use development and will feature the company’s well known Uncle Buck’s Fishbowl and Grill, a nautical-themed bowling alley and restaurant. The store is expected to open in 2015.
· Ruth’s Chris plans to open its first Charleston restaurant at 166 Church Street.
· Walmart Neighborhood Market will soon enter the Charleston Market. Two stores are currently under construction. The first location is under construction on Bacons Bridge Road in Summerville, and the second store will be located along St. James Avenue in Goose Creek.
· Harris Teeter opened its doors to customers at Sawmill Village in Summerville late in the third quarter. The grocer occupies 53,000 square feet at 680 Bacons Bridge Road.
· Mellow Mushroom plans to open a new restaurant across from Tanger Outlet at Centre Pointe in North Charleston. The restaurant is expected to open in the first half of 2015.
· Tabbuli opened at 2026 Savannah Highway in West Ashley.
· TCBY is opening a new store at 214 Azalea Square Boulevard, at the Azalea Square Shopping Center in Summerville. The Chicken Salad Chick recently opened a new location in the center.
· Which Wich? opened its first Charleston location at the Shoppes at Azalea in Summerville.
· Hwy 55 Burgers, Shakes & Fries opened its first store in North Charleston at 8409 Dorchester Road.
· Taziki’s opened its second Charleston location at 320 West Coleman Boulevard in Mount Pleasant. The restaurant was formerly occupied by Locklear’s. Taziki’s first location remains open at 306 King Street.
· A Spinx gas station is planned for the Heritage Square site in Summerville. Heritage Square, which has been vacant for years, is owned by Palmetto State Armory, which plans to occupy 30,000 square feet of existing space.
Sales activity was healthy throughout the year as investors took advantage of tight market conditions and low interest rates.
· The 45,424 square foot shopping center at 65 Sycamore Avenue was acquired for $5 million.
· Two properties in the epicenter of Charleston’s tourist hub were sold for a combined $10 million. The 5,215 square foot property at 235 East Bay Street, home to Molly Darcy’s Irish Pub and Restaurant, was sold for $2 million. The 11,949 square foot Rainbow Market at 40 North Market Street was acquired for $8 million.
· 474 and 476 King Street were sold for $4.2 million. The combined 9,380 square foot space is home to The Rarebit and Sweet 185.
· Sweetgrass Corners was sold as part of a retail portfolio of seven grocery-anchored shopping centers totaling over 500,000 square feet.
· Northwoods Marketplace Shopping Center, a 236,078 square foot shopping center on Rivers Avenue, was acquired for $35 million. The shopping center was approximately 97% occupied at the time of the sale and is home to national tenants Best Buy, Barnes & Noble, Michaels, PetSmart, Big Lots and Old Navy, among others.
· Gas Lite Square, located at 5617 Rivers Avenue, was sold during the third quarter. Renovations are planned for the 80,687 square foot shopping center in hopes of attracting a national big box retailer.
· The 6,230 square foot site of the former Carolina’s restaurant at 10 Exchange Street has been sold for $1 million.
IN THE MONTHS AHEAD
Lower vacancy rates with higher rental rates are expected for 2015. Ground up construction will continue as available quality big box space diminished from the market. Redevelopments of older centers are likely to continue. Employment growth and subsequent residential growth supported by Boeing and others throughout the area will spur further construction and attract new retailers to the market. With limited options to locate on middle King Street, retailers will move towards upper King Street. Downtown development may extend to waterfront properties.
AROUND THE STATE
South Carolina’s growing population and economy continue to draw new retailers to the market while providing a healthy business environment for the growth of existing retailers.
COLUMBIA, SOUTH CAROLINA
· Plans for Killian Crossing in the Northeast Columbia submarket are underway and gaining momentum. The development, to be located at the intersection of Clemson Road and Farrow Road, will offer multifamily and single family residential units, hotel space along with retail space and outparcels. McDonald’s completed construction and is open to customers.
· Academy Sports, which opened earlier this year in the Harbison/St. Andrews submarket, will anchor a redevelopment along Park Terrace Drive at the former Staples and Hudson Smokehouse site. Guitar Center plans to enter the Columbia market and occupy space adjacent to Academy Sports. The development, which is under construction behind Columbiana on Park, will offer approximately 31,500 square feet of shop space in two buildings. Sport Clips and Salsaritas plan to locate in the center.
· Rosewood Crossing in the Downtown submarket is currently under construction. The approximately 98,000 square foot center will be home to Marshalls, Michael’s and Petsmart. The project is a redevelopment of the former K-Mart at the intersection of Devine Street and Ft. Jackson Boulevard.
· J. Crew and Anthropologie are open at Trenholm Plaza. The retailers are entering the Columbia market and backfilling space recently vacated by Books-A-Million in Trenholm Plaza.
· Nordstrom Rack is open to customers. The retailer backfilled space vacated by Barnes and Noble.
GREENVILLE, SOUTH CAROLINA
· Gabriel Brothers and Conn’s have backfilled vacant big box spaces at The Gallery located at 583 Haywood Road that were formerly occupied by Steve and Barry’s and Babies “R” Us.
· Garlington Station at 1143 Woodruff Road is being redeveloped into a 23,197 square foot center adjacent to the Shops at Greenridge. An outparcel development is nearing completion and is 100% preleased to Tijuana Flats and Stanton Optical. Across the street from the center is 25 Garlington, a planned 5,565 square foot center with space preleased to Chicken Salad Chick.
· Construction completed at Magnolia Park during the fourth quarter of the year. The redevelopment of the former Greenville Mall has been an entry point for several retailers to South Carolina.
To download the complete report click the link: Q4:2014 Charleston Retail Market Report.