It can be argued that a city is great if it has a commitment to excellence in arts and education, an infrastructure steeped in rich history and culture, a diversified employer base, a lack of major traffic congestion and a positive political climate. If this is the case, then Charleston, South Carolina, is one great city. With wonderful beaches and museums, stable politics and a growing infrastructure with a highly educated population base, Charleston has it all.

Office

Metro Charleston (MSA) is comprised of approximately 600,000 residents with consistent growth pursuing quality of life. The office market in the Charleston area contains approximately 7.3 million square feet of space, 17.6 percent of which is currently vacant, including sublease space. This composition of multi-tenant office buildings covers five distinct submarkets in three counties divided by rivers or interstates. Each submarket in Charleston is unique. The largest and most historic submarket is the Charleston central business district with approximately 1.9 million square feet of space and a 14 percent vacancy rate. The submarket boasts the highest rental rates in both North Carolina and South Carolina with rates upwards of $28.50 per square foot, full service. Low overall vacancy in the Class A market has prompted new construction and renovation of large historic projects, including the complete renovation of the Peoples Building, the tallest historic building in the CBD.

The next largest submarket is the East Cooper submarket, which comprises the bedroom community of Mount Pleasant and the master-planned, 1,500-acre Daniel Island mixed-use community. This market consists of 1.4 million square feet, with an average vacancy of 17.6 percent.

The Lower North Charleston office market is the haven in Charleston for corporate America. Located at the intersection of the major north-south and east-west Interstates 526 and 26, this submarket boasts the only master-planned Class A office park in Charleston. Faber Place Office Park houses 12 buildings containing approximately 800,000 of the 1.5 million square feet in this office submarket. The submarket has rebounded recently and reduced vacancy to 16.8 percent.

The Upper North Charleston office market is comprised of 1.4 million square feet with an 18 percent vacancy rate. Speculative product, although much needed, has added vacancy to the market. Recent development includes Aviation Business Park, a 150,000-square-foot, three-building Class A office/flex project catering to the defense industry.

The smallest submarket, West Ashley, is comprised of 1.1 million square feet with a 24 percent office vacancy. Historically a mixed-use office, medical and retail market, the West Ashley submarket has experienced the least amount of office growth in the overall market. However, large tracts of available land close to both the airport and the high-end golf community of Kiawah Island make West Ashley primed for future development.

Unlike the rest of the national office market that has struggled with maintaining occupancy, Charleston has remained stable by having a diverse economy of port activities, tourism, technology, defense and highly rated medical facilities. With all that said, the office market in Charleston is ready for the addition of Class A office product, with very little sublease space in the market and the trend of many companies upgrading to Class A product.

— Peter S. Fennelly, SIOR, vice president – marketing, Colliers Keenan

Multifamily

As the national economy slowly improves, Charleston’s multifamily market is rebounding at a faster pace than other cities in the Carolinas. The vacancy rate in the Charleston apartment market has improved over the last year from 8.9 percent in July 2002 to 7.6 percent as of July 2003.

Charleston’s economy has held steady during the recent downturn, which has enabled demand for apartments to remain relatively strong. Charleston’s employment base is largely in the service sector, whereas most of the recent layoffs in the Carolinas have been in the manufacturing (textile) sector. The area’s unemployment rate remains below 4 percent. Another factor aiding the Charleston apartment market has been the slowdown in development activity over the last few years.

New units coming on line have been steadily declining in the Charleston apartment market over the past 2 years, but activity is beginning to pick back up. Current development activity remains moderate with most new construction occurring in the Summerville and West Ashley submarkets. McCall Capital has started construction at Wescott Plantation. Palms Associates is building Bridgepointe Apartments and Carroll Investment Properties is developing Lockhaven Village.

North Charleston and Summerville reported the highest occupancy rates, 93.5 and 95.9 percent respectively. James Island, which has seen its inventory grow by 50 percent in the last 18 months, reported the lowest occupancy at 85.8 percent. The overall vacancy rate in the Charleston market is likely to continue to improve over the next 18 months and could fall to as low as 5 percent.

As occupancy rates continue to improve, the average quoted rental rate has been rising and concessions have been reduced. The average quoted rent in the Charleston market is $687. Quoted rents have risen 1.5 percent in the last year. The North Charleston submarket reported the lowest average rent at $582 per month, while the James Island submarket reported the highest average rent at $904 per month.

— Michelle Accetta, multifamily analyst, Real Data

Industrial

The Charleston industrial market, made up of Charleston, Dorchester and Berkeley counties, contains approximately 22 million square feet of manufacturing, warehouse, distribution, flex, and research and development space. Though the current overall vacancy rate is 16 percent, the market has enjoyed steady positive absorption during the course of 2003. With few new developments in the market, vacancy and rental rates have stabilized and are beginning to firm up. Much of the overall absorption has occurred in the newer projects in the market, but continued growth and limited product will help older facilities lease.

Several factors are driving the improvement in the industrial market. The driving force for bulk warehouse space is port-related traffic. The Port of Charleston holds the distinction of being the fourth busiest container port in the United States and second on the East Coast. With the shipment of containerized cargo up 11 percent from 2002 and break-bulk cargo on the rise, the Port of Charleston is making plans for a 250-acre expansion terminal. The increased traffic will necessitate expansions for distributors and warehousers. Rental rates for bulk space average $3.55 per square foot, triple net, with operating pass-throughs ranging from 40 cents to 65 cents per square foot.

Distribution facilities between 25,000 and 50,000 square feet have experienced moderate leasing activity. Desires for tilt-up construction have given way to pressures for lower rates, causing much of the lease activity to occur among older projects. Rates for medium-sized distribution space has remained consistently at an average of $4.25 per square foot. This market segment will continue to see steady activity as tenants seek to take advantage of the still soft market before rates begin to inch up.

The flex warehouse product market has been active, particularly in multi-tenant properties. Growth and demand among small service-oriented companies has driven the development of multi-tenant projects and single-tenant, build-to-suit properties. Tenants are willing to pay between $6 and $10 per square foot, depending upon office/warehouse ratios, construction type and location. Vacancy rates for this product type have remained the lowest among industrial properties. Multi-tenant projects have an average of 9 percent vacancy.

A recent influx of contractors geared toward providing services for the U.S. Department of Defense has created a surge in the demand for research and development space. Large contract awards generated by Operation Enduring Freedom, SPAWAR and Homeland Security have given rise to growth among the defense contractors, which is exceeding the inventory of available space. New projects, such as Aviation Business Park, have been developed and are seeking to satisfy these space needs. Rental rates for this product type vary depending upon the office/lab/ warehouse ratios and range from $9 to $14 per square foot, triple net.

The outlook for the Charleston industrial market appears good for continued positive absorption. New development is expected for flex and research and development space, and overall rental rates should firm up then increase as vacancy shrinks.

— Mike Ferrer, brokerage associate, Colliers Keenan

Retail

Low interest rates and affordable land have fueled residential and commercial growth in North Charleston, particularly in Dorchester County. Commercial growth has centered around the 933,065-square-foot Northwoods Mall, which will soon receive a multimillion dollar renovation, including a 30,000-square-foot Dillard’s expansion. CBL & Associates hopes to attract shoppers from the growing Summerville and Goose Creek areas and to fend off competition from retailers of all types.

Just down the road from Northwoods Mall, The Sembler Company is touting the opening of North Rivers Town Center. Target, Bed Bath & Beyond and several restaurants are currently open. Retailers opening soon include David’s Bridal, Ross Dress For Less, Office Depot and Babies “R” Us. The 33-acre site was purchased from Trident Technical College for $8.3 million. Sembler plans to donate 4.5 acres to Charleston County to preserve as green space.

Growth is also expected in south Charleston as developers begin the Noisette Project, which calls for redevelopment of 300 acres north of the former Charleston Navy Base and will provide the blueprint for an additional 2,700 acres. Construction will soon begin on approximately 1,000 rooftops in two residential developments.

Earth Fare, a natural food supermarket, is making headway in Charleston with two new locations. Whole Foods Market will open its first South Carolina location next year in Patriot Plaza, located at U.S. Highway 17 and Houston Northcutt Boulevard.

2003 investment sales in Charleston include Shellmore Shopping Center in Mount Pleasant, which Inland Real Estate Acquisitions acquired in May for $11.8 million. The 61,705-square-foot Bi-Lo-anchored neighborhood center was built in 2003. Also in May, U.S. Real Income Fund VI LP purchased the 89,124-square-foot Sweetgrass Corner in Mount Pleasant from Ahold Real Estate Company for $10.7 million. The recently expanded Bi-Lo center was 100 percent occupied at the time of sale. Both centers were sold at aggressive cap rates.

— Lynn Leonard, vice president of marketing, NewBridge Retail Advisors

DEVELOPER ACQUIRES 280 ACRES TO RESTORE LAND IN CHARLESTON Say goodbye to the cargo containers, waste collectors and contaminated land that characterize much of the long-neglected “Neck” of the Charleston Peninsula. (The Neck is an area delineated by the Ashley River to the west and the Cooper River to the east.) The area encompassing the historic neighborhoods of Silver Hill-Magnolia is about to undergo a major overhaul, and the public is invited to take part in the process. Local resident Robert Clement III, president and broker-in-charge of Clement, Crawford & Thornhill Inc., has acquired more than 280 acres of underutilized, environmentally challenged land in the midsection of the Neck. Clement and his investors have teamed with Shook Kelley Inc., a prominent urban planning and design firm, to transform what is essentially a parking lot for military vehicles, transport trucks, cargo containers and waste paper dumpsters into a water- and marsh-front urban community. Clement and Terry Shook, co-founder and principal of Shook Kelley, have initiated a public-input process to transform the primarily industrial site into a restored neighborhood. Citizens will be able to share their goals and aspirations for the entire Neck area through a community-planning workshop. Their goal is to create an urban neighborhood that bears the thumbprint of the whole of Charleston — Silver Hill-Magnolia in particular. Rather than developing all of the available property, the developers’ goal is to strike a balance between environmental restoration and sensitive development. Clement has also announced a second revitalization project on the Peninsula in an area known as Midtown. A 4.2-acre tract stretching from King to Meeting streets also will be redeveloped with input from the community. Since the two projects are approximately 2 miles from each other and are connected by a rail line, opportunities exist to knit the projects together, creating a new gateway into the commercial district.

FIRMLY ANCHORED IN CHARLESTON For Charleston-based Anchor Commercial, the last several months have proven to be very productive in the new development arena. The Anchor team is currently taking part in the development of more than 405,000 square feet of new and redeveloped commercial space in the Charleston, Berkeley and Dorchester areas. In Charleston County alone, the firm is developing 260,000 square feet of office space — 235,000 square feet in the North Charleston area. Carriage Hill Executive Center is a 150,000-square-foot redevelopment project located in Charles Towne Square at 2401 Mall Dr. in North Charleston. The building was previously the Ward’s Department Store, and the existing building is currently being gutted while the exterior, consisting of brick and concrete block, is being stripped to the steel frame. A completely redesigned Class A office building will be built in its place. On-site amenities will include a fitness center, daycare, restaurant/deli and 3,500-square-foot natural light atrium. Aviation Business Park makes up the remaining 85,000 square feet of Anchor’s development projects in North Charleston. In its entirety, this park will consist of 134,000 square feet of office flex space. Phase I of the park, consisting of 49,000 square feet, was finished and almost entirely occupied as of August. Phase II of Aviation Business Park, which consists of two buildings totaling 85,000 square feet, is under construction and scheduled for occupancy in March 2004. The park sits on approximately 12 acres of land just off Interstate 26 and within 1 mile of the Charleston Air Force Base and International Airport. Anchor’s remaining square footage under development consists of 45,000 square feet of office space in Berkeley County; 30,000 to 40,000 square feet of warehouse/distribution and 10,000 square feet of retail space in Dorchester County; 10,000 square feet of warehouse space also in Dorchester County; and 50,000 square feet of office and retail space in the West Ashley area of Charleston County.

©2003 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.