CITY HIGHLIGHT, AUGUST 2012

SAVANNAH CITY HIGHLIGHTS

Savannah Retail Market

Whole Foods will enter the Savannah market with a 35,000-square-foot store at Victory Station. Knightswood and S.J. Collins Enterprises are developing the center on a site formerly occupied by a General Motors dealership. Whole Foods is expected to open in the fall of 2014.

While the Savannah retail market has felt the impact of the recent economic downturn, the overall market has maintained its equilibrium, driven by key economic engines such as the Georgia Ports Authority/Port of Savannah, Fort Stewart, Hunter Army Airfield, the tourism industry and The Savannah College of Art and Design (SCAD).

The Savannah Area Chamber and Visitors Center announced that June 2012 was a record-breaking month with 87 businesses joining the Chamber. Savannah also consistently makes top ten lists for best travel destinations. These constants have served as a steadying influence as various segments of the retail market have reacted and adapted to the evolving marketplace.

Though downtown Savannah and the Historic District have seen property values decline during the last 36 months, the retail market has taken steps forward and backwards, and the general arc seems to be positive. Levy Jewelers, an upscale local jewelry store, has acquired a prime location at Broughton and Bull streets, the nexus of the main shopping district. Marc Jacobs Boutique and Urban Outfitters lead a list of national retailers that have set up shop in the downtown area.

Whole Foods will mark its entry into the Savannah market with a 35,000-square-foot store at Victory Station, a center to be located on a site formerly occupied by a General Motors dealership. Atlanta-based Knightswood and S.J. Collins Enterprises are developing the project, which will include 12,000 square feet of shop space as well as a proposed 12,800-square-foot outparcel building. Whole Foods is expected to open in the fall of 2014.

The midtown shopping area boasts two upscale shopping centers — Twelve Oaks Shopping Center and Abercorn Walk — and has fared well, with both centers continuing to upgrade tenant mix. Twelve Oaks includes Publix, Bonefish Grill, Pier 1 Imports, LensCrafters and Starbucks among its tenants, while Abercorn Walk includes Fresh Market, Talbots and Williams-Sonoma. Local shoppers, along with soldiers and their families, make up a large portion of the customer base for this area.

Blanchard & Calhoun plans to raze seven buildings on a nearly 24-acre site to make way for a large commercial center that will be home to a 117,000-square-foot Kroger. The site is located on Hodgson Memorial Drive across from Oglethorpe Mall, Savannah’s first mall. The developer is in negotiations with a big-box tenant for a 55,000-square-foot space next to the Kroger. It has been reported that Dick’s Sporting Goods is in negotiations for the space.

Major activity continues along Abercorn Street, Savannah’s primary shopping corridor. Abercorn Commons has back-filled former Circuit City and Books-a-Million spaces with Ashley Furniture HomeStore, Office Depot and Party City.

Oglethorpe Plaza, which is anchored by Best Buy, is filling the former Office Depot and Circuit City boxes with an 80,000-square-foot Kohl’s. It is slated to open early next year.

Further south along Abercorn Street, The Rosen Group has purchased Largo Plaza, which is anchored by Publix and AutoZone, and has seen the arrival of AT&T and Papa John’s. Jimmy John’s is now under construction and the owners are working with two national tenants, which will complete lease-up at the property.

Westside Savannah, which includes Pooler, Georgia, has seen increasing growth even through the economic downturn. Although housing starts have lagged, retailers continue to push forward in anticipation of inevitable growth in the area. The Interstate 95 and Pooler Parkway area, located across from the Savannah/Hilton Head International Airport, is home to major big-box players including Sam’s Wholesale Club, Walmart and The Home Depot. The Port of Savannah, along with JCB Tractor and Gulfstream Aerospace, contribute significantly to the job market in this area. Target, Dollar Tree, Pier 1 Imports, Ikea and The Home Depot have all developed major industrial warehouses that serve the Southeast through the Port of Savannah.

Barring any unforeseen external factors, the Savannah retail market appears to be on firm footing as it moves through the current decade.

— Louis H. Lipsitz is a senior leasing and management specialist with David Garfunkel & Co.

Savannah Office Market

Gilbert

Savannah’s office market has weathered the economic downturn well, largely as a result of the city’s well-diversified economy, anchored by the nation’s fourth busiest and fastest-growing container port, major military bases, more than 40,000 college students and 7 million annual visitors. The overall vacancy rate for Savannah’s 3.25 million-square-foot metro office market has decreased from 22.6 percent to 19.9 percent during the last five quarters as several large spaces have been leased or taken off the market. For example, the Old Candler Hospital Downtown is currently under development as the John Marshall Law School.

The overall economy and office sector have been buoyed by Gulfstream Aerospace’s $500 million expansion in plant space, equipment and laboratory space, which is slated for completion in 2017. The expansion will bring 1,000 new jobs to the area.

Mitsubishi Power Systems Americas acquired a 120-acre portion of the state-owned megasite located at Interstates 95 and 16 in late 2010 in order to build a $325 million plant to manufacture gas turbines. The company has accelerated Phases III and IV, which will culminate in 500 total jobs.

The 71,883-square-foot Cay Building on Ellis Square is the first Class A building to be delivered in downtown Savannah in 15 years.

The CBD is witnessing the completion of the 71,883-square-foot Cay Building on Ellis Square, which is the first Class A building to be delivered in downtown Savannah in 15 years. It is anchored by the U.S. Attorney’s offices and has established a new ceiling for full-service Class A rental rates in the range of $35 per square foot. First-floor retail tenants include Moe’s Southwest Grill, Veri Berri yogurt shop and First Citizens Bank. The building was 94 percent pre-leased with a rent roll comprising mostly credit tenants.

In addition to the U.S. Attorney’s offices, there have been a number of GSA deals recently completed in Savannah. The Internal Revenue Service inked a 10-year deal on 15,500 square feet at 9 Park of Commerce Boulevard for occupancy by the end of the third quarter. A 35,000-square-foot build-to-suit for the U.S. Customs and Border Protection Agency just broke ground on Chatham Parkway with occupancy slated for June 2013. Chatham Parkway’s increasing popularity among office tenants and investors was further proven by the June sale of two Class A office buildings with a combined 64,934 rentable square feet for $15 million.

Savannah’s largest submarket is the CBD, which contains 34.9 percent of the total office market. The submarket experienced a slight increase in overall vacancy from 25.1 percent as of fourth quarter 2011 to 25.9 percent as of second quarter 2012. A majority of this vacancy is contained within small spaces in second generation buildings. There is a limited number of spaces of 10,000 square feet or larger in functional buildings with preferred locations. There are currently several leases out for signature and/or renewal on these larger spaces and off-street parking is a primary driver.

The forecast for Savannah’s office market is for continued stability during the next 12 to 24 months with no significant changes in occupancy and slightly increasing effective rental rates as there is no speculative construction on the horizon.

— Harvey Gilbert, CRE, MAI, is managing partner and broker-in-charge for Gilbert & Ezelle Real Estate Services, an independently owned and operated member of the Cushman & Wakefield Alliance.

Savannah Industrial Market

Benton

Savannah’s industrial market has a symbiotic relationship with the ships that navigate the city’s much-debated river channel. In the fiscal year of 2011, $54.1 billion in value and 8.7 percent of U.S. containerized cargo moved through the port of Savannah. This makes Savannah the fourth largest container port in the nation.

The U.S. Army Corps of Engineers gave its final recommendation to deepen the channel to 47 feet and the president recently signed an executive order fast-tracking approvals by no later than November. This will keep the port competitive for larger Post-Panamax ships that will need to access the Savannah port after the Panama Canal is widened. The channel deepening project will not be completed prior to the completion of the Panama Canal widening, but Panama officials just announced the opening has been delayed by at least six months to April 2015.

With port activity continuing to improve, so goes the area economy and warehouse occupancies. Market-wide, vacancy rates have ticked down to around 15 percent from highs in the low 20s just two years ago. There is a good supply of high-quality distribution space, thanks to the building boom started in 2005, which nearly doubled the inventory. There is 44 million square feet of space across Chatham, Bryan, Effingham and Liberty counties. The current vacancy is 6 million square feet, with five buildings larger than 400,000 square feet immediately available. Occupancy will continue to slowly improve during the next 24 months as no speculative development is expected.

Several major retailers have local distribution centers, including Home Depot (1.4 million square feet), Target (3.5 million square feet), Ikea (750,000 square feet) and Pier 1 Imports (783,000 square feet).

Recently, third-party logistic companies have driven absorption and development. In January, The Judge Organization opened its 266,700-square-foot rail-served distribution center in the CenterPoint Intermodal Center, which was developed by Oakbrook, Illinois-based CenterPoint Properties. Savannah-based Coastal Logistics Group opened a 320,000-square-foot rail-served facility next door in 2011. Both were build-to-suits. Matson Logistics took 605,000 square feet of existing space in Bryan County’s Interstate Centre, bringing its area footprint to 1.7 million square feet. We continue to tour third-party logistics companies in the market; these companies have requirements ranging from 250,000 to 1 million square feet.

The Port of Savannah, being the largest U.S. exporter of containerized chicken, sparked a recent demand for freezer/cooler space. Georgia Cold Storage will open a 176,000-square-foot facility in Pooler. Nordic Logistics and Warehousing just announced a 400,000-square-foot, build-to-suit facility just off Interstate 95 at Jimmy Deloach Parkway that will handle 15 million pounds of chicken per week.

Though the Pooler megasite lost its bid for the recent Caterpillar project, the 1,500-acre, state-owned parcel and home to manufacturer Mitsubishi Power Systems continues to attract suitors. Several manufacturers in the 50,000- to 100,000-square-foot range are researching the market. Mitsubishi and other area manufacturers are adding jobs and growing. Gulfstream Aerospace, Savannah’s largest manufacturer, is in the middle of a seven-year, $500 million expansion, acquiring and constructing multiple facilities. In April, Great Dane opened a 450,000-square-foot refrigerated trailer production facility in Statesboro. JCB, which manufactures tractors and construction vehicles, and the EFACEC transformer plant have also announced they will be hiring. The port supports 55,000 jobs in the surrounding counties and 350,000 jobs statewide.

— Rex Benton is a principal & industrial advisor with NAI Savannah.

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