Charleston investment sales top $1 billion in 2015

Key Takeaways

• Investment sales in Charleston, South Carolina increased for the sixth consecutive year with multifamily sales leading the way, followed by shopping centers, net-leased assets and hotels.
• Rising costs, cheap debt and compressed capitalization rates in core gateway markets continue to drive investors to secondary and tertiary markets.
• Interest rates remain low despite a slight increase late in the year, motivating continued investments.

 

2015 Marks Record Year for Investment Sales

Strengthening economies across the globe are motivating investment sales in the United States.  Sales activity continues to gain momentum with investments from both domestic and foreign investors.  According to Real Capital Analytics, the national sales volume totaled $533 billion in 2015, 23% more than 2014 and the second highest level of investment since record-tracking began.  Peak investment activity was in 2007 when sales totaled $573 billion.  Strong activity and demand is pushing up prices in primary markets as investors compete for assets.  Consequently, cap rates are declining and investors are looking for opportunities in secondary and tertiary markets, such as Charleston, where cap rates remain higher and prices are more attractive to a wider universe of investors.

2015 was a significant year for Charleston’s investment sales market, exceeding $1 billion in total sales volume for the first time.  Total sales volume increased 16.1% from $865.6 million in 2014.  Investors are showing interest in all property types, but multifamily and retail sales collectively accounted for 65% of total transactions.  Healthy commercial real estate conditions, a strengthening economy and robust job creation are helping attract out of market investors.  Occupancy rates for Charleston’s office, industrial, retail and multifamily markets were each over 90% at year-end 2015.  The stability of the market and high barriers to entry provide a secure investment environment.  In fact, the Urban Land Institute and PwC’s 2016 Emerging Real Estate Trends ranked Charleston the number 25 market to watch in 2016, a testament to the market’s continued growth and improvement.

Multifamily Sales

Multifamily properties dominated the investment sales market, accounting for more than half of Charleston’s total sales volume.  A growing demand for rental units and the consequent rise in occupancy and rental rates are driving investment in this segment.  Twenty-six multifamily communities traded in 2015 with a total sales volume of $521.6 million, increasing from $376 million in 2014.  The average price per unit was approximately $114,000, with suburban product frequently exceeding the $200,000 per unit threshold.  A few of the larger transactions are highlighted below.

• Riviera at Seaside in Mount Pleasant traded in October for $60.5 million, or approximately $240,000 per unit, a record-high price for suburban Charleston.
• Also in Mount Pleasant, Windward Long Point was acquired for $55.5 million, or $216,116 per unit.
• Ansley Commons in North Charleston/Ladson traded for $39.2 million, or $145,122 per unit.

Shopping Center Sales

Job creation, a strong local economy, and household and population growth are attracting national retailers to the Charleston market, as well as shoppers, tenants and investors.  As a result, shopping centers are seeing record-high occupancy and rental rates are exceeding record levels.  Retail sales in Charleston spiked during the fourth quarter, contributing to a 2015 total sales volume of $131.1 million, or an average
price of $133 per square foot.  The property type ranked second for total sales volume in Charleston.  Three of the larger transactions for the year included:

• The Walmart-anchored North Pointe Plaza in North Charleston sold in October for approximately $32 million, or $99 per square foot.  The buyer was Phillips Edison, a non-traded REIT.
• Shoppes at Centre Pointe in North Charleston, a 139,000-square-foot center anchored by Ashley Furniture and Staples, closed in December for $16.5 million, or $118 per square foot, to an Atlanta-based investor.
• West Ashley Shoppes, the Bed Bath & Beyond-anchored center at 946 Orleans Road across from the Citadel Mall, was acquired for $15.5 million, or $110 per square foot, from CW Capital, a special servicer.  The buyer, Tabani Group out of Dallas, is already looking to sell the property.

NNN Sales

Single-tenant NNN investment sales remained strong through 2015.  Strong credit retailers, like Walmart and national pharmacies, were attractive to investors.  Sales volume for the sector totaled $75 million in 2015.

• The area’s first Walmart Neighborhood Market traded hands for $12.8 million.  Walmart has a fresh 20-year lease at the store.  A second store, located at 10635 Dorchester Road in Summerville, traded for $7.2 million.  Cap rates for the two transactions averaged 5.5%.
• BI-LO’s downtown store at 445 Meeting Street was acquired for $10.8 million, or $297 per square foot.  The acquisition was more of a long-term land play for the local developer.
• A free-standing Publix at 1575 Old Trolley Road in Summerville traded for $7.2 million in December.  Publix is continuing their buying spree across the Southeast.

     

Office Sales

Office property sales in Charleston are robust and trading at top dollar.  While the largest sale was the $28.4 million, or $242 per square foot, user-purchase of Parkshore Centre to MUSC, the largest investment sale was that of 3955 Faber Place, a 65,000-square-foot, Class B+ suburban office building, that sold for approximately $13 million, or $196 per square foot.  Sentinel Real Estate, a significant pension fund advisor traditionally focused on primary markets for its office portfolio, acquired the building.  Sentinel Real Estate’s interest in Charleston supports the growing trend of investors shifting attention towards secondary and tertiary markets.

Several medical office buildings traded during 2015 with a total sales volume of $25.8 million. The 9,790-square-foot medical office at 1400 Hospital Drive had the highest per square foot sales price at approximately $450.

Hotel Sales

A strong tourism industry coupled with a growing business sector are driving interest in hotel properties.  Hotel occupancy is high and room rates are higher than those of the past.  Eight hotels traded in 2015, totaling $62.7 million, or approximately $80,000 per room.  Ares Management JV Hotel Equities, Bestford Capital JV Westmont, and ARC Hospitality Trust collectively acquired 7 of the 8 hotels.

• The Governor’s House Inn traded at the highest price per room.  The 12-room, historic bed and breakfast, located at 117 Broad Street in Charleston’s downtown submarket, was acquired for almost $442,000 per room.
• The 92-room Residence Inn Charleston, located at 7457 Northside Drive, was acquired by Ares Management JV Hotel Equities for $12.5 million, or approximately $136,000 per room.
• Bestford Capital JV Westmont acquired the 124-room Red Roof Plus, located at 301 Johnnie Dodds Boulevard in Mount Pleasant, for $8.4 million, or $67,000 per room.
• ARC Hospitality Trust acquired The Holiday Inn at 250 Johnnie Dodds Boulevard in Mount Pleasant for $7.9 million, or $48,000 per room.

Industrial Sales

2015 industrial sales volume in Charleston totaled $91.5 million.  One significant sale was the 305,000-square-foot industrial building at 1020 North Pointe Drive.  The building is leased to SAIC, the defense contractor, and traded for $21.4 million, or $70 per square foot.  Most of the other sales in the region were considerably smaller or were sales to users.

2016 Outlook

The investment sales outlook appears optimistic through 2016.  Although the Federal Reserve raised interest rates modestly in late 2015, most suspect it was a trend that will continue.  Yet, borrowing costs remain at historic lows, encouraging commercial real estate development and acquisitions.  Additionally, current tight market conditions throughout Charleston and continued demand by occupiers offer security to investors at a time when low cap rates in primary markets are forcing buyers to venture into newer and smaller markets.  With uncertainty in foreign economies, the U.S. provides a safe haven to foreign investors and a solid base for domestic buyers.  Recent global influences, such as China’s economic slowdown, falling NYSE prices and low oil prices, as well as turmoil in the CMBS debt markets suggest pricing nationally has likely peaked.  Likewise, prices and cap rates in Charleston will likely begin to flatten into 2017.  2016 is the time to trade properties and take advantage of favorable market conditions.

For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights

To download the complete report: Q4 2015 Charleston Investment Market Report.