CITY HIGHLIGHT, AUGUST 2006

CHARLESTON CITY HIGHLIGHTS
Erin T. England, R. Milton Thomas, III, Steve Mack

Charleston Retail Market

The Charleston metropolitan statistical area (MSA) continues to enjoy healthy, robust growth in the retail sector. The local retail market has now exceeded 14.5 million square feet of space, including enclosed malls. The overall occupancy rate for the MSA hovers at 92 percent. As in other markets in the Southeast, new space is being leased at premium rents due to demand, rising construction costs, and impact fees levied by municipalities that are absorbed by developers. Lured by consistent growth in population, employment and national visibility, retailers, existing and new-to-the-market, are seeking sites.

The Charleston retail market has many factors behind its current momentum. The area is a preferred tourist destination for shopping, helped in part by the overall cache of Downtown Charleston. And, particularly, King Street is expanding its reputation as a hot place for retailers. Finally, a large and steady stream of new residents, attracted by the allure of the historic coastal city and the availability of new housing, is driving demand for more retail. Ambitious new road projects, such as the Highway 17 expansion in Mt. Pleasant, are being planned and implemented throughout the area to accommodate growth. The current MSA population is approximately 570,000 people with, at this time, at least 113,000 new houses being planned, permitted, or under construction in the Charleston area. These numbers only include publicly announced projects so the figures are conservative.

Peninsula

The Peninsula Charleston submarket continues to be the heartbeat of Charleston’s “Soho of the South” reputation. Upper King Street, recently a blighted area not on the radar screen of credit retailers, has experienced a renaissance based on growth in the hospitality and design categories. The opening of a new freestanding Piggly Wiggly has kick started the redevelopment of upper Meeting Street, which will also include the “Midtown” project. Developer Robert Clement’s mixed-use project calls for hospitality, office, and retail components as well as a parking garage. South of Calhoun Street, Urban Outfitters’ grand opening in the Garden Theater just before Christmas 2005 has created a buzz. The $12 million acquisition Millennium Center, located at the corner of King and Calhoun streets, earlier this year also is garnering attention. PrimeSouth is redeveloping the site with a new structure comprised of retail space, office space, and residential condos and onsite parking, further enhancing this intersection as a major destination.

West Ashley

With the opening of Harrell Square, a 40,000-square-foot retail/office project, and Best Buy’s plans to open before Christmas 2006 in the former Toys R Us space across the street, the intersection of Highway 7 and Orleans Road has experienced a surge in activity.  Also, a new WalMart SuperCenter, located at Glenn McConnell Parkway and Bees Ferry Road, recently opened and will continue to move the heart of the retail market further westward.

North Charleston

North Charleston, South Carolina’s largest and highest volume retail submarket, remains the epicenter of national power and big box tenants. That reputation will only grow as developer Richard Weiser’s Centre Point project proceeds with the upcoming 375,000-square-foot Tanger Outlet Center opening in late summer. A WalMart SuperCenter and Sam’s Club have already opened. Also planned in and around the project is a multi-phase power center in addition to outparcels, restaurants, hotels and unanchored strips. Over time, the area bound by Interstate 26, Interstate 526, Montague Avenue and International Boulevard could rival current volume leaders Rivers Avenue and Ashley Phosphate Road.

East Cooper

The opening of the new eight-lane Cooper River Bridge has further enhanced Charleston’s most upscale suburban market. East Cooper is positioned to experience continued growth in retail and rooftops.  Avtex’s The Market at Oakland, which will include approximately 425,000 square feet of retail, has broken ground and will feature a 188,000-square-foot WalMart SuperCenter. New residential projects continue to be developed along Rifle Range Road and Highway 17, north of the Isle of Palms Connector. In an effort to reduce traffic concerns, Hungryneck Boulevard has been completed and the Highway 17 expansion to six lanes is underway between I-26 and IOP Connector.

Summerville

The Summerville submarket has become a spotlight for national and regional retail growth in the last several years. The submarket continues to add national tenants and it appears that the next major retail growth area will take place at the intersection of Berlin G. Myers and Highway 78, in which two of the four corners already having active projects under way. The Dorchester Road corridor near Ladson Road and near WalMart SuperCenter continues to grow in terms of new retail opportunities including shadow anchored, strip, and neighborhood centers as well as outparcel and pad site opportunities.

Berkeley County

Retailers are repositioning based on the opening of TailRace Crossing, a new WalMart SuperCenter anchored project, in this traditionally rural submarket. As expected, many retailers continue to cluster around this new project. Major new residential projects have been announced in this submarket, particularly Goose Creek,  that have the potential to be “towns in themselves.”  Crescent Resources has begun The Parks at Berkeley, which will include more than 13,000 residential units. Additionally, Cane Bay, a nearby project will feature approximately 5,500 units.

— Erin T. England is with the retail services group of Colliers Keenan in Charleston, South Carolina.

Charleston Industrial Market

The greater Charleston Industrial market is healthy overall and there are still several hot areas in strong demand. Clements Ferry Road is one such area that has seen dramatic price increase in industrial land for owner/users. Prices for well-located light industrial land in this corridor have risen to $130,000 per acre. Building inventory has remained tight with the majority of the activity in the last 12 months coming from owner/users building their own facilities.

Palmetto Commerce Park, located off of Ladson Road in upper North Charleston has seen great activity in the last 6 months. Pattillo recently leased its 162,000-square-foot speculative building and is commencing on a 100,000-square-foot build-to-suit for Shimano. Holset Turbo Chargers just completed their new 190,000-square-foot facility in the park as well.  Additionally, Daimler Chrysler’s Sprinter Van plant will be taking over the current location of American LaFrance, which is building a new 450,000-square-foot facility at Interstate 26 and Highway 78. If the deals currently under contract in Palmetto close, the park will effectively be sold out.

The most significant industrial news is that Vought Aircraft Industries Inc. has opened its new 342,000-square-foot manufacturing facility at the Charleston International Airport. The facility, which is located on 240 acres, will produce composite fuselage sections for Boeing’s new 787 Dreamliner airplane and will be a major employer for the area.

Overall quality space is in fairly limited supply for the greater market. Tenants and users are looking further out the I-26 corridor for available land and buildings and inventory is getting tight. Land prices will continue to rise as availability of entitled parcels decreases. The residential market continues to have an impact on the industrial market with large national builders buying up tracts of land once thought to be ideal industrial tracts.

Rental rates are stable currently but will need to increase to keep pace with the cost of construction rising at roughly 1 percent per month. Pattillo Construction and Johnson Development are basically the only two developers building speculative product of any size in the market.

The long-term outlook is good for the Tri-County industrial market, as owners with well-positioned land holdings and existing buildings will benefit the most. The area’s quality of life and access to PortCharleston are still the major draws for the area and will continue to be for the foreseeable future.

— R. Milton Thomas, III, CCIM, is a principal with Charleston, South Carolina-based Anchor Commercial/Corfac International.

Charleston Multifamily Market

The Charleston apartment market includes more than 25,000 units in seven submarkets with an overall occupancy rate of 92.6 percent and an average rent of $719. It has been significantly affected by condominium conversions, removing more than 2,500 units from the market in the past 18 months. While there are 1,114 units under construction, they are primarily concentrated in the Summerville submarket.

Summerville has 800 units currently under construction, which is more than any other submarket. West Ashley with more than 700 units and Mt. Pleasant with more than 500 units lead the submarkets in proposed units, followed by Summerville with approximately 100 units. Growth in these areas is attributed to the attractiveness, quality of life and economic diversity of the submarkets, making them some of the more desirable areas of Charleston. Goose Creek is also seeing a surge in residential and commercial development as residents leave the city in search of affordable housing. 

The downtown and Mt. Pleasant markets, with the lowest vacancy rates, seem to suggest a high demand for additional units in these submarkets. However, these areas also have higher barriers to entry than other submarkets with fierce opposition to any new developments in either market.

Focus Group, Colonial Properties, EYC and Greystar are four new companies bringing developments to the market. Currently, land, construction and insurance costs are forcing developers to build Class AA properties to justify the rents needed to underwrite deals. Developers are also incurring additional construction costs for site preparation due to wetlands and soil conditions on the remaining multifamily sites.  

The overall average rent for the Charleston market is $719, representing an increase of more than 1 percent during the last 6 months, and rents are expected to continue to rise in the foreseeable future. The average vacancy rate for Charleston is just more than 7 percent.

Charleston County is expected to create approximately 8,000 new jobs during 2006, more than any other county in the state. The industries affected include healthcare, tourism, aerospace and housing. Some major projects are at the center of the job creation. Daimler-Chrysler’s Dodge Sprinter van assembly plant will produce its first van at the end of this year and will result in $435 million invested and a total of 2,000 jobs during a three-phase plan. Boeing’s $510 million fuselage plant, which will create approximately 650 high paying jobs, is under construction in North Charleston. A new Tanger Factory Outlet Center will be completed late this year and will employ 900 people in North Charleston. Scout Boats plans to expand its operations by adding 220 new jobs. Protected Vehicles, Inc., a new company that manufactures armored vehicles, has selected Charleston for its operations and will employ 250 people and will invest $5 million for its start up. American LaFrance recently expanded its line of commercial vehicles and is consolidating its main operations to a $35 million plant in Charleston, resulting in 200 new jobs.

The Interstate 526/Interstate 26 area of North Charleston is poised for multifamily development as most of the major employment and retail growth has occurred in the immediate vicinity. The Charleston International Airport, Daimler-Chrysler, Boeing, Trident Research Center, Centre Pointe (a 300-acre mixed-use development) and the North Charleston Convention Center and Coliseum are driving the area’s redevelopment.

— Steve Mack is vice president with Hilton Head, South Carolina-based Coastal Apartment Advisors.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.