CITY HIGHLIGHT, APRIL 2006

GREENVILLE-SPARTANBURG CITY HIGHLIGHTS
Jimmy Wright, Peter Couchell, William D. Crawford, Hunter Garrett

Retail Market

The Greenville retail market continues its strong growth. The most notable addition this past year was the Shops at Greenridge, developed by Crosland Development. This 600,000-square-foot shopping center, located at the intersection of Woodruff Road and Interstates 85 and 385, brought in several new tenants to this market and repositioned and expanded other long time retailers. The Shops at Greenridge is just one of a number of similar projects in the Woodruff Road area. Greenville-based Centennial American Properties is introducing the Upstate to Whole Foods at their Point project, located across the street from Greenridge. And the Greenville Mall is being torn down as a Florida development group, who recently purchased the site, intends to introduce a lifestyle center concept.

McBee Station in downtown Greenville is a new mixed-use development that will be anchored by Publix and a national office supply chain. This project, being developed by the Atlanta-based Gipson Company, is the first urban project in recent years to attract national retailers to the downtown area.

Growth continues to boom outside the city limits as well. The city of Greer is seeing solid growth as expansion continues to go west on Wade Hampton Boulevard towards Greenville with the Target-anchored North Hampton Marketplace being the catalyst. In January, Travelers Rest experienced the Wal-Mart effect as the giant retailer opened its fifth super center in Greenville County. Additional sites in the surrounding vicinity of the new supercenter are now or soon to be under development with new shopping centers and restaurants.

Spartanburg continues to see new growth on the westside of town, primarily around the Wal-Mart- and The Home Depot-anchored Dorman Center. Kohl’s expanded in the Upstate with its first store in Spartanburg County. The eastside of Spartanburg is continuing to see new growth and development, primarily centered on East Main Street. Recently, The Home Depot began construction on its second location in Spartanburg on East Main Street, which also saw the addition of a Wal-Mart Supercenter as well.

A retail segment that has seen impressive revitalization is the grocery arena. Food Lion has recently announced its increased focus on the area by building several new Food Lions and also introducing its Bloom concept, a higher-end European concept with more prepared foods, to the Greenville-Spartanburg market. The company will have more competition as local leader Bi-Lo is starting to expand again after several years of stagnation Only this time, the company is rolling out a new 63,000-square-foot Super Bi-Lo, which will be the largest Bi-Lo store to date. This activity should create additional growth in the neighborhood shopping center segment of the market.

— Jimmy Wright is director of retail with Greenville, South Carolina-based NAI Earle Furman.

Office Market

In Greenville’s central business district (CBD), large master-planned, mixed-use developments with significant amenities are proving to be a successful formula. The much anticipated RiverPlace mixed-use development, located on the Reedy River, has made significant progress.  As part of Phase I, the first new office building (87,000 square feet) has been completed and is fully occupied. Additional office space is expected to come to the market some time late in 2007 with the construction of a mixed-use structure in Phase II.

Another major mixed-use project, which will open this spring, is under construction around a new downtown minor league baseball stadium. The project will incorporate 45,000 square feet of office space above ground floor retail. Other local developers are planning additional CBD office projects, but pre-leasing activity has generally been too slow to secure the necessary financing for these projects to break ground this year. Slower than expected job growth coupled with a stable balance of supply and demand in the CBD may be contributing to the slow pre-leasing activity.

In the suburban markets, the most consistent development trend in new office product has been small medical/office parks. Much of the new development is occurring in master-planed parks with three or more pad sites for buildings between 4,000 and 8,000 square feet. Developers are relying on a combination of Colonial brick design, one- to two-story structures, adequate parking ratios and minimal landscaping to deliver solid returns. The growth of the area hospital systems is spurring much of this speculative construction. Prices for unoccupied buildings in shell condition are ranging from $100 to $125 per square foot.

Demand for engineering services across the world is contributing to absorption of suburban office space. Flour Daniel, the largest office user in the Greenville suburban market, continues to expand and absorb vacant office space.

— Peter Couchell is a partner and Stuart Wyeth is an associate broker with Greenville, South Carolina-based NAI Earle Furman.

Multifamily Market

This could be the year that the apartment market in the Upstate of South Carolina begins to recover. Comprised of the cities of Greenville, Spartanburg and Anderson, the Upstate has languished with declining occupancy rates since 2002. Urban areas between these communities have experienced considerable growth in single-family construction, significantly affecting the multifamily market occupancy rates, and the resulting lack of development activity. Overall occupancy rates have hovered between the high 80 percent range and very low 90 percent range, only recently beginning to inch upwards to the current 93.1 percent rate reported by the Appalachian Council of Governments recent survey.

Greenville is the hub of the Upstate, with the highest population, and has been referred to as the economic engine of South Carolina. Once known as “the textile capital of the world,” it has transformed itself into more diverse and international community. The most significant transition relates to the automobile industry, as Greenville plays host to BMW, Michelin and the Clemson University-International Center for Automobile Research (CU-ICAR), currently under development.

Consequently, with Greenville attracting some attention, occupancies rose in the past and a number of developers moved in at the same time to fill the perceived need in a dynamic community. The resultant overbuilding depressed occupancy rates as well as rental rates and owners were forced to endure lease-up challenges and reduced cash flow.

Greenville has also suffered from the continuing loss of jobs numbering 1,373 last year. Many of these were textile oriented. Although the area created 1,073 new jobs in the same period, the difference is negative 300. This ratio should reverse itself in future years as unemployment rates dropped from 6.2 to 5.5 percent last year, the region’s lowest rate. The stage is set for an improvement in these numbers.

There is a 192-unit luxury project planned on the demolished downtown site of the old McBee Apartments. Part of a mixed-use development known as McBee Station, this project is the first attempt to provide luxury units on a large scale in the dynamic downtown of Greenville. Some of this demand for downtown living has been met with a plethora of condominium units, many of which are investor owned. Most are high-end units, with many still coming online. The overall market saw an increase of 837 condo units last year. Last year, new single-family homes numbered 4,047, of which, 496 of these were new attached dwellings. This represents an increase of 685 from 2004.

Last year, The Regency at Chandler Arms provided 154 conventional units in Greer, and Walden Creek added 240 units. Under construction or planned units include the 378-unit Candleton Village and an old mill conversion into the 188-unit The Lofts. A number of subsidized tax credit deals are underway, including Rocky Creek’s 200 units on Woodruff Road and three 40-plus unit projects.

The investment sales market continues to be dynamic. The 350-unit Caledon Wood property traded for $23.8 million and the 232-unit Preserve at Woods Lake sold for $15.1 million, both Class A space.  Other properties finding new owners included Summit Oak Ridge (252 units); Pelham Ridge (184 units); Grove Station (308 units); Windmill (128 units); Pelham East (100 units); Hunter’s Place (120 units); Huntington Downs (472 units); and Brookfield (722 units).

At the close of last year, Spartanburg had seen the completion of Johnson Development’s 264-unit Haven at Boiling Springs, which was well into lease-up at the time. Tim Creek planned for 180 units in a mixed-use development with retail and single-family residences, but the multifamily portion has not broken yet. Occupancy rates in the area remain in the high 80 percent range.

Anderson on the other hand had the 216-unit Grove at Ashton Park is underway, in a market that is 92.1 percent occupied. It has also seen the completion of the 180-unit The Hamptons; 32 units of Brogan Avenue; the 144-unit Heritage Trace and two 32-unit projects on Middleton Boulevard.  A new Walgreen’s distribution facility is under construction for a January 2007 completion date. The project promises 400 to 600 new jobs, which should increase the demand for housing.

The Upstate market as a whole enjoys an exceptional location off Interstate 85 between Charlotte and Atlanta. All three of these communities have strong pro-business climates and will undoubtedly continue to grow. Rental rates in these markets have lagged well behind the larger cities because increased development generally occurs before the markets can firm up. Perhaps increased construction costs and higher interest rates will prevail and discourage overdevelopment this year, providing owners a little breathing room.

— William D. Crawford, CCIM, is president of Greenville, South Carolina-based Crawford & Associates, LLC.

Industrial Market

The Greenville-Spartanburg industrial market had a healthy 2005. Vacancy rates dropped during the final two quarters of last year, but gains were offset by Winn-Dixie vacating an 800,000-square-foot distribution center on Wade Hampton Boulevard. However, it is unlikely that this site will be released as industrial space because it is well positioned for redevelopment as other uses in the immediate future.

National entities Liberty Property Trust and ProLogis both enjoyed very good years. ProLogis reported an annual decline in vacancy to 12 percent last year from 41 percent in 2004, leasing 190,000 square feet to Confluence, formerly Water Mark Paddle Sports. Liberty Property Trust brought 134,000 square feet of multi-tenant space online early last year. With the expansion of Pro Trans to 51,200 square feet from 25,000 square feet, Liberty’s current vacancy stands right at 11 percent for the market. Liberty Property Trust has also announced the expansion of the Brookfield facility with a 96,000-square-foot building. This third unit is scheduled to be delivered in the third quarter of this year.

The textile industry continues to struggle as several plants closed last year. Vacancy rates for textile-related building are much higher than for the industrial sector as a whole. Many of the facilities are outdated to the point of functional obsolescence because features, such as low ceiling heights, are not conducive to distribution uses.

The flex space market continues to thrive with vacancy rates at a 3-year low due to a lack of new product last year.

The area in and around The Matrix Business and Technology Park has seen the majority of this market’s speculative development in the past year, with the addition of approximately 180,000 square feet of new space just in that immediate market.

A number of factors, including the abundance of developable industrial land; the anticipated impact of the International Center for Automotive Research and the arrival of the automotive industry; the continuing growth of the Matrix park; and the proximity to Charlotte and Atlanta as well as the ports of Charleston, bode well for the future of the Greenville-Spartanburg industrial market.

— Hunter Garrett is a partner with Greenville, South Carolina-based NAI Earle Furman, LLC.

THE BUZZ ABOUT MCBEE STATION McBee Station McBee Station, a joint venture between The Gipson Company and Terwilliger Davis and Leadbetter, is a mixed-use development that will welcome the first large national retailers to Greenville, South Carolina’s downtown market when it opens its doors in the first quarter of 2007. Publix will anchor the center, which will feature 83,000 square feet of retail space. The 14-acre redevelopment site will also include 192 apartment units and 22 condominiums.

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