Colliers Report: Fast Casual and Grocery Chains Expanding Rapidly in the Charleston Suburb Markets

Key Takeaways

• Fast-casual restaurant chains are expanding in Charleston’s suburban submarkets.
• Grocer wars continue.
• New roads are coming to Summerville.

To download the complete report: Q3 2016 Charleston Retail Market Report.

Fast-Casual Steps Up Its Game

Fast-casual restaurants, those with limited-service and made-to-order meals, are expanding in the Charleston retail market. Since 2015, several brands have expanded and others have entered the market, including Zoe’s, Tijuana Flats, Which Wich and Barberitos. These fast-casual restaurants usually occupy space between 1,500 and 3,500 square feet in dense suburban and urban retail corridors and serve made-to-order and customized pizza, burgers, tex-mex or sandwiches.

Growth of the fast-casual market is creating stiff competition between similar brands. To differentiate themselves, national and regional fast casual restaurants have focused on the enhancement of the customer’s experience while at their locations. One way they can do this is by offering more services, such as delivering food, clearing dishes from tables, greeting customers as they enter or walking by tables to offer refills, napkins and utensils. Additionally, brands are redecorating the interior with modern furniture, new lighting and paint colors to increase the restaurant’s atmosphere.

The growing millennial population and the national interest in healthy and locally sourced food has impacted the menus of fast-casual restaurants as well. Brands can attract customers of all age groups by offering higher quality, locally sourced food and healthier and customizable menu items. Chipotle, Panera and Zoe’s are among those offering organic or locally sourced ingredients, while Which Wich, MOD Pizza and Smash Burger offer customizable menu items, providing customers with new meal options each visit. Fast-casual restaurants are expected to continue expanding in Charleston’s suburban areas.

Grocer Wars Continue

Recent data from ESRI estimates the Charleston – North Charleston Metropolitan Statistical Area (MSA) population to be 739,000 people today, reaching 810,000 people by 2021. The expected growth is a 9.6% increase, or 39 new residents per day, moving to the area over the next five years. The boom in residential population in the region is the key factor playing a role in attracting new grocers to the market.

Over the last decade, the grocery market has evolved into two distinct tiers. In the late 1990s, the grocery market in Charleston was dominated by Bi-Lo, Piggly Wiggly, Food Lion and Harris Teeter. At the same time, Walmart was entering the grocery market with its Supercenter format. Today, Publix, Lowes Food and Harris Teeter are actively competing for the upper end of the grocer market. New value-oriented stores like Walmart Neighborhood Market, Aldi and Lidl have entered the market and are expanding rapidly, causing the dominant chains, Bi-Lo, Piggly Wiggly and Food Lion, to consolidate.

Walmart Neighborhood Market has entered the market aggressively, opening seven stores since 2010 in the region. These new stores, combined with the company’s existing footprint of Supercenters, has created tremendous pressure on Piggly Wiggly, Bi-Lo and Food Lion. Piggly Wiggly of North Charleston has consolidated to just three locations. The other stores have been sold and converted to Harris Teeter or Bi-Lo. Joining the value-oriented market, the specialty retailer Aldi will open a new location at 617 Jonnie Dodds Boulevard in a former bowling alley in the Plaza at East Cooper, and Lidl has acquired land at 435 Saint James Avenue for a new store. Publix has continued to selectively expand its footprint in the region as opportunities have been available. Most recently, Publix has announced a new location at 378 Fishburne Street in the planned 10 WestEdge development.

The bifurcation of the market has allowed chains serving the high end and specialty markets to expand. Harris Teeter and Whole Foods are expanding, and Lowes Foods has recently announced a new store in the market. Trader Joe’s opened in Mount Pleasant in 2014, Earth Fare opened in Summerville in 2016 and The Fresh Market will be locating in Mount Pleasant.

New Grocers

• A 50,000-square-foot Lowes Foods is planned for a site off Highway 41 in Mount Pleasant, across from the existing Harris Teeter at the Rivertowne Place shopping center. The new Lowes Foods will anchor The Market at Mill Creek, which will include an additional 28,000 square feet of shop space.
• A new 42,000-square-foot Walmart Neighborhood Market is under construction at 1610 Central Avenue in Summerville.
• An 87,800-square-foot BJ’s Wholesale Club is under construction on Jockey Court near Interstate 26 and the existing North Main Market. The store is expected to be completed in Q3 of 2017.
• Harris Teeter has a 56,000-square-foot location under construction at 100 Oak Park Street, and another is planned to anchor the 105,000 square feet of retail space at The Marketplace at Carnes Crossroad.
• A 36,200-square-foot Lidl is under construction at 435 Saint James Avenue.
• Whole Foods is building a 45,000-square-foot location near the intersection of Savannah Highway and Farmfield Drive next to the existing Doscher’s IGA. The store is set to open in 2017.
• 10 WestEdge, a mixed-use development project between MUSC and the Citadel, will house a 45,800-square-foot Publix Super Market and approximately 9,500 square feet of smaller shops on the ground floor. The development will also include 336 residential units, expected to be complete by Q1 of 2018.
• The Fresh Market plans to anchor the new Indigo Shopping Center in Mount Pleasant with a 22,000-square-foot store.

New Roads in Summerville

Berkeley County, the South Carolina Transportation Infrastructure Bank and a grant from the South Carolina Ports Authority have funded a $65 million project to create a new interchange along Interstate 26 between Summerville and Jedburg at Sheep Island Parkway. The new interchange will provide direct access to Sheep Island Parkway, which will turn into Nexton Parkway to the east and will be extended to North Maple Street to the west. As part of the project, I-26 will be widened from four to six lanes for the one mile stretch between US Highway 17 (North Main Street) and the new Sheep Island Interchange to ease the flow of traffic entering and exiting the interstate. Both the interchange and the widening are expected to be complete in December of 2017. The new interchange and the extension of Nexton Parkway will provide access to three master planned communities: Carnes Crossroads, Cane Bay and Nexton. These developments have significant retail centers planned that will add roughly one million square feet of retail space to the market inventory and add about 28,000 homes.

Additional road expansions and extensions are planned to begin construction or to be completed within the next year to alleviate congestion from the influx of new residents expected to move to these developments. Berlin G. Myers Parkway will be extended to US Highway 17 to bypass Summerville’s historic downtown; North Maple Street will be extended and widened to better connect the Sheep Island Interchange to US Route 78; and Bear Island Road will be extended 1.08 miles to connect with Nexton Parkway, creating an alternative route from US Highway 17 to the Nexton Parkway/Sheep Island Interchange.

Significant Transactions

Robust interest in the market, combined with high occupancy and asking rental rates and low interest rates, has created favorable investment conditions. In response, two shopping centers sold this quarter.

• The 82,300-square-foot Queensborough Shopping Center, located at 1000 Johnnie Dodds Boulevard in the East Cooper submarket, sold to Publix Supermarkets Inc. Boulevard as part of a portfolio sale for $6.7 million or $162.15 PSF.
• Harbor View Center, a 64,600-square-foot shopping center located at 1001 Harbor View Road in the South Islands submarket, sold to Avondale Holdings Company, LLC for $6.2 million or $95.96 PSF. The shopping center was originally anchored by Piggly Wiggly and is now anchored by Harris Teeter.

Market Conditions

The vacancy rate has increased from 5.1% last quarter to 6.2% at the end of the third quarter due to large spaces becoming available in shopping centers in the East Cooper and Peninsula and North Charleston submarkets. The average asking rental rate was $19.52 per square foot per year triple net (PSF/YR NNN).

 

 

King Street

King Street vacancy was 8.7% at the end of the third quarter. The average asking rental rate for shop space along the corridor is $58.33 PSF/YR NNN. The majority of the vacancy is due to the recently vacated Morris Sokol store, which is 40,000 square feet.

Berkeley

The vacancy rate at the end of the quarter was 3.0%, an increase from 2.2% at the end of the second quarter. The average asking rental rate for shop space was $14.92 PSF/YR NNN. The vacancy rate is expected to increase slightly with the delivery of The Market at Mill Creek, a 78,000-square-foot Lowes Foods-anchored shopping center set to begin construction soon.

East Cooper and Peninsula

The vacancy rate in this submarket nearly doubled, increasing from 3.6% last quarter to 6.2% at the end of the third quarter. The vacancy can be attributed to Southern Season vacating 45,000 square feet at 730 Coleman Boulevard this quarter. The average asking rental rate for shop space was $24.05 PSF/YR NNN, up from $22.53 PSF/YR NNN a year ago.

North Charleston

The vacancy rate increased from 7.9% at the end of the second quarter to 9.6% at the end of this quarter. The increase is due to 37,000 square feet becoming available in the Evanston Plaza at 5341 Dorchester Road. The average asking rental rate for shop space was $14.47 PSF/YR NNN.

South Islands

The South Islands is the smallest submarket, with 984,000 square feet of inventory. The vacancy rate was 3.9%, up from 3.1% last quarter. The average asking rental rate for shop space was $20.29 PSF/YR NNN, a 5.5% increase from the second quarter.

Summerville

Retail is expanding rapidly in Summerville, with several large master planned communities to begin construction soon. The vacancy rate was 1.9% at the end of the third quarter, a significant decrease from 2.5% last quarter. The average asking rental rate for shop space was $18.69 PSF/YR NNN at the end of the quarter, an 8.9% decrease from the second quarter due to fewer quality spaces available in the highly demanded submarket.

West Ashley

Southern Season located in the Brookgreen Town Center at 730 Coleman Boulevard, vacating 45,000 square feet, and 37,000 square feet becoming available in the Evanston Plaza at 5341 Dorchester Road. The average asking rental rate for shop space was $18.67 PSF/YR NNN, an increase from $16.89 PSF/YR NNN a year ago.

Employment and Gross Retail Sales

Charleston’s growing population and tourism sector drive gross retail sales. The Charleston – North Charleston, Metropolitan Statistical Area (MSA) is the combined Berkeley County, Charleston County and Dorchester County. The South Carolina Department of Revenue reported gross retail sales as $3.5 billion for the month of June 2016 for the Charleston – North Charleston, MSA, a 39.4% increase from the $2.1 billion reported in June of 2015.

A strengthening economy and growing number of major employers in the Charleston – North Charleston MSA has contributed to strengthening employment. Employment in the Charleston – North Charleston MSA was recorded as 347,400 people in September of 2016. Since September of 2015, 11,800 jobs have been added to the MSA, a 3.5% increase. Over the last two years, 23,800 jobs have been added, a 7.4% increase.

Market Forecast

A growing residential population, job creation and a thriving tourism economy will continue to drive spending and expansion of retailers in the Charleston area. Several large master planned communities in the Summerville area will lead to the continued expansion of the Charleston’s retail market to the west. Grocers and other national retailers will lead the way in anchoring these large developments and grocers will continue to expand in the other retail submarkets. Demand for space will continue to increase, leading to further decline in market vacancy rates and escalating the average asking rental rates for retail spaces.

Around South Carolina

Growing populations across the state are leading to the expansion and strengthening of existing retail nodes in South Carolina’s main retail markets. Grocers are continuing to expand in all markets along with other regional and national tenants.

Columbia, South Carolina

• Lowes Foods is building two stores in Lexington County, one at the corner of Augusta Highway and Charter Oaks Road and another on the corner of Sunset Boulevard and Hope Ferry Road. The Fresh Market is building two locations, on Two Notch Road near Village at Sandhill and on Sunset Boulevard in Lexington.

Greenville, South Carolina

• A 49,000-square-foot Lowes Foods will anchor the 17,000 square feet of shop space at the new Shoppes of Pelham. The Pelham Road corridor currently has just three grocer-anchored shopping centers, all of which are at full occupancy. These new speculative retail spaces will meet the demand and raise asking rental rates to a range between $29 and $30 NNN PSF/YR.

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

 

To download the complete report: Q3 2016 Charleston Retail Market Report.