Significant activity is visible as new centers complete construction and retailers open

Colliers International | South Carolina
Research & Forecast Report
Charleston | Retail
Q3 2015

Key Takeaways

• National retailers continue to show significant interest and demand for space in the market.
• An improving economy, job creation and residential growth are motivating retail development.
• Construction activity is in full swing after being absent from the market for several years.  The first significant developments are complete.
• Rental rates are on the rise, setting new record-highs.
• Sales prices soar.
• Charleston maintains accolades.
• King Street continues to thrive off tourism industry.

 

To download the complete report: Q3 2015 Charleston Retail Market Report.

 

Retailers Show Significant Interest in the Market

Retail is booming throughout the Charleston, South Carolina market as the region’s economy continues to improve, job creation persists and population growth and tourism remain strong.  Grocers, discount retailers and fast-casual restaurants are among the popular suburban retailers while up-scale dining and shopping retailers dominate downtown.  Options for retail space are limited and retailers are expressing a sense of urgency, choosing locations and signing leases at a faster pace than the past.

Strong activity has been apparent in the market throughout the last year with announcements of new retail openings.  Substantial development is finally visible as construction completes on newly developed and redeveloped centers with retailers opening their doors to customers.  The vacancy rate, which remained flat throughout recent quarters, is finally declining as new centers come online with little to no vacant space.  The third quarter of 2015 ended with a vacancy rate of 5.1% for the overall market, down from 5.6% at mid-year 2015.  Occupancy is at an all-time high and retailers are competing for limited quality options.  Increased competition for space and rising construction costs are contributing to record-setting rental rates.  Asking rental rates for junior anchor and shop space in the suburban submarkets averaged $9.13 PSF NNN and $19.04 PSF NNN, respectively, at the end of the third quarter of 2015.  Newly delivered shop space is receiving lease rates over $35 PSF NNN and new junior anchor space is receiving over $15 PSF NNN.  Rental rates for shop space along King Street remain high and continue to increase motivating inflated sales prices.

The 1,883 square-foot property at 289 King Street recently sold for $2.3 million, or approximately $1,221 per square foot.  The property closed less than 45 days after being listed for sale indicating a healthy investment sales environment supported by limited vacancy, strong demand, and escalating rental rates.

 

First Wave of Construction Completes.  Second Wave is Underway.

Construction activity has picked up over the past year and is at its highest level following the recession.  New ground-up developments and redevelopment of vacant big-box spaces are successfully pre-leasing as demand for space remains strong.  New retailers are now open following the completion of the first significant developments in recent years.

• Construction is complete at Midtown, the cornerstone of Upper King.  A dual-branded Hyatt Place-Hyatt House hotel recently opened at the development, adding 304 guest rooms to the Downtown area.  Approximately 19,000 square feet of office space and approximately 15,000 square feet of retail space remain available.  A 405-space parking garage is also located at the development.
• Summerville Marketplace, formerly called Horizon Square, is complete in the Summerville submarket.  The approximately 65,000 square-foot center is home to Earth Fare and PetCo, the first two tenants to open at the center.  Co-tenants include Dunkin’ Donuts, Mattress Firm, Crust Pizza, Tijuana Flats, Orange Theory Fitness, and others, all of which expect to be open by year-end.
• Bowman Place, the redevelopment of the former K-Mart on Johnnie Dodds Boulevard, recently completed in Mount Pleasant.  Dick’s Sporting Goods was the first retailer to open at the center.  Nordstrom Rack and Designer Shoe Warehouse opened during the third quarter.  The center is also home to Kitchen & Co. and Urban Cookhouse, both new to South Carolina.
• The first Field & Stream store in South Carolina is open in North Charleston near the Tanger Outlets.  The 50,300 square-foot store is located at 4956 Centre Point Drive.

 

Announcements for future development continue to be made throughout the market.  New developments will continue to be an entry-point for new-to-market retailers as well as existing retailers looking to expand.

• Conn’s and La-Z-Boy recently announced plans to develop new stores next to the recently opened Field & Stream location off Centre Point Drive.  Conn’s plans to build a 45,800 square-foot store and La-Z-Boy plans to occupy a new adjacent 16,200 square-foot store.  Both stores expect to be open in the spring of 2016.
• BJ’s Wholesale Club plans to enter the Charleston market with a new 87,000 square-foot store in Summerville.  Construction could begin by year-end 2015 and be completed late in 2016.
• Starbucks is under construction at the corner of Savannah Highway and Farmfield Avenue in West Ashley.  The coffee shop will occupy a free-standing building with a drive-thru on a grocery-anchored corner.

 

In addition to discount retailers, fast-casual restaurants and sporting goods stores, grocers are expanding their footprints as substantial population growth and job creation drive their growth strategies.

• Lowes Foods plans to open its first Charleston store at SC Highway 41 and Wood Park Drive.  The 50,000 square-foot store will anchor a new 78,000 square-foot center to be called The Market at Mill Creek.
• Aldi recently opened its first Charleston store in Summerville at the site of a former bowling alley.  The 15,000 square-foot store is located at 10015 Dorchester Road.
• Harris Teeter plans to open at Westwood Plaza in West Ashley.  Space became available for the grocer due to Office Depot downsizing and T.J. Maxx relocating within the center.  Construction is expected to be completed within 18 months.
• Walmart Neighborhood Market continues to expand its footprint.  Four stores are currently open in the Charleston area and a fifth is planned for Dorchester Road and Patriot Boulevard.  Current locations are at 1635 Red Bank Road in Goose Creek, 215 St. James Avenue in Goose Creek, 3685 Ladson Road in North Charleston, and 10635 Dorchester Road in Summerville.

 

 

King Street Happenings

Charleston’s downtown continues to attract tourists and its popularity helped the city maintain accolades.  Charleston ranked number 1 among Conde Naste Traveler’s “Best Small Cities in the U.S.” for the fifth consecutive year.  Charleston has also been named number 1 on Travel + Leisure’s list of “Best Cities in the U.S. and Canada” for the third consecutive year.  The city’s tourism industry is supporting high occupancy along King Street with tenants paying higher rents than ever before.

• West Elm, a home furnishing retailer, opened its first South Carolina location on Upper King Street.  The 10,000 square-foot store is located at 484 King Street.  West Elm is the first soft goods retailer to recently open along King Street, indicating a movement towards national soft goods retailers showing greater interest in the market.
• Morris Sokol Furniture is closing its store at 510 King Street, adding prime real estate to the tight market.  The store, located at King and Reid Streets along Upper King, will receive considerable interest.
• Saint Alban is relocating to 721 King Street, across the street from its current location, which will become Little Jack’s Tavern.
• Charleston Beerworks’s new location is under construction at 470 King Street.  The sports bar and restaurant will be relocating from 468 King Street.
• Juxstaposition is open at 424 King Street, the former Felice Designs Space.
• The former Garden and Gun office space at 409 King Street has been backfilled by Lulu Burgess and Beckett Boutique.
• Willy Jay’s, a young contemporaries women’s boutique, backfilled the former Yogurt Mountain space at 343 King Street.
• Rangoni Shoes moved into the former Cache space at 237 King Street.  The high-end Italian shoe boutique moved from 270 King Street.
• Lou Lou Boutique is open at 244 King Street.

 

Other Retail Announcements

• Seattle-based MOD Pizza plans to open a 3,400 square-foot restaurant at Westwood Plaza, located at 1812 Sam Rittenberg Boulevard in West Ashley.  The restaurant is expected to open next year.  MOD Pizza’s first Charleston location will be located at the Millennium Music building redevelopment at King and Calhoun streets downtown.
• Nadeau Furniture opened its second Charleston store at 709 Johnnie Dodds Boulevard in Mount Pleasant.
• Sports Authority is closed at Northwoods Shopping Center, located at 7800 Rivers Avenue.  Hobby Lobby and Boot Barn plan to backfill the space and occupy 55,000 square feet in the center.  The stores plan to open in 2016.  The 270,196 square-foot center experienced robust activity over the past year.  Gander Mountain opened its first Charleston store at the center last year.
• This Time Fitness leased approximately 1,470 square feet at Pier Point Crossing Shopping Center in West Ashley.  Charleston Specialty Foods leased 4,355 square feet at the center.

 

Market Outlook

Current development projects have successfully attracted national tenants to the market, and a demand for additional development exists.  Developers are facing challenges as land becomes scarce, height restrictions place limits on building heights, and construction costs rise.  Additionally, strong market fundamentals are attributing to competition for land among developers of retail, office, multifamily and hotels.  As a result, the market will begin to see more mixed-use developments with ground-level retail.  Master-planned communities, such as Nexton, will continue to gain popularity in the suburbs.  The vacancy rate will show little change until new construction delivers at high occupancy.  Rental rates will continue to climb as construction costs increase and space remains limited, specifically for shop and junior anchor space which are in greatest demand.  New-to-market retailers will continue to enter the market and anchor new developments.  Overall, the market is poised for continued growth through the remainder of 2015 and into 2016.

 

Around the State

Retail development is on the rise throughout South Carolina with new ground-up construction and redevelopments.  Retailers are expanding their footprints and entering new markets with multiple planned locations.

 

Columbia, South Carolina

• Kroger Marketplace, the first in South Carolina, is under construction at Killian’s Crossing in Northeast Columbia. Other tenants joining Kroger at the lifestyle center include Chick-fil-a, Applebee’s, McDonald’s and Panda Express. The development will offer multifamily and single family residential units, and hotel space, along with retail space and outparcels.
• A growing downtown residential population is driving retail development in the submarket. Grill Marks recently opened at the City Market redevelopment. Construction is nearing completion on Newk’s Eatery at the development. Construction is underway across the street at West End Alley, which will be home to Tin Lizzy’s Cantina and City Bar and Fondue, among others.

 

Greenville, South Carolina

• Construction is underway at the Lewis Plaza redevelopment, which will be anchored by Harris Teeter’s new two-story, 53,00 square-foot grocery store.  This will be the first Harris Teeter in the area following the grocer’s departure several years ago.
• Lowes Foods recently began construction on its first Upstate location at Suber and Hammett Bridge Roads
• The Fresh Market recently opened a new 24,000 square-foot store at 1601 Woodruff Road.

 

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

 

To download the complete report: Q3 2015 Charleston Retail Market Report.