COVER STORY, MARCH 2006

CAROLINA RETAIL REPORT: CLIMBING HIGHER
Daniel Beaird

CAROLINA RETAIL: CHARLESTON, S.C.

Like so many other markets, Charleston has witnessed a trend towards mixed-use developments. However, Charleston is set apart from other Carolina markets in that it's a coastal region with year-round tourism and a large number of relocated retirees. The uniqueness of Charleston has led to its retail success.

“Tourism is the major engine that drives the whole economy in Charleston,” says Bob Balderson, senior vice president of Laureate Capital's Charleston office. “That alone sets Charleston apart from other comparable MSAs in South Carolina like Greenville and Columbia.”

According to Erin England, a member of the retail services group at Colliers Keenan, retailers are drawn to its consistent population growth and its market cache. “Charleston was recently named as a top six city for leisure and travel in the United States and Canada [by Travel & Leisure Magazine's 2005 World's Best Cities Awards],” England says. As Charleston continues to be influenced by different styles of growth, the retail sector continues to expand westward.  

According to Balderson, retail in downtown Charleston, the historic district along King and Market streets, thrives on tourism traffic. “A mixed-use development, [called Midtown], is planned on the corner of Calhoun and King streets in downtown Charleston in order to take advantage of the tourism traffic while bringing locals back downtown,” Balderson says. The foot traffic that has been attracted to downtown Charleston for years has become a trend that developers want to capitalize on in other areas of Charleston with new pedestrian-friendly mixed-use developments.  

At the end of last year, a new Wal-Mart Supercenter opened in West Ashley, pushing the Charleston retail boom west. Johns Island Shopping Center, also located in West Ashley, has pre-leased a 12,000-square-foot expansion; while the 124,000-square-foot Freshfields Village has opened with an 82 percent occupancy rate and is anchored by Newton Farms.

Tanger Factory Outlet Center is being developed in the Centre Pointe area.

North Charleston is also noticing the redevelopment of the Charleston Naval Base into a 340-acre mixed-use project called the Navy Yard by the Noisette Company. “This redevelopment is strongly based upon the new urban model,” says Christian Chamblee, a leasing and acquisitions associate at Ziff Properties. “More high-end products like Newton Farms, Whole Foods and Earth Fare are entering the market through mixed-use developments.”  

Across town in North Mt. Pleasant, the Market at Oakland is taking shape. This 79-acre Aztec Properties' mixed-use development will be anchored by a Wal-Mart Supercenter. The multi-phased Market at Oakland will include roughly 425,000 square feet of retail, according to England. “Of course, mixed-use projects are popular in that they create a hub of work and play together in an old-world sense,” England says. “People want a more intimate shopping experience than they used to.”

Charleston's submarket of East Cooper, the most upscale suburban market in the area, has projects proposed of more than 1.7 million square feet of retail space. Traffic has been relieved in the area through the completion of the eight-lane Cooper River Bridge, the connection of Hungryneck Boulevard from Highway 17 to the Isle of Palms Connector, and the Highway 17 expansion to six lanes. These road improvements are predicted to drive retail development.

The Summerville submarket has become a spotlight for national and regional retail growth. The addition of new neighborhood projects along Berlin G. Myers Parkway and Dorchester Road have sparked national interest. The pedestrian-friendly neighborhood shopping center is a trend that Charleston is witnessing. “These centers along with mixed-use developments cut down on traffic and drive times,” England says.

According to England, the idea of mixed-use developments is just beginning in Charleston and in South Carolina. “While some of the larger MSAs like Atlanta and Miami have witnessed mixed-use developments, we are just starting to see the effects,” England says. “The mixed-use projects bring us back to traditional values,” Chamblee says. New road projects and expansions into areas previously unaffected by Charleston's growth are predicted to continue the pattern of success for the retail market. “Charleston is expecting large residential growth during the next 5 years and retail will follow,” Balderson says. Limited on the east due to the Atlantic Ocean, Charleston moves west and the retail moves with it.

CAROLINA RETAIL: COLUMBIA, S.C.

Columbia's retail market has been able to absorb the majority of retail space available to it during the past year. The retail market has broken the 10 million-square-foot mark with the development of the $250 million Village at Sandhill, a 300-acre mixed-use development, in northeast Columbia. The market has been able to absorb the expansion of East Forest Plaza Shopping Center in the Forest Acres submarket of Columbia. All of Columbia's vacant space was also absorbed last year, according to Colliers Keenan's retail market report. “Columbia continues to grow as new tenants are entering the market and new developments are being absorbed,” says Rox Pollard, manager of retail services for Colliers Keenan.  

Northeast Columbia is the city's largest retail submarket with Kahn Development's completion of the second phase of Village at Sandhill, located at the intersection of Two Notch (U.S. Highway 1) and Clemson roads, last fall. The new development gives the submarket more than 2.7 million square feet in total retail space with Village at Sandhill incorporating more than 1 million square feet of retail space on its own. Anchor tenants for the new development include JC Penney, HH Gregg, Super BI-LO, The Home Depot, Rooms To Go and Talbot's. Discussions are underway for a new Columbia minor league baseball facility to be added to Village at Sandhill. Occupancy rates for northeast Columbia are more than 91 percent.  

Although northeast Columbia has taken away the title of largest retail submarket from Harbison/St. Andrews, the retail space along Harbison Boulevard remains the prime location for retailers. Harbison/St. Andrews consists of more than 2.5 million square feet of retail space with an occupancy rate at more than 93 percent. Harbison is anchored by General Growth's 900,000-square-foot Columbiana Center, an enclosed mall with tenants such as Belk, Dillard's, Parisian and Sears. The southeast Columbia submarket checks in with more than 1.2 million square feet of retail and is characterized by infill and relocation development. The Cayce/West Columbia submarket has just more than 1 million square feet of retail and experienced a slight downturn last year as occupancy dropped below 90 percent.

The Lexington submarket, while also experiencing a slight retail downturn last year, is anticipating the construction of a new 235,000-square-foot Target, which has broken ground, in 2007 along U.S. Highway 378 by Edens & Avant. The U.S. Highway 378 corridor from Columbia to Lexington provides this submarket with strong retail options. Current Lexington retail tenants include Wal-Mart Supercenter, Kohl's, Books-A-Million, Lowe's Improvement Warehouse, Office Depot, Kmart, Ross Dress For Less, Stein Mart and T.J. Maxx. The Home Depot is planning an entry into the bedroom community of Lexington. “Lexington will see growth from the Target-anchored center as well as new developments at Corley Mill Road,” says Lyle Darnall, vice president of southeast development for Edens & Avant. Lexington has experienced more than 55 percent residential growth during the past 15 years.

Columbia retail is expected to remain steady into the future. “Columbia's retail market is very stable,” Darnall says. “It's not as explosive as the beach areas, but it does have a promising future as four new Wal-Mart Supercenters are planned for the region.” While The Midlands is not performing at the level of Charleston or Greenville, it continues to see new tenants enter the market like Cost Plus World Market, Goody's Family Clothing and Dick's Clothing and Sporting Goods. Columbia's population is expanding into the northeast Columbia submarket and the new Village at Sandhill should keep that submarket strong. As Harbison Boulevard reaches capacity, Lexington has an opportunity to grow its retail market along the U.S. Highway 378 corridor. There is an increased demand for retail space in Columbia that is predicted to move the market forward.

CAROLINA RETAIL: CHARLOTTE, N.C.

Charlotte's retail market is in good standing as the city's population growth rate of 2.2 percent per annum, or 31,000 new residents per annum, is higher than the national average. Retail absorption is healthy and vacancy is moderate in this banking and financial epicenter.

Located on all four quadrants of the intersection of Rea and Ardrey Kell roads in Charlotte, Blakeney is a 270-acre mixed-use development.

At the corner of Sharon and Fairview roads in Charlotte, Simon Property Group's $100 million expansion to SouthPark Mall will be completed this fall, bringing the total square footage up to 1.8 million. Upscale retailers Nordstrom and Neiman Marcus have signed on to the expansion. It is the Carolinas' second Nordstrom and first Neiman Marcus, which will open in the fall. The addition of these two significant retailers has spurred interest in Charlotte from other national retailers currently not in the market. “SouthPark Mall is Charlotte's second urban core,” Ortlip says. “There is still some land available for development there, and with the addition of these new retailers, it will only help the area attract even more retailers.”  

Those retailers researching Charlotte have an opportunity to be involved in a number of developments. In September, Taubman Centers, a real estate investment trust, completed construction of Northlake Mall located at the intersection of Interstate 77 and W.T. Harris Boulevard in north Mecklenburg County. The 1.1 million-square-foot mall is anchored by Dillard's, Belk, Hecht's, Dick's Clothing and Sporting Goods and a 14-screen AMC Theatres megaplex. It is Taubman Centers first project in North Carolina as well as the largest center in north Mecklenburg County. Northlake Mall was 95 percent leased when it opened its doors with 120 stores and restaurants.

Chicago-based General Growth Properties and hometown Childress Klein hope to have the same success with their own Dillard's-anchored center. The 1.3 million-square-foot Bridges at Mint Hill will open in 2007 at Interstate 485 and Lawyers Road in Charlotte's eastern suburbs. It is an open-air concept with Goose Creek running through the middle of the property. Bridges at Mint Hill, much like Northlake Mall, will feature a 14-screen movie theater.  

The Queen City has witnessed the popularity of mixed-use developments like Crosland's Blakeney as well as EpiCentre and Elizabeth Avenue. At Rea and Ardrey Kell roads in south Charlotte, the 270-acre Blakeney is a mixed-use development scheduled to open in April. Anchored by Target and Harris Teeter, the 495,000-square-foot retail component of the development is primed for success as it is predicted that the population within a 3-mile radius will grow by more than 27 percent by 2010. “There is a residential explosion occurring in Charlotte,” Pappas says. “Mixed-use developments have become more important as people want to live, work and play within the same area.”

Developer Afshin Ghazi's $100 million mixed-use EpiCentre will sit on 3.25 acres of land where the former Charlotte Convention Center was located in downtown Charlotte. It will include a 267,000-square-foot entertainment and retail complex. EpiCentre is set for delivery in early 2007. Meanwhile, Grubb Properties and the City of Charlotte's Elizabeth Avenue redevelopment project has welcomed new upscale tenants like Whole Foods, according to Ryan Preston, director of leasing at Crosland. Elizabeth Avenue is a five-block revitalization project along Charlotte's streetcar line. It will feature shopping, dining, entertainment and upscale multifamily residences. While Elizabeth Avenue has current tenants today, the total revitalization will not be complete until 2010.

Charlotte's retail market currently has good absorption rates and moderate vacancies. The market is predicted to stay strong if the economy and job outlook stays strong. With so much development and redevelopment, Charlotte is adding a lot of new retail space. “The Interstate 485 corridor continues to drive growth in the area with Bridges at Mint Hill and Carolina Place Mall in Pineville,” Preston says. However, according to Ortlip, the Interstate 485 corridor is heading towards its completion. The question now turns to whether Charlotte can fill its new retail space. The predicated population growth will have the answer.

CAROLINA RETAIL: GREENVILLE–SPARTANBURG, S.C.

Tenants like Barnes & Noble have been attracted to The Shops at Greenridge due to its proximity to Greenville's highest-income households.

In 2004 and 2005, the intersection of Woodruff Road and Interstates 85 and 385, Greenville's center for retail serving much of the East side, welcomed the development of Crosland's new project. The $64 million, 515,000-square-foot The Shops at Greenridge is anchored by Lowe's Home Improvement Warehouse, PetsMart, Dick's Sporting Goods, Best Buy, OfficeMax, Ross Dress For Less, Total Wine, Linens ‘n Things, Marshalls, Off Broadway, Cost Plus World Market, and Barnes & Noble. Outparcels include P.F. Chang's and Mimi's Café. “Greenville has seen more national retailers enter the market that would not have entered in the past,” says Brian Reed, research manager at Grubb & Ellis/The Furman Company. “P.F. Chang's is a good example of that.”

American Centennial Properties' The Shops at The Pointe sits across the street from The Shops at Greenridge. This 300,000-square-foot retail development includes Circuit City, which opened last August, and Whole Foods, which will open in late April. The average household income within five miles of The Shops at Greenridge and The Shops at The Pointe is approximately $75,000, which is the highest average in the Greenville MSA.         

“Developments like these offer a much more entertaining shopping experience that draws people and then captivates them with upscale tenants and unique shops,” says Denton Burnette, senior vice president at Professional Mortgage Company. “People do not have to drive to Charlotte or Atlanta to have fun shopping.”

Greenville has also been awarded the single-A affiliate of the Boston Red Sox. A new baseball stadium is being built in the city's downtown area of West End. “Downtown Greenville is unique because of the vision the city's leaders had 20 to 30 years ago,” says Brody Glenn, project manager at Centennial American Properties. “It might have taken a little longer than originally planned, but downtown is vibrant again as baseball comes back and more restaurants and offices move downtown.” According to Glenn, downtown Greenville will see continued growth and more mixed-use developments in the future.

Large institutional investors, including REITs, are interested in lifestyle and community centers like the aforementioned ones with an attractive line up of anchor tenants. “Grocery-anchored centers, especially those anchored by Publix, Whole Foods and other quality regional chains, remain attractive to mid-level investors,” Burnette says. “Freestanding Walgreens and CVS/pharmacy buildings are also prime choices in that they are being pre-sold at very attractive yields.” Small unanchored and shadow-anchored strip centers are actively being developed because of their attractiveness to 1031 investors as well as freestanding buildings like the ones occupied by Dollar General, AutoZone and Advance Auto, according to Burnette.

The market continues to see the closing and realignment of weaker retailers like Winn-Dixie, OfficeMax and Kmart. Most older structures sit vacant as the new retailers to the market generally want to build their own structure from the ground up. Local retailer Jeff Lynch Appliance & T.V. Center is expanding to a much larger and competitive space vacated by Lowe's Home Improvement Warehouse. However, big box vacancy presents a challenge to Greenville much like it does to other markets.

The 787,000-square-foot Greenville Mall is approximately 75 percent vacant and has been a cause for concern in the community for several years. “Greenville Mall has struggled to attract anchor tenants due to its close proximity to Haywood Mall, South Carolina's largest mall,” Reed says. Haywood Mall currently has a vacancy rate close to 1 percent. Smaller tenants are more attracted to Haywood Mall due to its ability to hold its anchor retailers. Greenville Mall has recently been sold for $37 million or $500,000 an acre to a Florida development group. As a comparison, Crosland purchased the land for The Shops at Greenridge for approximately $200,000 an acre. A redevelopment is planned for Greenville Mall.

While Greenville does not expect to top out at the same retail levels this year as the previous 3 years, the future still looks bright. “Expect to see steady retail activity in the Greenville, Spartanburg and Anderson markets since Food Lion has announced 10 new stores in these markets,” Burnette says. “Greenville does not have anything like The Shops at Greenridge planned for the next few years, but the residential growth remains strong and so will the retail growth,” Reed says. “Retail in Greenville is healthy and it remains the retail hub of the upstate area,” Glenn says.

Asheville Retail is Finding it's Hip to be Square

Asheville's Town Square at Biltmore Park will open in November 2007.

“Town Square will offer a unique urban shopping and dining experience while preserving green space for recreation,” says James Downs, vice president of Crosland's retail division. Crosland will fashion Town Square after its Birkdale Village development, which won the International Council of Shopping Centers' (ICSC) design and development award for best mixed-use development in 2003, in Huntersville, North Carolina. Shook Kelley designed Birkdale Village and will also design Town Square.

Town Square's master plan incorporates 235,000 square feet of retail space, 205,000 square feet of office space, the existing YMCA, a 200-room hotel and more than 300 multifamily residences. Parking decks will be located behind the project. Approximately one quarter of the residences and nearly all the offices will be vertically integrated above ground-floor retail.

The Asheville City Council rezoned the property as Asheville's first urban village district in 2003. “Asheville is taking off,” says Peter Pappas, president of Crosland's retail division. “Its ready for a development like Town Square.” Asheville is the largest and fastest-growing city in western North Carolina.

Town Square plans to bring in new national retailers to Asheville as well as offer opportunities for expansion to local retailers. The development's location, close to Biltmore Estate and adjacent to Biltmore Forest, North Carolina's wealthiest incorporated town, will provide retailers with an area with disposable means. Biltmore Forest includes 600 homes with another 400 sites under development. Of course, Biltmore Park, which Town Square is a part, includes 580 single-family homes, the Cranbrook apartments and the Corporate Technology Center with 800,000 square feet of Class A office space planned. Volvo Construction Equipment has its North American headquarters located there as well.   

Biltmore Farms opened One Town Square and Two Town Square, which both consist of two stories of office space and ground-floor retail space, in 2000 and 2004 respectively. Crosland's Town Square will incorporate the two buildings and businesses into the planned mixed-use development. Site work for Phase I of Town Square begins this spring, with the 18-screen theater set to open in November 2007.   

CAROLINA RETAIL: TRIANGLE AREA

The Triangle retail market had seen 3 consecutive years of more than 1.5 million square feet of absorption as more than 5 million square feet of space has been added in that same amount of time. Last year, absorption fell short of that mark. However, that was due to fewer construction completions, and that current pipeline is full for this year. “Despite the global turndown, the Triangle's retail has held up like most of the Carolinas,” says Bob Hukill, senior vice president of the Raleigh office at Laureate Capital. Some of the recent trends include the appearance of more mixed-use developments and the shuffling of grocery stores in the area.

Phase I of Brier Creek was completed last year.

“Raleigh and the greater Triangle area have recently experienced a regeneration of sorts for retail development because the area was underserved by retail space,” Hicks says. He cautions, though, against being pigeon-holed into one type of development. “Mixed-use is very popular with municipalities,” Hicks says. “However, trying to force a mixed-use development into every retail project makes the development process complicated because not every developer is a mixed-use developer.”      

North Hills Mall was redeveloped by Kane Realty and Cherokee Capital.

Because of the three major universities in the area, the Triangle population is highly educated with income levels that soar above the average U.S. household. Developers have taken advantage. “The area has seen a lot of new roads and infrastructure during the past few years, which has led to more retail development,” Hicks says. “Specifically, the construction of Interstate 540 or the outer loop has led to more development.”

Some of the new tenants to the area include Hobby Lobby and HH Gregg. Wholesale clubs like BJs and Costco have expanded their space. The Triangle welcomed its first Saks Fifth Avenue in 2004 and Bloomingdale's and Macy's will enter the market this year. Specialty grocers like previously mentioned Earthfare. “We are not selling the MSA anymore,” Hukill says. “We don't have to.”

Specialty grocers and consolidation in the grocery market with Wal-Mart Supercenter and Super Target have put a squeeze on the middle market for grocery stores. Winn-Dixie has left the market, and Harris Teeter as well as Food Lion are seeking Winn-Dixie's former locations.

The residential growth is predicted to continue in the Triangle. “The Triangle continues to add new jobs, so the residential and retail follow,” Hukill says. According to Hicks, the Triangle's growth pattern will cycle for at least another 60 months. Residential development is strongest in southern Wake County and northeast Wake County.

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