While vacancies in Greenville, Spartanburg and Anderson, South Carolina, have doubled since 1999, the Greenville market is faring better than the nation as a whole, according to Lynn Leonard of NewBridge Retail Advisors. Overall, Greenville’s commercial real estate market has shown mixed signals; however, local brokers and investors are cautiously predicting a turnaround by mid-year. The bright spot is that retail vacancy is lowest of the three sectors at 10.3 percent.

Retail

The Greenville/Spartanburg/Anderson metropolitan statistical area (MSA) has gained recognition as the largest and most dynamic growth market in South Carolina. Interstate 85 has created a string of markets that share similar characteristics of high growth and increased economic diversification. The growth of Greenville over the last decade and the rapid expansion of middle- and upper-income subdivisions have caused major shifts in how retailers view the market. Once considered a “one-store” market, many large retailers are now positioning their units to provide better coverage for the existing population and capitalize on future growth trends.

Greenville Mall, currently anchored by Dillard’s, Proffitt’s, Regal 20 and Oshman’s Super Sports, is in the planning and architectural stage of a major repositioning effort to create a vibrant pedestrian-friendly entertainment and lifestyle center with open-air and enclosed components. Key elements of the transformation will include the addition of restaurants, street front cafés, storefront parking, unique and individual storefronts, brick-paved walkways, fountains and plazas. Dillard’s recently announced that it will close its store at Greenville Mall this spring as part of a plan to close under-performing stores. It is not known how this will be incorporated into the planned redevelopment of the mall. The 700,000-square-foot center will be renamed Greenville Towne Centre.

NewBridge Retail Advisors is involved in the sale of Plaza at Greenville Mall, a quality power center adjacent to Greenville Mall. Anchored by Bed Bath & Beyond, Old Navy, CompUSA, AC Moore, Goody’s Family Clothing, Dress Barn and Party City, the center is located at the intersection of Interstates 85 and 385.

Several big box retailers are making moves in Greenville. Sam’s Club will move from its Laurens Road site this spring to a new 130,000-square-foot building along side Kohl’s at I-385 and Woodruff Road. The Laurens Road corridor has suffered since Kmart, Service Merchandise, Goody’s Family Clothing and Waccamaw Home Place went dark. A population shift has led to a retail migration toward Woodruff Road.

A proposed Lowe’s site near Cherrydale Point in Greenville has hit a snag due to residents filing an appeal of a state permit that allows the developer to fill a wetland. The 45-acre site is located at the base of Paris Mountain between Pointsett Highway and State Route 253.

Stone Avenue, the 1.4-mile area of Greenville at the western terminus of Wade Hampton Boulevard and the northern extension of Laurens Road, is becoming a pedestrian-friendly neighborhood-oriented commercial district. The area is bordered by strong residential neighborhoods and is convenient to downtown. Stone Avenue is being extended westward to become a principal link between the new Western Corridor, opening this fall, and I-385, which is now undergoing widening and improvement.

Several markets surrounding Greenville are experiencing rapid retail growth, including Taylors, located 8 miles northeast of Greenville. The Wal-Mart at Taylors Square shopping center located off Wade Hampton Boulevard is undergoing a major transition to a Wal-Mart Supercenter. The 73,244-square-foot expansion will be complete by spring 2004. Bi-Lo LLC has bought 12 acres fronting on State Route 14 and South Buncombe Road in Greer, located 12 miles northeast of Greenville.

The 2000 Census found that the city of Central, located 27 miles southwest of Greenville, grew by more than 44 percent, primarily due to residential growth attributed to Clemson University students. Wal-Mart plans to build a Supercenter at the 18 Mile Road exit of U.S. 123 to capitalize on this growth. Construction began in December on a $2.5 million interchange linking U.S. 123 with the county industrial park near Liberty, located 20 miles southeast of Greenville. A new Ingles is planned for that market.

- Lynn Leonard, NewBridge Retail Advisors

The Greenville, Spartanburg and Anderson retail market is continuing to grow, but the growth is driven more by relocations than it is by new expansion into the market. Neighborhood commercial growth continues to be driven by grocery stores, as evidenced by four new Publix-anchored centers that have recently opened or are scheduled to open within the next couple of months.

Spartanburg has the largest project currently under construction in this market. Dorman Center is a relocation of Wal-Mart and Home Depot, plus Kohl’s, a new entry to Spartanburg. This will be a great addition to Spartanburg’s already growing Westside, but it will leave two centers without anchors within a mile of the new center.

The I-385 intersection with Woodruff Road continues to be the most talked about area for new development in Greenville County. There are currently two projects at the location, one by Crosland of Charlotte, North Carolina, and the other by DRA Advisors of New York. Both are trying to establish critical mass in order to kick off development. Other areas that are seeing activity include Fairview Road, Simpsonville with a proposed new Target and North Pleasantburg Drive with a proposed new Lowe’s.

“Spartanburg’s retail market seems to be hinged on the two Wal-Mart Supercenters currently under construction: Wyatt Development’s Wal-Mart- and Home Depot-anchored Dorman Center in west Spartanburg, and Wal-Mart is self developing a new project on the east side,” notes Brad Thomas of Brad Thomas Properties. “Most grocery chains are taking a wait-and-see attitude toward new stores in Spartanburg. There are several in-fill deals such as the new Sherwin Williams center, which we are developing, and also there are several new Walgreens projects underway.”

- James H. Wright, NAI Earle Furman

Industrial

During recent months, the industrial market could be described as alive yet somewhat anemic. The large capitalization company, which has found itself with excess capacity, has been absent from the market. Sublease space is not a major factor, but the vacancy rate of functionally adequate properties has approached more than 15 percent.

Good quality but slightly aged industrial property, whether it be manufacturing or warehousing, has been most affected. Buildings of 50,000 square feet or more have seen values plummet to $10 to $14 per square foot. Less affected, but similarly afflicted, are the build-to-suits, which have employed value engineering to a large extent.

Interestingly enough, industrial park land values have changed little in the last 10 years. Good properties are available in the $25,000 to $35,000 per acre category as seen in Southchase and Woodfield Industrial Parks. The only major build-to-suit project in recent months was a Glaxo project of some 250,000 square feet, which was acquired by Liberty Property Trust. Glaxo will relocate in Southchase.

Speculative building has stopped for the moment, but little remains in the Class A category with fairly substantial inventory in the Class B range. Perhaps the only Class A developer in the Spartanburg region is Johnson Development Associates, which has a previously built spec still available in the form of a 100,000-square-foot shell on I-85. Neighboring occupants are Alberto Culver, Hoke, Thyssen and Tyco. Typical characteristics of this product include an ESFR sprinkler system, 30-foot clear ceilings and attractive styling. Other than this facility, there is little other first generation Class A spec space in this market.

- J. Earle Furman Jr., NAI Earle Furman

Downtown Residential

The revitalization of Greenville’s downtown is currently experiencing its second evolution, with a handful of residential and mixed-use projects in the development pipeline.

The new residential projects are the second wave of downtown development, following a decade-long arrival of new restaurants, clubs and retail businesses to the area. The residential projects, either on the drawing board or already on the market, are of varying sizes and types, ranging from multi-story apartment buildings to single-family detached homes.

Downtown Greenville’s central business district (CBD) will see several additions to its residential inventory within the next year. Poinsett Corners, an 82-unit project being developed by the Windsor-Aughtry Company, hit the market with an auction in late 2002 and is slated to begin construction in the first quarter of 2003. This project is one of two in the CBD that is being built in conjunction with new city parking garages.

The other is the Bookends project, a mixed-use development owned by Whitmire Investment Company, with development services provided by The Furman Company Development LLC. The Bookends, designed by Johnston Design Group, is a pair of six- and seven-floor buildings, containing residential flats and lofts as well as commercial/office and retail space. The project will sit on McBee Avenue and Washington Street, backing up to the city’s new Spring Street Parking Garage. The project will develop in two distinct phases, with the first phase on McBee Avenue scheduled to begin construction in mid-2003.

Already off the ground and nearing construction completion are 400 North Main and 623 North Main, which sit just north of the CBD. North Main Properties LLC developed 623 North Main, a 10-unit strip of townhomes. Tom Croft of The Croft Company developed 400 North Main, a five-story building with 19 units ranging from 1,800 to 3,400 square feet.

Developers and city officials are optimistic about the future success of downtown residential projects, speculating that pent-up demand for downtown living, as well as the variety of projects coming on line, will translate to a high level of sales over the next 2 years.

- Hara T. Knight, client services and research manager, Grubb & Ellis|The Furman Company

Suburban Multifamily

It appears that the Greenville/Spartanburg multifamily market is entering a period of stabilization, as minimal new construction and stable vacancy rates have characterized the suburban multifamily market in the past year. Reports for the third quarter 2002, published by Reis Inc., indicate that overall Greenville/Spartanburg metro area vacancy rates rose to 9.8 percent in the third quarter 2002, a substantial increase from the 8 percent vacancy rates reported in early 2000. However, vacancy rates remained relatively stable over the past year, ranging from 9.4 to 9.8 percent in 2002. The Greenville area contains a total of 25,187 conventional units as of third quarter 2002, according to the Reis Inc. report.

Third quarter statistics from Reis Inc. show that Greenville’s overall vacancy rate is significantly higher than other secondary metro areas in the South Atlantic region. As of September 30, 2002, vacancy rates for South Atlantic and United States secondary markets were 8.1 and 5.7 percent respectively.

As a result of the rising vacancy rates in the area, concessions are now more commonplace. Newer, well-located properties are still experiencing reasonably strong demand, especially in developing areas such as Woodruff Road and Simpsonville. The Simpsonville and southern Greenville County areas in particular have lower vacancy rates than rest of the Greenville/Spartanburg market. Nearly all of the planned units in Greenville County are located in these areas. Another factor influencing the slowing absorption of apartment units in the past 2 years is the large-scale introduction of townhome/condo developments to the local market, which has siphoned away many potential tenants.

According to Tommy Thomason, president of Professional Mortgage Company, “Lending institutions continue to find this market an attractive place to invest capital and make mortgage loans.”

Construction activity, which peaked in 1998 with 1,182 new units, is now limited with a minimal number of projects under construction in 2003. Some 1,600 apartment units were planned as of late 2001, but several of these developments have been cancelled or changed to other uses such as townhome or condominium development. In fact, an announced 700-unit development at SC 417 and I-385 has been postponed, and the site is currently being considered for other uses. It is unclear when or if the planned units will be constructed.

The long-term future prospects for the market are positive, however, due to Greenville’s strong population growth rates of approximately 1.8 percent annually as compared to national growth rates of less than 1 percent over the past 3 years. A good indicator of the future prospects for the Greenville market is the rent growth rate of 1.9 percent in 2002, which should lead to the reduction of concessions and lowered vacancy rates as additional units are absorbed. Greenville’s multifamily market has historically been cyclical in nature and the stability in rental rates and occupancy coupled with the lack of new construction should allow some absorption and further stability in 2003.

- Michael B. Dodds, MAI, CCIM, managing partner, and Keith Batson, MAI, senior analyst, Integra Realty Resources – South Carolina

Office

Following a year marked by rising vacancies, falling rents and an increase in concessions, Greenville/Spartanburg’s 2003 office market is looking a little brighter and is experiencing several positive trends in the first half of the year.

Greenville’s CBD continues to be an increasingly popular destination for office users, adding new properties and gaining new tenants. Class A space in the CBD maintains the healthiest status of all submarkets and classes in the local office market, with a vacancy rate of 10.2 percent. While new product for 2003 is minimal, there are current plans to develop the Reedy River/West End area and possibly the former auditorium site on East North Street, and construction is expected to commence on at least one of these sites by year-end.

Greenville’s suburban office market was outperformed by the CBD in 2002, a trend that will continue throughout 2003. Major factors include the loss of several firms to the CBD, as well as a vacancy rate of more than 50 percent among at least four suburban Class A properties. The vacancy rate in the suburbs rose steadily in 2002 from 19.1 to 25.6 percent, and sublease space has more than doubled since 2001, up to 223,000 square feet.

Only 90,000 square feet of new space will be added to the suburbs this year, and it will be located at Liberty Property Trust’s Independence Point office park off of I-385. No other new projects have been announced for the suburbs; this will enable occupancies to firm up in this area.

Spartanburg’s downtown is undergoing an unprecedented surge of development. The completion of the Advance America building and the Worthy Insurance Building added almost 100,000 square feet in 2002, and construction is underway on the first of three buildings totaling 360,000 square feet in the Renaissance Project. Other new product for this year includes the 75,000-square-foot Extended Stay America headquarters and the 125,000-square-foot JM Smith Building. These projects will increase the Spartanburg office inventory by almost 60 percent.

- Hara T. Knight, client services and research manager, Grubb & Ellis|The Furman Company

Investment Properties

The demand for investment properties is high in the Greenville/Spartanburg area according to most brokers in the market. Caine Halter, president of Coldwell Banker Commercial Caine, says, “Like most markets, Greenville has been pretty well picked over for the best investment sales properties. A quality property with institutional-grade tenant rarely even makes it to the market before it is gobbled up by the pent-up demand.”

Halter feels that investors consider Greenville “as safe a market as there is in South Carolina.” While the market is considered strong, he stresses that “care should be exercised to ensure that the property is flexible enough for re-tenanting in the event things don’t go well.”

During 2002, national investors such as Inland Real Estate Acquisitions actively pursued properties in the market. Inland acquired the Hampton Point Shopping Center, a Bi-Lo-anchored neighborhood center, in May. The sales price was $4.49 million for the 100 percent-occupied center. Northpoint Marketplace, a neighborhood center in Spartanburg, was also acquired by Inland for $8.25 million. The purchase indicates a price per square foot of $80.90 for the Ingles-anchored center. The sale of the 298,000-square-foot Cherrydale Point in June was another large retail transaction. According to county records, the sales price was $29.5 million, or approximately $99 per square foot. Anchor tenants include Ross Stores, Old Navy, TJ Maxx, Goody’s Family Clothing and Ingles. Multifamily investments include the acquisition of the Arbors at Fairview apartments in Simpsonville. This newly constructed 168-unit complex sold for approximately $62,500 per unit.

Phil Hughes, a local investor and president of Hughes Investments, attributes much of the demand for investment properties to the local economy. “While we are not immune to the cyclical effects of the national and international economy, the Greenville area greatly benefits during these tough times from the outstanding quality of the companies making the Upstate their home,” explains Hughes. “BMW and Michelin may be the giants, but there are so many medium- and small-sized companies that also produce high-quality products and services. These help sustain market demand even in a downturn. Most of all, this is an excellent reflection of our well-trained workforce and sharp business leadership — a combination that always makes a bright future for investment.”

Bryson Thomason, vice president of Professional Mortgage Company stresses the strength of the economy. According to Thomason, “The Southeast — the Upstate in particular — is recognized as one of the most competitive markets in the country in terms of acquisitions and mortgage lending. One of the major factors in this environment is the current and expected growth and diversity in the area’s economy.”

- Michael B. Dodds, MAI, CCIM, managing partner, and Keith Batson, MAI, senior analyst, Integra Realty Resources – South Carolina


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