CITY HIGHLIGHT, AUGUST 2006

SAVANNAH/HILTON HEAD CITY HIGHLIGHTS
April VanGorden, Marian Smith, W. Lynn Beam, Anthony Wagner, John Denton, Chuck Mitchell, Steve Mack

Savannah/Hilton Head Multifamily Market

The greater Savannah/Hilton Head area continues to enjoy strong growth in 2006. While the deployment of 20,000 military troops from the Army, Marine Corps, and National Guard to Iraq negatively impacted occupancy rates on the west and south sides of Savannah, the troops’ return to the area last January has had the opposite effect. Occupancy rates are now very strong on the Westside, Georgetown and the Southside of Savannah. Income-based and tax credit properties have a 6-month waiting list for some units. The conventional communities have a waitlist of between 20 and 30 days for a move-in date.

Condominium conversions also were very popular in both the Savannah and Bluffton areas. By the end of last year, ten conversions had been completed and are now being operated with third-party management companies. Most of these conversions have been quite successful. The few that are struggling are being challenged with a high number (between 40 and 70 units) of rental units owned by investors. The most successful conversions formed a home owners association (HOA) to represent the owner-occupied units and work hand-in-hand with the property management company, which is responsible for all owners/renters of the property, establishing standards and qualifying and screening applicants.

There is also much new development occurring from the Westside of Savannah up to Beaufort. Alta Town Lake is well underway with an apartment development in the Villages of Godley Station. Savannah’s Westside will see at least four new communities this year — and it is believed these will be handled by large management companies such as First Communities, The Beach Company, and Continental Properties. Furthermore, at least four new multifamily sites are under contract in this area as well. The major planned unit developments (PUDs) are enjoying the focus of all this activity from Berwick Plantation on the southwest side, to Savannah Quarters in the middle, and then Godley Station and Rice Hope on the northwest side. Portrait Homes is also very active in the greater Savannah market with projects in The Harmony PUD, just north of Savannah Quarters, and in the Villages of Godley Station.

Across the Savannah River, construction is expected to start on a luxury property in Hardeeville, South Carolina, next January. In Bluffton, The Allen Companies have two projects underway — Phase II of The Lakes at Myrtle Park is nearing completion and the company also is finishing a condominium project across the street. Another 95 acres of multifamily-zoned land is located at Bluffton Parkway and Burnt Church Road and is scheduled next for development. As in Savannah, Portrait Homes is also active in this area with an existing townhome project in the Buckwalter PUD, with more coming in the pipeline.

In Beaufort, The Preserve at Port Royal has completed its second phase. This is Port Royals’ only luxury community to date. There is one new construction site due to break ground this year for a new income-based property. The Marine Corps housing division, Tri-Command, has turned its military housing over to Actus Lend Lease to manage. This has been incentive for a moderate percentage of military members to live on base instead of in Beaufort.

In all, the greater Savannah/Hilton Head area remains strong and is enjoying 90 percent occupancy across the board in all classes of communities. The condominium conversions are taking place at a measured pace in this market and this process will continue on through 2007. Continued increases in interest rates and the cost of single-family housing also point to a continued strong multifamily market. Another Army deployment to Iraq later this year may cause another short-term sag in occupancy rates in early 2007 in South Savannah. But this area will certainly boom again when the soldiers return home.

— April VanGorden is publisher of the Greater Savannah Apartment Guide.

Savannah Retail Market

Savannah’s retail market continues to thrive as the core market moves through the redevelopment cycle. Both malls are successfully repositioning themselves. Big box development is continuing in the area. Downtown is being revitalized. And community submarkets are emerging.

Along Abercorn Street on the southside, Savannah’s core market continues to evolve. After Wal-Mart’s departure, Chatham Plaza successfully re-anchored with Linens ’n Things, Ross Dress For Less, and Cost Plus World Market. Abercorn Walk was successfully leased with anchor Fresh Market bringing along high-end retailers new to the market:  White House/Black Market, Chico’s, Ann Taylor Loft, and Jos. A. Bank, among others. Phase I of Melaver Inc.’s Abercorn Common is complete and was certified as the first all-retail LEED (Leadership in Energy and Environmental Design) project in the country by the U.S. Green Building Council. Additionally, tenants have enjoyed banner sales and anchor tenants are top performers within the region or their entire chain. The outparcel building is nearing completion and the final portion of the phased redevelopment is currently being designed, with construction starting late 2007.

Both the Oglethorpe Mall and the Savannah Mall are prospering with high occupancy and a few new tenants. After its latest expansion and renovation in 2002, the Oglethorpe Mall now houses a food court and new tenants Johnny Rockets, Sharper Image and Build-a-Bear, among others. The Savannah Mall has completely filled its transitioned anchor lineup, adding new tenants A.C. Moore and Burlington Coat Factory.

Big box development continues as two Sam’s Clubs are currently under construction, one adjacent to the Super Wal-Mart at Sandfly and another at Godley Station. Additionally, it has been reported that Target and Staples are pursuing sites at Victory Square, where The Home Depot recently redeveloped a former K-Mart.

The Downtown Historic District market maintains support from a healthy daytime central business district population, growing Savannah College of Art and Design enrollment, and a booming tourism trade of just under 7 million visitors, annually. While Broughton, Bay and River streets continue to renovate and produce a great combination of both national and local retailers and restaurants, two significant mixed-use projects are underway. Merchants Row at News Place, Batson-Cook’s redevelopment of the Ellis Square area near City Market, will have a total of approximately 30,000 square feet of retail. On the east side of the Historic District, Savannah River Landing is currently in the planning stages. The funding has been received to extend the famous River Street boardwalk in front of the development.

Finally, as residential growth continues, neighborhood centers are being developed to accommodate the increasing need for retail. Also, outparcels are being developed at Berwick Exchange, anchored by Kroger and substantially leased. Pooler, Pt. Wentworth, Jasper and Beaufort counties in South Carolina are the hot beds for current and future large-scale residential development. Many neighborhood centers and supporting retail will be developed in the coming year in these communities that surround the Savannah and Hilton Head, South Carolina, region.

The vitality of the retail market is forecasted to continue, as a result of the projected growth in the Southeast and coastal Georgia and South Carolina.

— Marian Smith is with Savannah, Georgia-based Melaver/Mouchet.

Savannah Industrial Market

Industrial warehousing activity has been extremely high during the first half of this year.  New speculative warehouses are going up all over the area. Construction of more than 840,000 square feet of space has begun and should be complete during the fourth quarter of this year. In total, 1.56 million square feet of new construction has been added to the inventory this year. This figure includes speculative, pre-leased and build-to-suit warehouse projects.

Today, 2.12 million square feet of space is available, with 1.28 million square feet of it being second-generation space. This is a slight decrease from last year. Look for this figure to remain about the same with announced new construction and increased activity helping vacancy to remain fairly constant.

Available zoned industrial land continues to be in short supply. Three major out-of-town developers have closed, or are anticipated to close, on more than 450 acres of industrial property, which will change the face of the Savannah industrial market. Per acre land costs have increased significantly. Higher land costs, along with expensive site development costs, will force rental rates to increase proportionately. Look for bulk warehouse rates on first generation space to be in the $4.00 to $4.50 per-square-foot range. Second-generation space rates are also rising.

Another national developer, IDI, has entered the market. IDI purchased 141 Knowlton Way in the Crossroads Business Park. This purchase is comprised of 187,000 square feet of office/warehouse space, 50,000 square feet of expansion land along with an additional 14 acres. This will help to diversify the market.

The Georgia Ports Authority continues to lead the way for the industrial market with its activity increasing quarterly. The port is the fastest growing port on the Atlantic coast and it is ranked in the top five ports in the United States. This bodes well for Savannah and the surrounding area.

— W. Lynn Beam is with Savannah, Georgia-based Melaver/Mochet.

Savannah Office Market

Savannah continues to see tremendous regional development growth in the retail, residential, and industrial sectors. However, office market growth continues to lag behind. As a result,  absorption rates are rising.

Recent campaigning is expected to attract high-tech companies that will continue to have a positive influence on occupancy and possibly spur the construction of new space. The Creative Coast Initiative often works in conjunction with the Savannah Economic Development Authority (SEDA) to help knowledge-based businesses relocate and prosper in Savannah. A good example of these campaign efforts were apparent when Savannah became host of the Inc. 500 Conference honoring the nations fastest-growing privately held companies.

The occupancy level of the central business district (including the historic district) is slowly creeping up toward 90 percent (89.24 percent to be exact). Financial entities remain the predominant tenants within the CBD. The persistent struggle with limited parking spaces became elevated with the demolition of the City Market parking deck. However, some relief will be felt with the construction of News Place On Ellis Square (Batson-Cook Development Company), which will provide 1,088 parking spaces (500 more than originally existed). News Place will also offer 25,000 square feet of additional office space. All things considered, parking cost and availability will continue to remain a significant factor affecting the demand for office space.

The SEDA is under construction with its new 40,000-square-foot Class A office building on its property on Hutchinson Island. SEDA plans on occupying 10,000 square feet and leasing the remaining space.

In the previous year, Savannah’s Southside experienced a gradual rise in vacancy rates. More recently however, occupancy has risen to 88.5 percent as more space is being absorbed. Availability of Class A space remains limited and brings a premium for rent.

Once again, the Westside remains the strongest growth 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 at nearly 95 percent (94.76 percent to be exact).

The Mulberry at Godley Station is currently under construction and will provide two 54,000-square-foot office buildings upon completion.  The developer Mulberry Realty Holdings is a partnership made up of The Foxfield Company, which are the owners of the property, Gilbert Realty Company, Choate Construction Company and the LS3P architectural firm.

— Anthony Wagner is an associate broker with Savannah, Georgia-based Melaver/Mouchet.

Hilton Head Market Overview

Office Space

With more than 1 million square feet of Class A and B space available this year, the vacancy rate on Hilton Head is estimated at less than 2 percent. Off-island space is somewhat less, standing at about 650,000 square feet, and the vacancy rate has dropped significantly to 5 percent to 6 percent versus 20 percent last year and 26 percent in 2004.

Rates largely are unchanged from a year ago and average $18 to $19 per square foot on Hilton Head 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 Space

Hilton Head Island has enjoyed steady growth in permanent residents as well as tourists and other visitors. This coupled with the rapid pace of residential development in Bluffton and southern Jasper County has led to increased attention from the retail/ commercial development community. A number of redevelopment projects should occur as aging properties are updated or rebuilt.

During recent years, the majority of new commercial development has been focused along the S.C. Highway 278 corridor between Interstate 95 and Hilton Head.  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 S.C. Highway 170 and U.S. Highway 278, which is about halfway between I-95 and Hilton Head. Sun City attracted more than 20,000 visitors to the area last year and closed about 1,400 homes which is a 1-year record for a Sun City community.

Residential growth has fueled the need for commercial development as more people with more income want more places to spend their time and 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.

Okatie Crossing

One of the biggest commercial developments in recent years was announced last year. Tennessee-based Horne Properties revealed plans to develop a lifestyle center at Okatie Crossing in Bluffton, South Carolina. This followed its 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 northeast quadrant of U.S. Highway 278 and S.C. Highway 170. U.S. Highway 278 is a strong retail corridor serving such names as Target, The Home Depot, Lowe’s Home Improvement Warehouse, and Wal-Mart. S.C. Highway 170 is the main thoroughfare connecting Beaufort and Savannah. 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. Highway 278 from Del Webb’s Sun City, Okatie Crossing is in the heart of Beaufort and Jasper counties’ residential growth.

The original plans for Okatie Crossing, an almost 300-acre, two-phase development, called for a department store to anchor a 500,000-square-foot lifestyle center and a grocery store to anchor a 200,000-square-foot power center. A company spokesman recently said that the area’s unprecedented growth has created more interest from large retailers than originally planned, leading to a number of development revisions.

In the revised plans, Okatie Crossing will encompass more than 1 million square feet, which includes more than 300,000 square feet of department stores and roughly 400,000 square feet of anchors and junior anchors, with the balance of the space being general retail including restaurants. Phase I of the development is expected to total 300,000 square feet.

Okatie Crossing will have a pedestrian-friendly Main Street feel in an open air setting. Company officials advise that the development is going to be very lavish as compared with other shopping areas in the Low Country.

With booming development planned near the border of Beaufort and Jasper counties and the widening to four lanes of S.C. Highway 170 between U.S. Highway 278 and Beaufort, Okatie has become an increasingly desirable area for developers. Since the mid 1990s the corridor has become home to a number of residential communities including Sun City, Oldfield, Core Communities, Buckwalter, and Hampton Lakes.

Barrell Landing at Okatie South

Barrell Landing, located across from Okatie Crossing and next to the community of Sun City, is a new development that will total 58 acres and more than 120,000 square feet of retail space. The developer has not yet announced the anchor tenants.

S.C. Hwy. 170 Development Between U.S. Hwy. 278 and South Carolina Hwy. 46

Plans for more than 3,700 homes and 76 acres of commercial development have received final or initial approval, and various developers have already broken ground on some of the projects. In addition to those new buildings, new houses are still going in at the retirement community, Sun City Hilton Head, which will have 8,170 homes at build out. Sun City’s main entrance is on U.S. Highway 278, but the community has two more entrances on S.C. Highway 170 — a second one for residents and an entrance for construction vehicles.

Originally the community intended to have a southern exit that lined up with the Bluffton parkway, but town and county officials have been tinkering with the road’s route. Del Webb officials would like Sun City to have easy access to the Bluffton Parkway, but are waiting on the final word on where the parkway will be, which will also affect where homes are built.

Perhaps the most noticeable construction along S.C. Highway 170 is the Village at Verdier, whose main entrance is directly across from Sun City’s rear entrance. Plans for the 125-acre site, approved by Bluffton’s Town Council in 2002, call for a maximum of 510 homes and 225,000 square feet of commercial space.

Developer and co-owner William F. McCroy Jr. has said the Village at Verdier’s main street will have a mix of retail and office space with condominiums on the upper floors. Phase I of the community includes 95 homes, three lagoons, a village square and a 25,000-square-foot complex housing a clubhouse, gym, spa, and business center.

Palmetto Pointe Business Park, just south of Gibbet Road, is another active construction site. The 38-acre site was approved in 2002 for 12 building sites ranging from 1.7 to 4.4 acres. As part of that project, developers are realigning Gibbet Road so that it makes a perpendicular T intersection with S.C. Highway 170.

South of the business park, the Beaufort-Jasper Water & Sewer Authority is installing a sewer line that will serve several new residential and commercial developments, including a new commercial strip center, breaking ground this year, by the Leslie Group.

S.C. Hwy. 278 West of Okatie Crossing

O.C. Welch, a local car dealer, has said that it will close its Bluffton and Beaufort Ford-Lincoln-Mercury dealership and open one 20-acre mega-lot near the New River Auto Mall, located off U.S. Hwy. 278 in Jasper County. The new facility will have room for about 1,500 vehicles — about 16 percent more capacity than the combined Bluffton and Beaufort sites. The dealerships will employ about 150 people.

Stokes, Brown Toyota, which already operates three dealerships in northern Beaufort County, will open a new Toyota showroom just west of the community Island West.  Both Stokes and O.C. Welch plan to open before the end of the year, which means that car buyers will be able to browse among more than 3,000 vehicles at nine dealers along the corridor. Seven of the dealers are at the auto mall just to the west of Sun City. The Stokes site will include a 36,000-square-foot building for new and used cars and also a service department. The dealership will create about 50 new jobs.

May River Technology Park

Construction is underway on the 300,000-square-foot May River Technology Park located on Buckwalter Parkway. The park will bring 125 new jobs with a payroll of nearly $5 million, according to the Greater Beaufort-Hilton Head Economic Partnership. And the $8 million project will inject about $10 million into the state’s economy, according to the partnership.

Simmonsville/Burnt Church

A Walgreens opened last fall at the southeast corner of Simmonsville Road and U.S. Highway 278. The 13,650-square-foot drugstore is the first phase of a larger retail development that eventually will include another 25,000 square feet of general retail and restaurant space according to the project’s builder, Birmingham, Alabama-based Bradford Building Company. Bodnar, also out of Birmingham, is developing the project to be called Walgreen’s Office Park.

Berkeley Place

Berkeley Place, located on Buckwalter Parkway and developed by CeMek Properties, LLC, sits on 35 acres and includes a business park, a movie theater, and retail and restaurant space.

After several delays, Sea Turtle Cinema, Bluffton’s first movie theater, opened last November. The 45,000-square-foot, 12-screen cinema was completed in time for the holiday season.

The cinema and two buildings, one on either side of the theater, make up about 145,000 square feet and include shops and restaurants such as Cheeburger,Cheeburger, Marble Slab Creamery, Kobe Japanese Steakhouse, Berry Berry Smoothly, a pizza restaurant and a wine store. The second floor of the retail area is office space. A courtyard, located in the center of the development, is planned to become Bluffton’s entertainment centerpiece.

Low Country Village

After breaking ground in 2004 on the second phase of Low Country Village, Stafford Properties completed the 145,000-square-foot retail development next to Lowe’s Home Improvement Warehouse on Foreman Hill Road in Bluffton. The second phase encompassed 70,000 square feet, which opened last year, with such stores as Pier 1 Imports, Cost PlusWorld 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 of S.C. Highway 46 and U.S. Highway 278.

Stafford 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, which will have 1,600 feet of frontage along U.S. Hwy. 278, will be opposite the Target Center, another Stafford property, which opened in 2000. 

Plans 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 Best Buy. A total of 80,000 square feet of retail space will be available.

Old Town Bluffton Development

The first building of the Calhoun Street Promenade, the development that will alter the face of Old Town Bluffton and received the go-ahead from town officials late last year, is under construction. The Historic Preservation Commission approved the design of the first two of 15 buildings involved in the project, a 7.8-acre development of commercial and residential property at the northwest intersection of May River and Bluffton roads, which will extend Calhoun Street to Dr. Mellichamp Drive.

The development is intended to have the feel of a typical Southern downtown, reminiscent of Bay Street in Beaufort. Besides apartments and offices the developer of the project, Calhoun Street Promenade, LLC, has said that the promenade will include restaurants and shops that center around a public square. Calhoun Street Promenade will be complete in 12 to 14 months.

— John Denton is with Maloney, Mitchell & Denton, Commercial Properties.

Savannah Market Overview

Last year at this time, the Greater Savannah, Georgia, and Hilton Head, South Carolina, markets were experiencing some of the most dynamic development activity in their entire histories.  The big question at that time was all the recent activity for real?

Now, with rising interest rates, increasing home and homesite inventories coupled with weak sales throughout many previously strong markets across the country leading many of Wall Street’s finest to proclaim the popping of the real estate bubble — the question becomes even more pressing.

Well, the answer is in and it is a resounding “Yes!”

Residential building permits in what we call the six-county “Super” MSA (Chatham, Effingham, Bryan, and Liberty in Georgia plus Beaufort and Jasper in South Carolina) grew an astounding 50 percent in 2005 versus 2004 from more than 4,500 single-family units to more than 6,900.  Based on permit activity through June and a specific market research study on building permits, we project 2006 permits will increase approximately 10 percent versus the record levels achieved in 2005. 

All this residential activity has had the expected impact on the commercial development sector as the critical mass needed in many of the area’s hot residential markets.

Retail development outside the Berwick Tract PUD on Savannah’s southwest side has been brisk since the opening of the Super Kroger late last year.

The Savannah Quarters area at the intersection of I-16 and I-95 is also now coming of age.  Premier Properties has begun construction on a 16-theatre complex with surrounding retail.  The local grapevine indicates that in the general area of this intersection both Wal-Mart and Target are considering locations.

Even traditionally developed areas are enjoying a resurgence.  The re-positioning of two new shopping centers on Savannah’s major strip shopping corridor – Highway 204 locally known as Abercorn – have opened to rave reviews.  Abercorn Commons is anchored by Circuit City, Books a Million, and Home Goods.  Just a little further north, Abercorn Walk is anchored by Fresh Market, with Chico’s and Jos. A. Bank, among others.  On Savannah’s world famous palm-lined Victory Drive, Home Depot opened their third Savannah-area location replacing an aging Scotty’s Hardware – revitalizing an aging retail location.

Finally, just north of Godley Station, the expanding residential activity at The Highlands of Godley Station and in several major new developments in Effingham County, has justified the start of several new retail complexes in both Rincon and Pt. Wentworth.  The most notable of these is within the neo-traditional community of Rice Hope, just north of I-95 on Highway 21.

All told, Savannah’s diverse and balanced economy (port, manufacturing, military, healthcare, education, retirement, and tourism) make it one of Georgia’s hottest job growth markets.  This, along with the historic charm of downtown Savannah and a relatively good permitting environment plus infrastructure which is typically ahead of development rather than racing to catch up; make this one of the most attractive markets throughout the Southeast.

— Chuck Mitchell is with Maloney, Mitchell & Denton, Commercial Properties.

Hilton Head Multifamily Market

Condominium conversions continue to play a significant role in the multifamily market. As a result, fewer rental units mean lower vacancy rates and higher rental rates.  Demand for affordable housing in the Hilton Head area is strong and is driven by the service/hospitality industry.  During the past couple of years, Bluffton and Hilton Head have seen several successful condominium conversion sell-outs, sometimes occurring in days rather than weeks or months. Recent conversions include The Preserve at Indigo Run, Brighton Bay Villas, Westbury Park, Colonial at Ashley River Plantation, Legends on the Green, Summer House Hilton Head, The Villas at Old South, Plantation Point, Pine Court and The Reserve at Woodbridge.

With high barriers to entry and no new multifamily development on the island, the removal of 782 units on Hilton Head Island (Pine Court Apartments – 64, Greystone Loch –194, Legends on the Green – 119, Brighton Bay – 153, and The Preserve at Indigo Run – 252) due to condo conversions increased demand for the remaining rental units and has driven up rents. A similar situation is occurring in Bluffton, just off the island, where several conversions have occurred and continue to take place.  However, new development is taking place in Bluffton where the barriers to entry are not as significant as they are in Hilton Head. Birmingham, Alabama-based Crowne Partners new 199-unit complex is finally moving forward after a lengthy zoning battle at the site of the Old Carolina Golf Course’s former driving range. Flournoy Development Company and Crosland will also be bringing new communities to the Bluffton/Hardeeville market. Several multifamily sites are currently under contract in this area with deliveries planned in the next 2 years.

On Hilton Head Island affordable housing is becoming non-existent with the spiking appreciation in the housing market. Renters are being forced into less desirable housing or off-island, in which they deal with 45-minute commutes. The town of Hilton Head is close to implementing a revamped affordable housing program that will allow for higher density developments, but land is scarce and difficult to assemble and entitle.

Currently, the average rental and vacancy rates in Hilton Head are $895 and 3 percent, respectively.

— 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.