COVER STORY, MARCH 2007

RETAIL GOES TO CAROLINA
Developers fit retail into mix in the Carolinas.
Daniel Beaird

As the Carolinas retail market grows during the next few years, it will be primarily focused around retailers fitting into mixed-use developments in the Carolinas' major cities. Municipalities are more welcoming to mixed-use developments than stand-alone retail projects. National retailers have been attracted to the Carolinas as anchors for these developments.

CHARLOTTE, N.C.

American Asset Corp.’s Bryton will incorporate a transit stop in the new light rail system being built in Charlotte.

The largest city in the Carolinas is no different from the other Carolina cities in that mixed-use and lifestyle developments continue to be all the rage. New mixed-use developments and redeveloped retail centers have created much attention from national retailers. “Charlotte continues to see significant retail growth with an emphasis on lifestyle centers,” says Don Williams, president of Medalist Capital in its Charlotte office. “There is a tremendous amount of retail and mixed-use development both planned and underway along the new light rail, the Interstate 485 corridors and selected infill locations where more density can be created.”

Sparked by the redevelopment of SouthPark Mall at the corner of Sharon and Fairview roads in the SouthPark submarket, upscale retailers are entering the market such as Nordstrom and Neiman Marcus. “SouthPark Mall has become Charlotte’s second urban core,” says Mike Ortlip, senior vice president of Laureate Capital’s Charlotte office. “Upscale retailers like Nordstorm and Neiman Marcus help attract more retailers to the area.” This attraction has led to record rental rates being achieved for Class A retail properties in the SouthPark, Ballantyne and CBD submarkets in Charlotte. According to CB Richard Ellis’ retail market report, asking rates in these markets are $35.51, $28.36 and $25.44 respectively.

With record-setting rental rates in some Charlotte submarkets, others are following the leader and building new retail properties. Approximately 726,000 square feet of retail space is under construction in the Charlotte area with the majority concentrated in the Inner Southeast submarket with the redevelopment of the former Midtown Square. Pappas Properties and Collett & Associates are developing the project, which will be anchored by Target and The Home Depot Expo. Development in areas like the Southeast submarket is a result of fewer available retail sites in the CBD. As retail development is pushed further away from the core of Charlotte, it is experiencing the same success as it has intown.

The redevelopment of SouthPark Mall has initiated more development around the area. LNR Property Corporation is proposing a mixed-use development in the SouthPark submarket that would include condominiums, apartments, stores, restaurants, a hotel and office towers. Dubbed as South Fair Plaza, the site would expand 10.5 acres with 185,000 square feet of retail. This new development proposal has a lot to do with the success of Simon Property Group’s $100 million redevelopment and expansion to SouthPark Mall, as mentioned previously. The expansion was completed last fall and it brought the total square footage of retail space in the submarket up to 1.8 million.

Developer Afshin Ghazi’s $100 million mixed-use development EpiCentre, which is situated on 3.25 acres of land at the site of the former Charlotte Convention Center, is completed and is welcoming new tenants. Located at the corner of Fourth and College streets, EpiCentre includes tenants such as PJ’s Coffee, Flying Biscuit Café, Bonehead’s, Doc Green’s, Shane’s Rib Shack, Moe’s Southwest Grill and Planet Smoothie. BlackFinn Restaurant & Saloon and The Fox Sports Grill had already signed leases.

Banking on Charlotte’s population growth, Crosland’s Blakeney is a 270-acre mixed-use development located at Rea and Ardrey Kell roads. The 3-mile radius surrounding this project is anticipated to grow by 27 percent by 2010. The 495,000-square-foot retail component of the mixed-use project is anchored by Target and Harris Teeter. Recently, Banana Republic joined the fray as anchor for The Village Shops at Blakeney. Joining Banana Republic are children’s boutique retailers Looby Loo and Sweet & Sassy. Overall, Blakeney includes retail tenants such as 131 Main, Brixx, Carriage Cleaners, Chili’s, Cold Stone Creamery, Coldwater Creek, Encore Café, Five Guys Famous Burgers & Fries and Starbucks. “The site on which Blakeney was developed was a country crossroads just 5 years ago,” Williams says. “Now, it will serve as a suburban lifestyle center.” 

Charlotte is welcoming Swedish retailer IKEA to its retail market in spring 2009.

Charlotte has attracted the attention of Swedish retailer IKEA, which announced a Charlotte IKEA for spring 2009. The 345,000-square-foot furniture store will be built on 25 acres at the northeast corner of Interstate 85 and the City of Boulevard exit. IKEA will be selling an adjacent 3 acres for additional retail and restaurant use. Meanwhile, Crescent Resources, the seller of the original property, will develop the surrounding 135 acres after IKEA is built. 

“There will be continued growth in retail during the next year in Charlotte,” Williams says. “The traditional grocery-anchored properties will continue to be developed as the grocers demand. However, escalating land prices and planners’ desires for mixed-use products are pushing developers to create stacked development in place of strip centers.”

Strong local market conditions have led to a strong retail market for Charlotte. Companies are expanding, unemployment is down and the population is growing. Charlotte’s retail players witnessed absorption figures of more than 800,000 square feet last year. The outer and inner Southeast submarkets experienced the highest net absorption rates in the area, while construction continues to expand outward stretching outside the Interstate 277 loop. 

CHARLESTON, S.C.

The Market at Oakland in Mount Pleasant, a suburb of Charleston, will consist of 415,000 square feet of retail and will be anchored by Kohl’s.

As Charleston continues to see growth from its tourism industry, and heavy inbound migration continues, this coastal city’s retail market is flourishing from the action. Set apart by its uniqueness from other South Carolina MSAs that are similar in size, Charleston’s retail market continues to focus on mixed-use developments throughout the city. “Many new developments in Charleston try to incorporate pedestrian-oriented themes whenever possible,” says Erin England of the Colliers Keenan retail services group in Charleston. “The appearance of mixed-use projects, higher density and a higher end feel are themes that run through Charleston’s retail market.”

These mixed-use projects have attracted new retailers as well as retailers seeking expansion in the area, and developers are not showing any signs of slowing the migration of mixed-use developments into Charleston. “There are many reasons why developers are favoring mixed-use projects,” England says. “They include rising land prices, higher construction costs, controlling sprawl, higher gas prices, the appeal of living in an urban environment, the convenience of working close to home, and an alternative to strip centers or enclosed malls.”

Two of the largest retail projects in the coastal South Carolina market include The Market at Oakland in Mount Pleasant and The Market Common in Myrtle Beach. The Market at Oakland in Mount Pleasant consists of 415,000 square feet of retail space and will feature an 89,911-square-foot Kohl’s, which will open in October. A 184,000-square-foot Wal-Mart Supercenter, which will also anchor the center, will open in September. It is being developed by AVTEX Commercial Properties. “The Market at Oakland is pioneering the North Mount Pleasant retail market from a big box perspective,” England says. “It brings a focal point to the north side of the East Cooper submarket.”  The East Cooper submarket has been enhanced by the opening of the new eight-lane Arthur Ravanel, Jr., bridge.

Meanwhile, The Market Common in Myrtle Beach is a 100-acre redevelopment featuring a mix of retail, restaurant, residential and hospitality properties. Phase I will include approximately 450,000 square feet with tenants such as P.F. Chang’s China Bistro, Brooks Brothers, Anthropologie, Banana Republic, Tommy Bahama, Orvis and Consolidated Theatres. It is expected to open in April 2008. “The Market Common brings the lifestyle approach and environment of how retailers do business and choices for consumers regarding how they will be able to shop in that market,” England says. According to Bryson Thomason, president of Professional Mortgage Company in Greenville, the lifestyle component is spreading across the state. “New concepts in lifestyle centers are moving into middle markets such as Myrtle Beach as well as Hilton Head,” Thomason says. “These lifestyle centers and mixed-use concepts present large tracts of land that are insulated from future competition due to size and permitting advantages.” And Charleston is no exception as it welcomes more mixed-use and lifestyle components.

Including enclosed malls, the Charleston MSA has exceeded 14.5 million square feet, according to Colliers Keenan’s retail services group 2006 mid-year retail market review. Occupancy rates are remaining stable around 90 percent. The King Street retail district in downtown Charleston continues to expand its reputation. The foot traffic that has been attracted to the downtown area has been a trend that developers have been eager to capitalize on in other areas of Charleston with the emergence of the aforementioned mixed-use projects.

As mentioned last year, North Charleston is witnessing the redevelopment of the Charleston Naval Base into a 340-acre mixed-use project called the Navy Yard by the Noisette Company. The North Charleston submarket serves as the area’s largest and highest volume retail submarket; and it remains the regional draw for national power and big box tenants. Its reputation was only enhanced by the Centre Point project, which opened a 375,000-square-foot Tanger Outlet Center last year.

According to England, the Charleston retail market has many factors driving its momentum. “Relocations to this coastal and historical city has brought a steady stream of new residents helping drive demand for residential as well as retail,” England says. Charleston isn’t just a place for tourism anymore. 

TRIANGLE AREA

Downtown Raleigh is experiencing a resurgence as every new development seems to include ground floor retail and restaurant space. The downtown area, while still in the process of creating a residential base to support credited retailers, already serves as an entertainment and dining district. The majority of interest for ground floor space in downtown Raleigh is comprised of prospective restaurants, bars, art galleries and boutique retailers. “As the Raleigh retail market remains strong, the most successful property owners are those who offer attractive upfit allowances or bring the space to the condition desired by the tenant,” says Kristopher Larson, deputy director of the Downtown Raleigh Alliance. “Available spaces that are in good condition do not stay in the market very long.”

California-based Argus Realty Investors recently purchased the 551,000-square-foot mixed-use Wachovia Capitol Center, located on Fayetteville Street, for more than $153 million. The deal was enhanced by the inclusion of Ha 750-space parking deck lined with retail space. “Noteworthy in the deal was the bullish cap rate of 6.5, which is a full 1.5 points lower than comparable sales in the region,” Larson says.

Mixed-use developments like Wachovia Capitol Center are the prevailing development model in Raleigh. “Year after year, each successive project seems to allocate more ground floor space for active use, which indicates an increasing positive outlook for the retail market in Raleigh,” Larson says. Because of that reason, municipalities are seeking more mixed-use developments in their regions. “Local municipalities are dictating more and more to developers the types of projects which they will allow to be built in their communities,” says Patrick Russell, executive vice president of retail leasing for American Asset Corporation in its Charlotte office. “The entitlement process is usually very strict and leans toward the development of mixed-use projects.”

Mixed-use developments, like Seaboard Station in Raleigh, are being built across the Carolinas with an urban feel in mind.

Seaboard Station, a mixed-use development that will include more than 115,000 square feet of retail space, has recently broken ground on the north side of downtown Raleigh. The project, developed by Gregory & Parker, will include a tenant mix of boutique retailers, a grocery store, restaurants, a hardware store, and an athletic club. Phase II of the project is currently underway, which will add 50 residential units. Trammell Crow Company is handling the leasing of Seaboard Station. “Seaboard Station is unique because it offers all the amenities of a suburban shopping center to an urban site,” Larson says. “It also demonstrates a belief that the blossoming downtown residential market could support another 115,000 square feet of retail space including the elusive downtown grocer.” Downtown Raleigh welcomed its first grocery store with the opening of Capital City Grocery in Seaboard Station. The grocery store was lured in part by a below-market rental rate made possible by a low-interest loan granted to Gregory & Parker by the city of Raleigh.  

Highwoods Properties and Dominion Partners are developing the mixed-use RBC Centura headquarters tower on Fayetteville Street in Raleigh.

In addition, the mixed-use RBC Centura headquarters tower is under construction on Fayetteville Street. The project budget exceeds $100 million and its scope includes 17,000 square feet of ground floor retail space. Highwoods is developing the commercial use, while Dominion Partners develops the residential portion of the project. “The market’s response to the RBC Centura tower has been overwhelming and the residential sales team has reported a pre-sale volume in excess of 200 percent,” Larson says.

According to Larson, downtown Raleigh will continue to emerge as a destination for retail in the area. “Property owners are conservative in their lease terms, hoping that within 3 to 5 years the market will be even stronger and provide better credited tenants,” Larson says.

Outside of downtown Raleigh, the Triangle area of North Carolina continues to experience a strong retail market as new construction fills the area. The pipeline remains full for this year. Trader Joe’s has entered the Cary, North Carolina, market with a 19,000-square-foot lease at the Shoppes at Kildaire. Hecht’s stores have completed their conversions to Macy’s department stores in the Triangle area, making the national retailer’s debut in the region. Urban Outfitters also entered the region last year, opening a store in Durham, North Carolina, at the Streets at Southpoint.

“Investors are looking at everything from small strip centers in need of major renovation to well stabilized power centers,” Russell says. “Shopping centers continue to be sought after by investors looking for income producing properties.”

Just like downtown Raleigh, the outlying areas are experiencing the influence of mixed-use projects as well. American Asset Corporation’s Brier Creek Commons is the retail portion of the larger mixed-use development called Brier Creek, which is situated on 2,000 acres in Raleigh, amongst some of the Triangle’s most affluent neighborhoods. “This was an undefined area that has quickly been branded to regional status,” Russell says.

Raleigh and the Triangle’s population growth have helped the region’s retail market outperform the national average. The region’s multifamily sector is witnessing rising occupancy rates, which drives developers to build more retail to match. However, retail vacancy figures are hovering around 7 percent as projects underway are currently delivered. But, increased vacancy has helped stabilize rental rates, which is good news for small, independent retailers that have felt the effects of rising occupancy costs. 

COLUMBIA, S.C.

Much like other areas of the Carolinas, Columbia is experiencing the expansion of big box retailers like Wal-Mart and Target as well as the redevelopment of dark retail centers into open-air lifestyle centers. A large amount of square footage has been removed from the inventory in the past 2 years by the conversion of under utilized retail properties. According to NAI Avant, the overall retail market is very strong as occupancies are high in all suburban markets and rents have surpassed the $20 per square foot barrier for shop space in Columbia’s premier locations. From an investment standpoint, the region has limited supply of Class A centers and tenants, and most are usually quick to be exchanged.

According to Eric Vannier, director of The Tetra Companies in Columbia, big box-anchored centers attract the most attention but are limited in the overall number as smaller neighborhood strip centers are being developed to service local and regional tenants. “Discount store anchored properties and unanchored strip centers adjacent to these properties account for nearly all the activity in the market,” says Ron Anderson, vice president of research and technology for NAI Avant in Columbia. Three of the more prominent retail centers that have been or are being developed in the Columbia area recently are Kahn Development’s The Village at Sandhills, Edens & Avant’s Lexington Pavilion and WRS’s The Shoppes at White Knoll.

The Village at Sandhills, located in Columbia’s northeast submarket, is Central South Carolina’s first large open-air lifestyle center and it continues to draw interest from retailers. New retailers Ashley Home Furniture and Coldwater Creek were added to the list of tenants that make up The Village at Sandhills, contributing to its 90,060 square feet of absorption. Incorporating more than 1 million square feet of retail space on its own, The Village at Sandhills includes tenants such as JC Penney, HH Gregg, Super BI-LO, The Home Depot, Rooms To Go and Talbot’s. Located at the intersection of Two Notch (U.S. Highway 1) and Clemson roads, Kahn Development completed the second phase of this retail project in fall 2005. 

Not only did the Northeast submarket experience major absorption last year, but North Columbia and Southeast Columbia did as well. According to Colliers Keenan’s mid-year retail report on Columbia last year, the North Columbia submarket had absorbed 47,363 square feet and experienced an increase in occupancy from 73.22 percent at the end of 2005 to 83.44 percent at mid-year 2006. The North Columbia submarket has historically posted the lowest asking rents in the Columbia region. Meanwhile, Southeast Columbia, along Garners Ferry Road, experienced 22,400 square feet of absorption, raising mid-year 2006 occupancy two percentage points to 93.07 percent from the end of 2005.

Located at the intersection of Sunset Boulevard and Hope Ferry Road in the Lexington submarket, Edens & Avant is developing the 230,000-square-foot Lexington Pavilion. Scheduled to open in July, it will be anchored by Target, Best Buy and PetsMart. “Lexington Pavilion is a traditional suburban sprawl retail development,” Vannier says. “It will place the fourth Target in a region dominated by Wal-Mart.”

As for significant retail transactions, Philips Edison purchased East Point Plaza last April for $9.75 million. The 164,000-square-foot retail center is anchored by Sears on Garners Ferry Road in the South Columbia submarket. “East Point Plaza fits the trend towards the redevelopment of older properties with significant vacancy in irreplaceable locations,” Anderson says. “It is located in a growing submarket that is underserved by mid-sized big box retailers and development opportunities for new big box centers are limited.”

Meanwhile, East Forest Plaza changed hands for $23 million in August. It contains 120,000 square feet of retail space and is adjacent to a Wal-Mart Supercenter and Sam’s Club on Forest Drive in the Forest Drive submarket. “East Forest Plaza is indicative of the price investors will pay for well located and fully occupied properties,” Anderson says. “This property is located at the main entrance to Fort Jackson, which is scheduled to expand during the next decade.” It is also located in the Forest Drive corridor, which is virtually fully developed.

The Columbia retail market continues to remain stable, but rapid growth is projected as several projects are expected to change the landscape in the years to come. Wal-Mart has begun construction, or is expected to begin construction in the next few months, on supercenters locations that will include Batesburg-Leesville, Killian Road, Irmo, Bush River Road, and Redbank. Meanwhile, The Village at Sandhill has proven to be one of Columbia’s premier retail locations by attracting new, high-end, nationally recognized tenants to the Columbia market. 

GREENVILLE, S.C.

Upstate South Carolina is experiencing an influx of big box retailers as its population grows at a faster rate than the rest of South Carolina and its average income is higher than the rest of the state as well. As more retailers move into the Greenville area, the municipalities in the region are welcoming the growth. Greenville County recently approved the big box bill, which places additional architectural, landscaping and engineering requirements on any development that reaches more than 40,000 square feet.

According to Colliers Keenan, Greenville area retail space remained strong last year with a 7.11 percent vacancy rate compared to a 7.76 percent vacancy rate in 2005. Expenses increased from $1.93 to $2.16 per square foot; and the amount of retail space for lease increased 70,486 square feet. The Woodruff Road corridor remains the place to be in Greenville for retail as the 2-year-old Shops at Greenridge are successful, soon to be followed by Magnolia Park Town Center.

“Big box retailers such as Target, Wal-Mart, The Home Depot and Lowe’s Home Improvement Warehouse continue to expand in the area, leaving behind stores less than 10 years old to do so,” says Jimmy Wright, director of retail for NAI Earle Furman. “The herd mentality is prevalent in Greenville in that once the hot spot is identified, many national retailers will follow, which has led to the proliferation of lifestyle centers with eight to twelve big boxes operating adjacent to one another.”

The lifestyle center trend has definitely influenced Greenville as many developments are transitioning away from older enclosed malls to open-air communities, even incorporating some mixed-use purposes. The most notable retail redevelopment in Greenville that falls under such uses is Magnolia Park Town Center, the redevelopment of the Greenville Mall, located on Woodruff Road. Canyon Gulfside Greenville, a partnership between Miami-based Gulfside Development and California-based Canyon Capital Realty Advisors, purchased this 67-acre property in December 2005 for $37 million, averaging out to just more than $550,000 per acre. Demolition of the Greenville Mall began late last year. Magnolia Park Town Center will include 676,000 square feet of space with anchors including Costco, Rooms To Go, Regal Hollywood Cinemas and Sports Authority. 

“A differentiating factor for Magnolia Park Town Center is that it will be a true mixed-use center,” Wright says. “Plans include an eight-story building with loft-style residences and two hotels as well as a large office component.” In addition, developers are urging the Greenville County government to move its offices to the new site. “A move to the new site would not only fill several hundred thousand square feet of new office space, but it would leave vacant a very nice 33-acre parcel of real estate abutting downtown Greenville,” Wright says.

With the Shops at Greenridge already complete, Magnolia Park Town Center will help Greenville attract national recognition. Each of these two projects have brought in retailers and restaurants that had not previously operated in Upstate South Carolina including Costco, Total Wine, Cost Plus World Market and P.F. Chang’s China Bistro. The Shops at Greenridge contains more than 500,000 square feet of space. Crosland sold the 71-acre site to Shops at Greenridge LLC, in care of RREEF America, in January 2006.

“Magnolia Park Town Center and Shops at Greenridge are located close together in Greenville and many residents fear traffic congestion, but high quality retail is in demand from the consumer, the user and investors; and when done correctly, all parties benefit,” Wright says. “The new retail developments in the area have upgraded Greenville from a third tier retail market to a second tier retail market and the Upstate is the first location a retailer new to the state might consider when entering the market.”

As new retail developments are built in Greenville to attract new retailers and restaurants, some of the big box retailers are relocating to these sites as well, leaving empty retail space in other parts of the city. “As the Greenville market matures and large open tracts of land become harder to find, more developers will be looking to buy those existing older retail structures and tear them down and redevelop the site,” says Jim Hopple, senior retail and investment broker with Colliers Keenan. Hopple says Greenville faces many decisions in regards to future development in areas that already have traffic congestion. “Developers must address these concerns up front in the planning process,” Hopple says. “The days of building a shopping center without confronting these issues are gone.”

Magnolia Park Town Center and Shops at Greenridge have added new retailers to the area, but the retail market in Greenville might be tightening for future development. According to Colliers Keenan, cap rates for grocery-anchored shopping centers rose 70 basis points during the fourth quarter of last year. “As investors shift funds into other investments that can return higher yields, the end result will be fewer new retail centers built with the trend more towards redevelopment,” Hopple says. “Investors are still looking for product that has upside potential such as retail centers in which they can rehab and re-tenant at higher rates and increase their yield.”


©2007 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.