Colliers Report: Fast casual dining is a Columbia hit

Key Takeaways

• Core retail absorption causes the market vacancy rate to drop to 10.09% during the third quarter of 2018.
• Fast casual restaurants become hot spots in Columbia.

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Fast Food Evolves to Fast Casual

The lines between full service, casual and fast food dining are becoming blurred into a trend called fast casual dining. Due to a faster pace of living, fewer diners are interested in long four- to six-course meals, although the high quality of full-service restaurants is still appealing. Fast casual dining offers fast service through counter ordering with a higher quality of food than traditional fast food venues. In addition, customers return to see an updated seasonal menu, which is another popular aspect of fast casual dining; often, fresh, local ingredients are used in dishes when in season so the menu options remain fresh and choices are customized throughout the year. In addition, many menus offer low-carb, vegan, gluten-free or superfood options. By ordering at a counter with fresh options, customers are able to customize their orders with chef-inspired dishes and extras which are often higher in nutritional value. The counter-style restaurant reduces the need for wait staff and instead uses a process-driven model where each counter employee only needs to learn how to operate a section of the counter line in order to assist every customer. This efficient model is quick and specialized. Also, less square feet are needed for each restaurant because there is less room used for food preparation – the preparations happen as the customer orders each meal. These trendy restaurants are able to squeeze into a smaller footprint and still remain highly successful. Columbia has several fast casual restaurants that are having an impact on diners, such as Freshe Poke, Poke Bros, Chipotle and Panera Bread. In addition, traditional fast food restaurants such as McDonalds and Wendys are spending money to upgrade their chains to become in line with the fast casual trend by upgrading interior finishes, offering free wifi, displaying fresh plants, using quality ingredients and installing self-ordering kiosks. Columbia welcomes the fast casual trend into the region and anticipates more of these restaurants popping up throughout the market.

Market Conditions

Shopping Centers

The Columbia shopping center market is comprised of approximately 13.14 million square feet and absorbed 26,175 square feet during the third quarter of 2018. Overall average shop space weighted rental rates dropped from $13.84 per square foot during the second quarter of 2018 to $13.58 per square foot this quarter. Core rental rates averaged $19.91 per square feet and non-core shop space rental rates were $11.76 per square foot. The Columbia retail market vacancy rate dropped to 10.09% during the third quarter of this year, down from 10.29% during the second quarter of 2018.

Urban Retail

There are 1.93 million square feet of urban retail in Columbia in eight distinct urban areas. Triple net weighted rental rates for the remaining urban spaces averaged $21.23 per square foot. The overall vacancy rate during the third quarter of 2018 was 8.94%, with 172,531 square feet of core vacancy and no sublease space available.

Northeast Columbia

The Northeast Columbia submarket has 3.95 million square feet of retail space and is the largest of all of the Columbia submarket sectors. The Northeast submarket absorbed 4,174 square feet during the third quarter of 2018 and the vacancy rate dropped from 10.73% during the second quarter of this year to 10.63% during this quarter. The core rental rates averaged $20.00 per square foot, while non-core rental rates were $17.00 per square foot in the Northeast. The overall Northeast submarket rental rate average for the remaining available space was $18.54 per square foot, 27 basis points higher than the weighted rental rate during the second quarter of this year.

Harbison & St. Andrews

The Harbison & St. Andrews submarket has approximately 3.6 million square feet of retail space, making it the second largest submarket in Columbia. This submarket absorbed 28,248 square feet during the third quarter of 2018; the core shopping centers absorbed 31,657 square feet, while non-core shops posted a net negative absorption of 3,409 square feet. The average triple net Harbison & St. Andrews submarket weighted rental rates decreased because there were no core rental rates to average; however, non-core weighted rental rates increased from $10.14 per square foot during the second quarter of 2018 to $10.21 per square foot this quarter for the remaining available space.

Lexington

The Lexington submarket has grown to 1.73 million square feet and has only a few remaining availabilities. The Lexington sector absorbed 1,713 square feet this quarter and the submarket vacancy rate continued to drop this quarter, from 3.92% during the second quarter of 2018 to 3.82% during the second quarter. There are only 9,403 square feet of core retail space remaining in this submarket and the core vacancy rate dipped to 0.78%. The average weighted triple net Lexington rental rates for retail space rose to $22.69 per square foot, up from $21.24 per square foot during the second quarter of 2018. The 55,813-square-foot Publix on Platt Springs Road will be completed and open for business during the fourth quarter of this year, and a 17,000-square-foot Aldi is now open in the Lexington submarket

The Golden Triangle

The Golden Triangle spans two retail corridors on the southeast side of the city, Forest Drive and Garners Ferry/Devine Street, and all 1.25 million square feet of shopping centers within this area are considered core, with limited space for additional development. The Golden Triangle submarket absorbed 3,586 square feet during the third quarter of 2018 and the vacancy rate dropped considerably this quarter to 0.93%, down from 1.22% during the second quarter of 2018. Only 11,650 square feet of shop space remains available in this submarket, and the average triple net weighted rental rate is $20.16 per square foot.

Significant Transactions

During the third quarter of 2018, real estate activity was high in Columbia. There were 85 sale transactions, many of which were part of portfolio sales. There were also 50 retail leases signed during the third quarter of 2018.

Sales

• Armada Hoffler Properties, Inc. purchased three Lexington properties, located at 5222, 5230 and 5232 Sunset Boulevard, for $26.76 million.
• Harbison Center, located at 275 Harbison Boulevard, is a 187,975-square-foot retail center in Irmo that was purchased by LBX Investments for $25.75 million.
• Prime Realty Services acquired 13 retail properties for $16.25 million at The Village at Sandhills Town Center Phase I portfolio sale.
• A 15,500-square-foot retail storefront, located at 912 Gervais Street, was purchased for $4.9 million by Burroughs & Chapin Commercial Leasing & Management.
• A six-property portfolio was purchased by Broadstone Real Estate, LLC for $27.54 million and included 7412 Broad River Road in Irmo.

Leases

• CVS signed a lease for 9,314 square feet at 3250 Harden Street Extension in Columbia.
• At Carolina Park Shopping Center in Newberry, Byessence Beauty leased 9,000 square feet of retail space.
• Spirit Halloween leased 8,850 square feet within the Palmetto Plaza in Sumter.
• The Seafood Academy leased 8,450 square feet at 7501-7543 Garners Ferry Road in Columbia.

Construction Pipeline

Construction activity is active in the Columbia retail market, with 88,057 square feet of retail currently under construction.

Under Construction

• A 55,813-square-foot Publix grocery store is currently under construction at 5441 Platt Springs Road in Lexington.

Completions

• An 18,061-square-foot property is completed at 175 Meeting Street in West Columbia; it will be a restaurant space to complement the nearby residential construction.

Gross Retail Sales & Employment

The Columbia MSA employment is once again adding non-farm jobs. Per the Bureau of Labor Statistics’ most recent data from July 2018, there were 2,100 jobs added over the past 12 months. The Columbia MSA also had a total of 402,500 non-farm employees. Data from the South Carolina Department of Revenue reports gross retail sales in the Columbia MSA reached $31.25 billion over the last 12 months which span from June 2017 through June 2018.

Market Forecast

Fast casual restaurants are a hot trend throughout the U.S. and the Columbia market is no exception; several fast casual restaurants have entered this market and the trend is expected to draw new fast casual tenants to the Columbia region. In addition, Columbia diners may begin to see upgrades and menu changes to the traditional fast food restaurants within the Columbia submarkets as fast food adapts more of a fast casual dining style. The Columbia retail market should expect positive non-core absorption through year-end; however, there are few remaining availabilities within core shop space. The core weighted rental rates for the remaining available space are decreasing as expected due to the lack of quality and convenience of the remaining retail space. Non-core rental rates in Columbia shop spaces are expected to rise as the market tightens. Overall, the Columbia retail market is positive and will remain so into 2019.

Around South Carolina

Charleston, SC

• The overall market vacancy is steadily declining each quarter. The Charleston retail market absorbed 52,408 square feet during the third quarter of 2018. The Charleston region can expect positive absorption and declining vacancy rates into 2019, especially in the areas of Summerville, West Ashley and North Charleston. Due to high residential activity in Summerville and West Ashley, more businesses will continue to be drawn to those submarkets.

Greenville, SC

• The Greenville-Spartanburg-Anderson market absorbed 12,098 square feet this quarter and the overall vacancy rate dropped to 10.16% during the third quarter of 2018. The vacancy in core retail space remained basically unchanged this quarter at 4.25%, while the non-core vacancy rate dropped from 12.85% last quarter to 12.74% during the third quarter. The Greenville-Spartanburg-Anderson retail market is performing well with consistently dropping vacancy rates; however, due to lower quality availabilities remaining, rental rates are also declining. Downtown Greenville retail can expect to pick up through the holidays due to a terrific variety of shops and thriving restaurants in a walkable and naturally beautiful location to shop.