CITY HIGHLIGHT, APRIL 2012

GREENVILLE

Greenville Retail Market

The Upstate area of South Carolina finished 2011 with quite a bit of retail activity and good news on the retail front has continued into 2012.

Greenville, Spartanburg and Anderson saw positive retail absorption of 233,144 square feet in the fourth quarter of 2011, according to CoStar, and vacancy rates declined to 6.4 percent in the fourth quarter of 2011 from 6.6 percent the previous quarter. The housing market seems to have stabilized and is showing positive trends, which is good news for retailers. And the Upstate has had a number of new economic development announcements including BMW’s facility expansion and Amazon’s new 1 million-square-foot distribution center, which is under construction in Spartanburg.

The Upstate Alliance reported that 2011 brought the creation of more than 5,000 new jobs and capital investment of more than $805 million in investment and expansions. The Upstate South Carolina region has already announced more than $1 billion in capital investment thus far in 2012. The newest announcement is in Union for Belk Inc.’s new distribution center, which brings $4.5 million in capital investment and more than 120 jobs to the area.

The Upstate has had success backfilling some big box vacancies. buybuyBABY took over the former Linens ’n Things space in Greenridge while REI and Petco have occupied the former Circuit City store on Woodruff Road. Rush Fitness absorbed the former Goody’s space in Cherrydale Marketplace and Old Navy, Toys ‘R’ Us and LongHorn Steakhouse are new tenants in Westgate Village in Spartanburg. In Greer, Kohl’s has taken a former Kmart space and a Walmart’s Neighborhood Marketplace replaced an old Winn-Dixie, both on Wade Hampton Boulevard.

There have been a number of new projects in the Upstate area. Dollar General has been active, relocating in-line stores like the one on West Butler Road in Mauldin. AutoZone just finished a new store in Travelers Rest. Buffalo Wild Wings opened near the Dorman Center in Spartanburg, flanked by new shop developments, including Chipotle, Yogurt Mountain, Aspen Dental, as well as Portrait Innovations, Vitamin Shop and Mattress Firm. Walmart plans to build a store in Powdersville on Highway 153.

Greenville’s RealtyLink is redeveloping Crosspoint, where a former Circuit City and soon-to-be-vacated Toys ‘R’ Us offer a prime position near the Haywood Mall.

Menin Development is making progress on Magnolia Park on Woodruff, which includes the Toys ‘R’ Us relocation, a recently opened Rooms To Go and Cheddar’s Casual Café. The company has several new-to-market retailers included in its plans. Carolina Ale House just opened in the former Flat Rock Grill across from Trader Joe’s and Academy Sports + Outdoors has taken over the former BJ’s Warehouse.

Hughes Development is developing ONE, a new mixed-use project on Main Street in downtown Greenville. Upon completion, ONE will include 40,000 to 50,000 square feet of retail space.

ONE, Hughes Development’s new mixed-use project on Main Street in downtown Greenville, includes Anthroplogie and Certus Bank. Upon completion, ONE will include 40,000 to 50,000 square feet of retail space.

Also in Greenville, Mac’s Speedshop, from Charlotte, is opening its first location in the West End this spring across from the Flour Field. Nearby, Walmart is pursuing an in-town location on Church Street.

Lewis Plaza, South Carolina’s first life-style center on Augusta Road, sold recently. New owner AVTEX Commercial Properties is considering redevelopment plans.

Retailers are active in the Upstate area of South Carolina and we are optimistic that the market will continue to improve in 2012.

— Pete Brett, CCIM, is a broker with Greenville-based Coldwell Banker Commercial Caine.

Greenville Multifamily Market

Trends in multifamily development and demand mirror both changing mentalities in a post-recession era and dynamic population shifts. There are an estimated 80 million echo boomers (Americans born between 1980 and 1995) that are beginning to move out of their family homes or college dorm rooms and into a very challenging job market. Most rent because they are either unable to buy or they consider owning a home low on the list of their financial goals at this stage in their lives. Even those older than the echo boomers have changed their ideology as it relates to homeownership after suffering through a collapsed housing market. The result of these shifts has kept the demand for multifamily housing high on both local and national levels.

Current apartment developments are also responding to the demand for affordable luxuries. They now offer green efficiencies that will reduce utility bills and access to transit nodes that cut down on gas costs. Amenities such as fitness centers, coffee shops and pools with outdoor areas that allow residents to socialize on-site have become commonplace.

In the Greenville market, the downtown apartment activity is bustling. Hughes Investments recently delivered the Riverwalk at Riverplace, a mixed-use development that consists of 44 units as a New Markets Tax Credit deal. Davis Property Group’s 100 East project consisting of 48 units will boast a rooftop pool. Both are reported to be fully pre-leased and are good indicators for what current apartment demand looks like in our rapidly changing market. Subsequently, there are two new proposed developments with no less than 300 units combined now pursuing the downtown area.

However, the primary focus for future development is the Woodruff Road/ICAR area. This is the major retail channel of Greenville and home of Clemson University’s International Center for Automotive Research (ICAR) campus. Several new properties have been proposed in this area, including Birmingham, Alabama-based Arlington Properties’ 241-unit Tapestry Park at Verdae; Greenville-based Easlan Investment Group’s 244-unit The Vinings at ICAR; Columbus, Georgia-based Flourney Development’s 346-unit Verandas at The Point off of Woodruff Road; and Menin Development’s 200-unit Magnolia Park on Woodruff Road. The addition of jobs at TD Bank’s new location and the growing success of the ICAR campus will continue to increase the need for housing in this area.

In addition, the new medical school on Grove Road, The University of South Carolina School of Medicine – Greenville, is expected to draw new demand for housing along that corridor as well.

With all of these new projects not expected to deliver for several years, population growth and job growth will continue to be the metrics to watch. According to the Manpower Employment Outlook Survey, the Greenville MSA’s job outlook was just forecasted as the best in the nation for the second quarter in a row. The survey reports that 26 percent of local companies plan to hire more employees from April to June. That is powerful news for our market. Multifamily vacancy rates are hovering at 7 percent, but are expected to continue declining as demand becomes pent up while new product is just breaking ground.

Even though the housing market is showing signs of a slow recovery, the rental market is expected to remain very strong and investors who once were only willing to invest in large core markets are now actively seeking a footprint in flourishing tertiary markets where demand is high and supply is scarce, just like Greenville.

— Kay Hill and Tony Bonitati are brokers in the multifamily division of Greenville-based NAI Earle Furman.

Greenville Office Market

The Greenville-Spartanburg office market includes more than 10 million square feet of leasable office space located along Interstate 85 between Charlotte, North Carolina, and Atlanta. The market is expected to enjoy increasing absorption levels with a modest drop in vacancy, which currently stands at just over 16 percent.

The biggest news on the construction front is Hughes Development’s ONE building in the Greenville CBD. The property will deliver 370,000 square feet of Class A office space to the market in its two phases. Phase I is expected to be completed by the end of 2012. Phase II is expected to be completed by third quarter 2013. Anchor tenants for the property include CertusBank, Haynesworth Sinkler Boyd and Clemson University, which is relocating its Master’s of Business Administration program to the project.

Banking is one sector that stands to be a high-growth industry in the local market through the end of 2013. In addition to rapidly growing CertusBank in the new ONE building, TD Bank recently announced its intention to permanently occupy the Interstate 85 campus the company acquired with the purchase of a regional bank, The South Financial Group. This removed 150,000 square feet of vacant Class A space from the market in 2011.

Another trend that has been ongoing for several years is tenants’ flight to quality. While landlords have been offering aggressive rent concessions for more than four quarters, tenants have been too uncertain about long-term prospects to take advantage. That is beginning to change and tenants are seizing the opportunity to upgrade their spaces. The end result of this flight to quality is that the gap between Class A and Class B vacancy and asking rates will widen in 2012. Owners with the capital to upgrade spaces will be better positioned to attract tenants. While this applies primarily to owners of Class B product, even existing Class A owners can expect to see their tenants kick the tires on property that is newer and/or better situated.

The departure of Extended Stay America serves as a fly in the ointment of the office market. The company was under-utilizing its 100,000-square-foot, Class A office building in Spartanburg and was recruited to relocate to Charlotte. The move leaves behind a large vacancy. The silver lining is that large Class A vacancies are in short supply and the property may serve as a good tool for corporate recruitment.

Overall, office market fundamentals are finally starting to improve. This is true both nationally and locally. Nationally, vacancy is expected to decline, but it is more of a function of the lack of development in the pipeline than robust market growth. Locally, 2012 is expected to be strong from an absorption standpoint with modest declines in vacancy. However, the Upstate is a small market, so several large transactions can swing the market wildly one way or another.

— Brian Reed is AICP and vice president of client services for Greenville-based CBRE/The Furman Co.

Greenville Industrial Market

The industrial warehouse locomotive is back on track in Upstate South Carolina. We experienced tremendous positive absorption in warehouse space in 2011 — around 1.7 million square feet — and vacancy is down to pre-recession levels at 9 percent. Vacancy has been dropping steadily from 10.8 percent since the fourth quarter of 2009, and experienced a dramatic drop in 2011.

This recovery is a result of the recent surge of announcements of new and expanding operations by manufacturing companies in the Greenville/Spartanburg area. Corporations such as Michelin, Bosch Rexroth Corp., Scio Diamond Technology, Honeywell International, PRETTL Electronics, Griffin Thermal Products and BMW will invest more than $277 million combined in our area and create 3,714 new jobs.

There are 4,014 industrial properties currently in the Greenville/Spartanburg market. Sixteen leases and four sales for industrial warehouses were reported in the first few weeks of 2012. Rental rates for warehouses range from 32 cents per square foot to $13.12 per square foot, a wide range that depends on size, location and condition. Overall, the average rental rate is $2.92 per square foot.

With vacancy dropping continually and no new developments underway or on the horizon, inventory is being depleted, which is creating a great demand for new industrial development. We currently have no spec buildings on the market, although having spec inventory on hand would help our area continue to attract business here. This poses a challenge, as it is very difficult for developers to obtain capital with the new tighter lending regulations and requirements. Banks, investors and developers alike realize the rebound is well underway, but are in “proceed with caution” mode.

Owners and investors were shaken by the recession and have been afraid to take on the additional space they need or take any risk with real estate purchases. However, during the past 6 months they are feeling more confident in the market and are beginning to make decisions about expanding or relocating, as prices are low and the demand for space is increasing the value of their investments.

Some of the hotspots in the market are the areas around Interstate 85, such as the Donaldson area, ICAR, I-385/Woodruff Road and Spartanburg, where Amazon recently announced it would build a $50 million, 1 million-square-foot fulfillment facility. These areas have good industrial inventory, low vacancy, positive absorption and attractive rental rates. The average rate in Spartanburg is around $2.50 per square foot and just over $3.00 per square foot off Interstate 85 in Greenville.

In addition, Pelham Road, I-85 and Highway 101 have seen a lot of activity recently with BMW’s expansion and the ideal positioning at a major interstate between Greenville and Spartanburg. This submarket has approximately 468 properties with 10 percent vacancy and an average rental rate of $3.43 per square foot. We expect this submarket to continue attracting businesses, including BMW suppliers, and developers as there is an abundance of available land that is well positioned for development.

As we enter the second quarter of 2012, we hope that the unveiling confidence in the market will continue and that developers will be inclined to start new projects that will add valuable inventory to our industrial market and continue pulling full steam ahead in bringing manufacturing business here.

— Randall Bentley, SIOR, CCIM, is president of Lee & Associates’ Greenville office.


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