CITY HIGHLIGHT, AUGUST 2005

SAVANNAH / HILTON HEAD AREA NOW FOCUS OF DEVELOPMENT
Chuck Mitchell, Maloney, Mitchell and Denton, LLC

The greater Savannah, Georgia, and Hilton Head, South Carolina, areas now are experiencing some of the most dynamic development activity in their entire histories.

What is driving this growth? The answer lies in the rapid rooftop development in large-scale, mixed-use, planned-unit developments (PUDs), which are providing a solid platform for commercial development.

Why? The Southeast, and the greater Savannah/Hilton Head area in particular, is appealing to homebuyers and national and regional home-builders that have discovered when they combine the development potentials of the greater Savannah and Hilton Head areas together, a market once considered a little too small to warrant their attention is now more than large enough.

Today, PUDs actively under development or announced represent 104,000 incremental dwelling units into a five-county area consisting of about 500,000 people. These PUD rooftops are split 42,000 in Georgia and 62,000 in South Carolina.

As an indication of the rapid pace of residential development — which will be necessary to support these new PUDs — The Construction Network’s Coastal Permit Report© shows that in the five-county area (Chatham, Effingham, Bryan, Jasper and Beaufort), new single-family building permits are up 34 percent versus last year through June 17.

The big question then becomes — “Is this level of growth sustainable?”

Even with talk of a potential housing “bubble,” the underlying market fundamentals remain quite strong. The Savannah metropolitan statistical area has created more jobs in the last 2 years than building permits issued, and job growth in 2004 versus 2003 was one of the strongest in the state — second only to the Atlanta metro area.

Every 8 seconds, someone in this country is turning 50, and this statistic will continue through this decade. The first of the baby boomers is just now turning 60.

As a result, the Southeast in general — and the greater Savannah/Hilton Head area in particular — remain attractive relocation, second home and retirement destinations for many families in the northeast and midwest.

The infrastructure — roads, water, sewer, schools and municipal services — all are in place to handle the growth coming this way; most importantly, virtually all the municipalities in which this growth will occur are welcoming the development activities. The greater Savannah/Hilton Head area is about to see a period of growth unprecedented in all its rich and varied history.

— Chuck Mitchell, Maloney, Mitchell and Denton—Commercial Properties

Office

Savannah Area

Although Savannah has seen tremendous regional development growth in the retail, residential and industrial sectors, the office market sector has not seen comparable growth.

According to the Savannah Economic Development Authority, office inquiries are very low with few inquiries regarding needs for call centers or corporate headquarters.

Therefore, the development authority has begun a campaign aimed at attracting high-tech companies that would have a positive influence on raising the occupancy in the office sectors.

The occupancy level of the central business district (including the Historic District) remains around the mid-80 percent level. Financial entities are the predominant tenants within the CBD. Parking is still a very significant factor affecting the demand for office space. The cost and availability of downtown parking is very much a factor in the decision-making process for tenants requiring parking within this district.

Currently, the Savannah Economic Development Authority has announced plans to construct a 40,000-square-foot, Class A office building on its property on Hutchinson Island near the Savannah Maritime Trade Center.

The authority will occupy one floor and the remaining space will be offered for lease. This is the only significant office product slated for immediate construction near the CBD.

Savannah’s Southside, once the area of high demand office space, has seen vacancy rates slowly rise over the last year. Availability of Class A space remains very low, but the demand for large space has decreased over the past 18 months. On the southside, the dominant need in regard to office space is from 1,200-square-foot to 1,500-square-foot tenants in the service sector. There are potential plans for only one new office building on the southside, which would be located near Oglethorpe Mall.

The Westside remains the strongest sector in the overall Savannah office market. The Chatham Parkway Corridor and the Pooler Parkway at Godley Station continue to attract the majority of the service sector tenants seeking office space in Savannah. With the growth of residential and retail in the immediate area, occupancy on the Westside is the highest in the area, remaning in the 90 percent range.

Only one office project, Mulberry Park, has been announced as a potential office park at Godley Station.

— Rhett Mouchet, Melaver/Mouchet

Hilton Head Area

With more than 1 million square feet of Class A and B space available in 2005, the vacancy rate on island is estimated at 3 to 4 percent. Off island space is less, standing at about 600,000 square feet, but the vacancy rate is still more than 20 percent, although that number is down from 25 percent to 26 percent a year ago.

Rates largely are unchanged from a year ago and average $18 to $19 per square foot on island and $17 to $18 per square foot off island. Most leases are triple net and the pass-through expenses average around $4 per square foot.

Retail

Savannah Area

Savannah continues to exhibit strength in the retail sector — both with new development and some exciting redevelopment activities.

The Westside, particularly the Godley Station area, is continuing to experience rapid retail growth. Scott Martens of MGI Commercial advises the 70-acre Pooler Park of Commerce is all but sold out with only eight of the total of 35 parcels remaining.

Just a little to the southwest, at Savannah Quarters, MGI also is marketing a 29-acre boutique retail/commercial center to serve the residential PUD — initial sales now are underway. Also at Savannah Quarters, several major announcements are expected in the near future regarding the new large commercial center which is expected to open in late 2006 — a 16-theatre complex with two or more big box anchors have been discussed.

On the southwest side of Savannah, most new retail activity is centered upon Berwick Plantation on Highway 17. The 70,000-square-foot Kroger will open this fall anchoring the 80-acre Exchange at Berwick Plantation. In total, this center will have more than 108,000 square feet of retail space.

On the southside, Target’s opening at Savannah Mall has exceeded expectations to the point that there is local speculation regarding a second store opening in this market.

In addition, some exciting redevelopment activity is occurring in some of Savannah’s more established retail submarkets.

Along Abercorn Street in Savannah’s Southside — Melaver Inc. has invested $30 million to turn Abercorn Common into an environmentally friendly and unique shopping experience. Home Goods, Books-a-Million, Michaels, Grand Harbor (moved from Chatham Center) and Circuit City (moved from the Eisenhower location) anchor this project.

Just a little further to the north at Chatham Center across from the Oglethorpe Mall, the closing of Wal-Mart’s store there has resulted in some significant redevelopment — Cost Plus Word Market just opened and Ross Dress For Less and Linens ’n Things are expected to open later this year.

Going just a little further north on Abercorn and across from the 12 Oaks Shopping Center, Fresh Market will be anchoring the new Abercorn Walk retail center.

Finally, the Victory Drive shopping center is seeing a major increase in retail traffic with the grand opening of Savannah’s third Home Depot. This is driving the redevelopment of the theatre complex and the Scotty’s Hardware site in the same center.

— Marian Smith, Melaver/Mouchet

Hilton Head Area

Although Hilton Head Island has enjoyed steady growth in permanent residents as well as tourists and other visitors, commercial development is very close to buildout. As with the Abercorn corridor in Savannah, we expect to see a sharp increase in the number of redevelopment projects as aging properties are updated or reconstructed.

During recent years, the majority of new commercial development has been focused along the South Carolina Highway 278 corridor between Interstate 95 and the island. Development has occurred at a rapid pace following the opening of Del Webb’s Sun City Project in the mid 1990s. Del Webb is located at the intersection of South Carolina Highway 170 and S.C. Hwy. 278 which is about halfway between I-95 and the island. Sun City attracted over 20,000 visitors to the area in 2004 and closed about 750 homes. In 2005, Sun City indicates they may cross the 1,000 home sales threshold mark. They are projected to have 8,000 homes at build-out.

Residential growth has fueled a need for commercial development as more people with more income want more places to spend their time and their money. With a host of major commercial building projects either underway or about to begin in the greater Bluffton area alone, the rapid pace of the region’s development shows no signs of slowing.

Here’s a roundup of major projects either in the planning stages or already under construction.

Okatie Crossing

One of the biggest commercial developments in recent years was announced in March 2004. Tennessee-based Horne Properties revealed plans to develop the Okatie Crossing Lifestyle Center in Bluffton, South Carolina. This followed their successful development of Bluffton Commons, a large Publix-anchored center off Buck Island Road in Bluffton.

Okatie Crossing sits on 136 acres positioned at the northwest quadrant of U.S. Highway 278 and S.C. Hwy. 170. Hwy. 278 is a strong retail corridor serving such names as Target, Home Depot, Lowe’s and Wal-Mart. S.C. Hwy 170 is the main thoroughfare leading to the town of Beaufort. Okatie Crossing straddles both Beaufort and Jasper counties and will support the Bluffton, Hilton Head, Beaufort, Hardeeville and Ridgeland, South Carolina, markets. Located directly across U.S. Hwy. 278 from Del Webb’s Sun City, Okatie Crossing is in the heart of Beaufort and Jasper counties’ residential growth.

The approximately one million- square-foot lifestyle center development will have multiple anchors consisting of major department stores, junior anchors and small shop retailers. In addition, a portion of this development has been earmarked for medical and office space. Site work and infrastructure development are now well underway. Outparcels are available from 1.2 to 2.2 acres and range in price from $750,000 to $1.5 million. The first outlets are expected to open in mid-2006.

Berkeley Place

Heading east along U.S. 278 toward Hilton Head Island, property along Buckwalter Parkway about 1,500 feet south of U.S 278 will soon be home to a business park, a movie theater and retail and restaurant space.

Construction is underway on a 12-screen movie theater and an 800-space parking lot, which comprise the first phase of a development known as Berkeley Place. Plans call for five buildings surrounding the theater, each two-and-a-half stories tall, with retail and restaurants on the ground floor and offices above. The Berkeley Place developer also plans future phases of construction that include more retail space just south of the cinema.

The shopping plaza, now under construction, will house about 70,000 square feet of retail and restaurant space, with as much again earmarked for office space. Sea Turtle Entertainment, the project’s developer, expects the cinema will open later this year. Future plans for Berkeley Place would extend the development to about 35 acres south of the cinema, possibly to include a grocery store, a bank and more retail and office space.

May River Technology Park

Buckwalter Parkway also may be the site of a 300,000-square-foot technology park facility. The park will bring 125 new jobs with a payroll of nearly $5 million, according to the Greater Beaufort-Hilton Head Economic Partnership. The $8 million project, known as the May River Technology Park, will inject about $10 million into the state’s economy, according to the partnership.

Simmonsville/Burnt Church

A Walgreens is nearing completion at the southeast corner of Simmonsville Road and U.S. 278. The 13,650-square-foot drugstore is the first phase of a larger development that eventually will include another 25,000 square feet of retail and restaurant space, according to the project’s builder, Birmingham, Alabama-based Bradford Building Company.

Further east, Wild Wing Café plans to open a restaurant just west of the Golden Corral restaurant, with speculation that mounting it will be joined by Advance Auto Parts and Tire Kingdom.

Lowcountry Village

Contractors broke ground last year on the second phase of Stafford Properties’ 145,000-square-foot retail development next to Lowe’s Home Improvement Warehouse on Foreman Hill Road in Bluffton. The second phase encompasses 70,000 square feet, which opened earlier this year with Pier 1 Imports, World Market and Linens ’n Things.

Stafford also developed the 150,000-square-foot Lowe’s Home Improvement Warehouse and the Kittie’s Crossing Center off South Carolina Highway 46 and U.S. 278.

Commercial Center

Stafford also has plans to build an office park and mixed-use commercial center on 34 acres between the Home Depot center and The Crescent residential community. The proposed development will be opposite the Target Center, another Stafford property, which opened in 2000.

Plans submitted to the county call for a five-building commercial development with about three casual dining restaurants, retail and bank space. The office park will have eight buildings, according to the plans. The development, with a working title of the Commercial Center, will be anchored by an as yet unnamed retailer that will occupy about 80,000 square feet.

Retail vacancies have been low, about 2 percent on island and 4 percent  to 5 percent off island. Rates are between $22 per square foot to $25 per square foot.

— John Denton, Maloney, Mitchell and Denton, with data from The Hilton Head Island Packet

Multifamily

Savannah Area

The multifamily market in Savannah is divided into five individual submarkets: Eastside, Georgetown, Islands, Southside and Westside. In 2004, the U.S. Army started deploying troops to Iraq for 12-month tours. Nineteen thousand troops deployed from Fort Stewart and Hunter Army Airfield, thus creating challenges with occupancy in certain parts of town. Largely affected are Georgetown, Westside and a small portion of the Southside. These areas have seen occupancies in the low 70 percent range and are slowly recovering. Georgetown and the Westside have a large number of Class A properties and are seeing a slight rise in occupancy, with an average of 85 percent. The Westside in particular is enjoying very high rates of more than 90 percent. These successes are driving the acquisition of more sites for apartment development. In the Godley Station area alone, five apartment sites are under contract for closings within a year.

The Class B sector, which is mainly in the Southside, Eastside and downtown areas boasts a steady average 88 percent occupancy, rather than the rollercoaster numbers the other areas have been encountering throughout the year.

Current rental rates for the Savannah market are as follows:
Total Average: $763
One bedroom: $600
Two bedroom: $740
Three bedroom: $950

Savannah may be seeing the beginning signs of the apartment-to-condominium conversion phenomenon now so well underway in Charleston and Hilton Head. Several properties have either just been sold (River Crossing, Drayton Towers and the Bostic site at Savannah Quarters) or are on the market (Royal Oaks).

— April Kachman, Coastal Georgia and South Carolina Apartment Guide

Hilton Head Area

In the past 3 years, about 670 units have disappeared from the long-term rental market as developers convert apartments to condominiums that generate waiting lists before the first units are offered for sale.

The Legends on Hilton Head, the latest area apartment complex to convert to condominiums, has sold 58 of the 119 units available in just 3 months, officials said this week.

The units range in price from $120,000 for a 670-square-foot, one-bedroom unit to more than $250,000 for three-bedroom units of nearly 1,400 square feet. With almost 50 percent of the units sold, officials predict all of the units will be sold by the end of September, with about 15 percent of tenants opting to buy their rental unit at a preferred rate. Rents at The Legends ranged from around $675 a month for a one-bedroom unit to $1,150 for three-bedroom units.

In March, Old South Apartments, one of the first apartment complexes on the southern Beaufort County mainland, converted 144 units of the 10-year-old apartments to condominiums. Three months later, only 13 units remain unsold, officials said. Within the past 3 years, the apartments at Brighton Bay and The Preserve at Indigo Run, both on Hilton Head, converted to condominiums and sold 153 and 252 units, respectively, within a year of going on sale. Within 2 years, prices at some Brighton Bay units doubled from an initial price of about $100,000, officials said. Colonial Village at Ashley Plantation, a 414-unit apartment complex off U.S. 278 in greater Bluffton, could be the area’s next condominium conversion. Florida-based owner Landmark Residential is beginning the process of upgrading the complex, inside and out. Refurbishments include new flooring in some apartments, landscaping and pool renovation. Apartments at the complex rent for about $700 to about $1,150.

Villas sales saw big gains locally last year, according to data from the Hilton Head Island Multiple Listing Service. More than 1,800 units sold last year compared with about 1,400 in 2003, a 29 percent increase. The average price of villas increased more than 3.7 percent to $275,000, and revenue from villa sales generated $500 million in 2004, an increase of 33.8 percent over 2003.

In southern Beaufort County, sales of villas through the end of April were up nearly 32 percent over the first 4 months of last year, from 510 units to 673 units, the Hilton Head Island Multiple Listing Service said.

The median price increased nearly 28 percent to $245,000, generating revenue of nearly $230 million for villa sales alone, a 75 percent increase over the same period last year.

— John Denton, Maloney, Mitchell and Denton

Industrial

Savannah Area

2004 was another active year in the Savannah industrial market when more than 2.4 million square feet were added to the total inventory. Leasing activity remained active.

Only eight new buildings represent 2.14 million square feet of the new construction in the area. This further solidifies the perception that Savannah is a large box market.  Two new developers from Atlanta — Solution Properties, Inc. & Watt Neal — have entered the market with buildings being completed in the third quarter of 2005.

Solution Properties is under construction with a 491,000-square-foot cross-dock facility. Watt Neal has a 54,400-square-foot, multi-tenant facility under construction with a similar building due to break ground in the fourth quarter of 2005 (this building was not added to the inventory).

Vacancy during the last 6 months of the year dropped over 200,000 square feet. This is the same amount as the first half of 2004. Presently, vacancy stands at 4.4 percent of total inventory (34.13 million square feet). There are six buildings 50,000 square feet or larger presently available for lease or for sale.

Rates have remained fairly constant with a slight dip in bulk warehouse. Land is becoming scarce for the developer. SEDA has announced the purchase of over 400 acres at Oak Grove in partnership with Solution Properties, which will be the only developer in the park. Rodlock Development has closed on the Anderson property at Crossroads Business Park (approximately 300 acres). There are other small parcels available for individuals.

Optimism abounds in the industrial market. The Georgia Ports Authority continues to grow at a record setting pace. More out of town developers and companies are looking at Savannah and the surrounding region for opportunities.

— Lynn Beam, Melaver/Mouchet

Hilton Head Area

Historically, Hilton Head Island has had little heavy industrial space. Most is light industrial/distribution. Pricing is stable to increasing at about $12 per square foot for office/warehouse flex space.

— John Denton, Maloney, Mitchell and Denton

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