CITY HIGHLIGHT, APRIL 2005

GREENVILLE/SPARTANBURG RIDING ROAD TO RECOVERY

The Greenville/Spartanburg market is down, but not out. Its market statistics are remaining lower than regional and national averages, but overall, each submarket is seeing improvement. Still, the area is a long way from complete economic recovery. For example, in the office submarket, Downtown Greenville is re-surging, yet development in the suburbs is not quite up to speed. The industrial sector is showing positive signs of recovery, but at a much slower rate than the other submarkets. In the retail sector, vacancy is well above national and regional rates. However, local lenders have not been shy with project financing, and this trend has been affecting development positively. Finally, the multifamily submarket has seen the most activity, as BMW’s new plant is adding jobs, which is leading to demand for residential development. Yet rates are still remaining stagnant without much improvement. Basically, each submarket in the area has its positives and negatives, but on the whole the market is slowly, yet surely, on the rise.

Office

The Greenville-Spartanburg office market continues to be driven by the move toward mixed-use development, the increased interest in office condominiums and the emerging footprint of the Clemson International Center for Automotive Research (ICAR), an ambitious new automotive research and development campus now under construction in Greenville.

The area finished 2004 with a vacancy rate of 16.8 percent, its lowest vacancy since 2001, compared to the 2003 rate of 21.7 percent. Given the underlying dynamics of the local economy, the long-term outlook for recovery is positive.

In Spartanburg, Johnson Development is continuing the surge of construction that began in 2002 by adding 55,000 square feet. A bank will anchor this building, which is located at the corner of E. Main and Alabama streets.

Downtown Greenville has seen a major shift toward mixed-use development. Three projects recently were completed (Wachovia Place, Poinsett Corners and The Bookends), and in late 2005, Phase I of Greenville’s newest landmark, RiverPlace, will follow these developments with 87,500 square feet of Class A space. In addition, a planned redevelopment project, Piazza at Bergamo, will add roughly 15,000 square feet of mixed-use space on Greenville’s Main Street.

Throughout the area, office condominiums are also making headlines. This trend first began in Greenville’s suburbs in response to low interest rates, and developers are taking the concept to Greenville’s Downtown. Two projects are currently in the works: Twenty Two South Main, featuring 11 units; and The Pinnacle on Main, which features 88,000 square feet in a 13-story high-rise.

The dichotomy between Downtown Greenville and the suburbs will continue at least through 2005. Suburban construction levels were cut drastically in 2004, with no new projects slated for 2005. However, expectations are high for ICAR, the 400-acre research campus located in Greenville’s suburbs. The planned addition of a multi-tenant incubator facility is seen as one of the key elements in ICAR’s start-up operation.

The nearby Hollingsworth land may also yield announcements in 2005, as land becomes available for sale. A master plan for this area will be unveiled in the spring, at which time development opportunities for all sectors will become more tangible.

— Hara Knight, Grubb & Ellis|The Furman Company

Industrial

Recovery in the Greenville/Spartanburg industrial sector is underway, but progressing much slower than the office and retail sectors. Recent economic news for the region has yielded a mixed bag. On the positive side, companies such as Hubbell Lighting, Sukano, Steadman Hawkins, General Electric, BMW and many more will invest millions in the new or expanded facilities in the area. On the downside, several thousand textile jobs will vanish in 2005 as older mills are forced to close.

Vacancy improved slightly in 2004, finishing the year at 12.6 percent, down from 12.9 percent the previous year. Lease rates have remained flat in the past year, with warehouse space ranging from $2.75 to $3.25, and manufacturing space staying in the $3.00 to $3.25 range, depending on ceiling height and quality of construction.

The flex space category currently is the most active industrial property type, and speculative construction has been on the upswing since early 2004. Liberty Property Trust most recently has completed two buildings at Brookfield South Business Park totaling 134,000 square feet. Other recent projects include Lakeside Business Center at 36,000 square feet, and another 57,300 square feet at Hillside Park of Commerce.

Industrial construction is increasing in other property types as well. The total for new construction in 2004 was roughly 739,000 square feet. Deliveries for 2005 will include the Lindstrom Mega Metric facility, featuring 172,000 square feet in Greer, and Super Duper Publications, comprised of 100,000 square feet on Pelham Road in Greenville.

On a submarket level, there are several areas to watch for future growth. The greater Greer area along Interstate 85/SC 101/SC 290 is home to a large portion of the region’s new construction. The Interstate 385/Brookfield area will continue to draw office and light industrial development due to its proximity to residential and employment clusters, and The Matrix Business and Technology Park will continue drawing industrial users thanks to an abundance of land. And lastly, the emerging presence of ICAR and its impact on the automotive industry means that the demand for industrial space will be affected throughout the entire region for many years to come.

— Hara Knight, Grubb & Ellis|The Furman Company

Retail

New construction includes the Shops at Greenridge, a 600,000-square-foot development along Woodruff Road, featuring two new retailers in the Greenville market — World Market and Linens ‘n Things. HH Gregg, an electronics chain, will open its first store in Greenville as well. While new retailers are entering the market, two Rhodes Furniture stores will close in connection with its Chapter 11 bankruptcy filing.

Centennial American Properties is developing a new shopping center across from the Shops at Greenridge called Shops at the Point. The 107,000-square-foot center will be anchored by Circuit City and Whole Foods Market.

In Spartanburg, Office Depot and Petco will join Ross Dress For Less as the tenants of the vacant Kmart in the Hillcrest shopping center. Petco’s space represents its first South Carolina location. Elsewhere in Spartanburg, Best Buy and Lowe’s will soon relocate to larger stores, and Sam’s Club is expanding by 19,000 square feet.

The Greenville/Spartanburg retail market continues to maintain a vacancy rate well above the regional and national averages. The overall vacancy of 11.3 percent for the fourth quarter of 2004 was slightly higher than vacancy from the same period in 2003, according to a MetroStats report published by Reis, Inc. Reis reports a regional overall vacancy of 6.8 percent and a national average vacancy of 7.1 percent

Centers built since 1994 are experiencing the lowest average vacancy rate of 3.8 percent. Those built between 1980 and 1989 reflect the highest average vacancy of 14 percent according to Reis, Inc. Currently, the average asking rent is $10.41 per square foot for non-anchor space, which is approximately 2.4 percent higher than in 2003. While this may be seen as a positive sign, the average is still less than the average asking rent in 2000 of $10.50 per square foot.

Financing opportunities exist locally for retail developments. According to Lisa Shelnutt, senior vice president with Carolina First, “Most new construction that I see is either credit anchored or shadow anchored, and lenders view that favorably. Lenders have not been as eager to underwrite to the lower cap rates, and in spite of the market, most projects are still being financed with reasonable amounts of equity and pre-leasing.”

Recent sale transactions include the Five Forks shopping center in Simpsonville, which sold for approximately $126 per square foot. A 46,673-square-foot Bi-Lo anchors this center.

— Michael Dodds, MAI, CCIM, managing director, Integra Realty Resources - South Carolina

Multifamily

While unemployment remained virtually unchanged during 2004, the expected addition of 5,000 new jobs at the BMW plant over the next 5 years grabbed the attention of multifamily developers. The plant is located in the Greer submarket, which lately has seen the most development activity in the area. Rogers Harmon Development LLC currently is constructing a 154-unit luxury apartment complex in Greer called The Regency at Chandler Park. In the entire submarket, more than 300 additional units were either just completed or are under construction.

Another planned development in the Greenville market is the 210-unit Auston Woods, located in Easley. Developers have billed the complex as a luxury apartment development, and it will include 84 one-bedroom units, 84 two-bedroom units and 42 three-bedroom units.

The average asking rent for the market is $582 per month, with the average effective rent being $534 per month according to a MetroStats report published by Reis, Inc. This indicates an 8.3 percent average free rent discount. Since 2000, the average asking rents have ranged from $573 to $588 per month. The overall market vacancy of 12.2 percent for the fourth quarter of 2004 was slightly less than the same period in 2003. Reis has reported a regional overall vacancy of 7.1 percent and a national average of 6.7 percent.

“Even though vacancy decreased slightly in 2004, rental rates remain weak with demand soft,” states William Buford Jr. of Marcus & Millichap. “Therefore, we expect vacancy rates to increase in 2005. That said, despite widespread softness across most markets in the Carolinas, we are noting a significant increase in investor interest in acquisitions in these two states.”

Recent sale transactions include the Berkshires at Brookfield in Mauldin, which sold for approximately $56,250 per unit, and Huntington Downs, a 502-unit complex, sold for $43,327 per unit. Both sales occurred in December 2004. The Berkshires at Brookfield was constructed in 1995, while Huntington Downs was built in 1986.

— Michael Dodds, MAI, CCIM, managing director, Integra Realty Resources - South Carolina

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