COVER STORY, MARCH 2010

CAROLINAS RETAIL ROUNDUP
Brokers see positive signs in current retail environment.
Jon Ross

For its annual check on the Carolinas retail market, Southeast Real Estate Business talked with brokers and developers who have high hopes for the retail sector.

Raliegh, N.C.

The 57,000-square-foot Market at Colonnade in Raleigh, N.C., will deliver next year.

The $20 million Market at Colonnade, a Whole Foods Market-anchored shopping center, broke ground in Raleigh last month. The joint venture project between Regency Centers and WelCor Development will include a 40,000-square-foot grocery store and an additional 17,000 square feet of retail space. The LEED project will deliver in 2011. Harris Teeter is also working on area locations. The grocer, which opened three stores in the Raleigh market during the fourth quarter of 2009, will locate to a store near Wake Forest in the first quarter of 2011.

This may seem like a lot of activity considering the current state of the economy, but the Harris Teeter and Market at Colonnade plans were all started at least 3 years ago. This statistic sums up the state of Raleigh’s development market; projects that were started before the recession are finally moving forward, but development elsewhere has stopped completely.

“When we were finance driven, the grocers, who always followed the rooftops, started to lead the rooftops,” says Jim Broemer of WelCor Development. “Now what’s happening is on the convenience side is they want to see the rooftops there day one. They want their sales pro formas to work day one; they no longer want to grow into them.”

The element of caution, which may seem like a deterrent to a robust retail market, will usher in a more sustainable era of development. Retailers are no longer competing at a cut-throat speed, trying to outdo one another for the same pieces of land. “When there was a lot of momentum, they would be trying to get ahead of each other, so they might do a play they didn’t necessarily need right now, but it was to keep somebody else out,” he says. “You don’t see that.”

As for when development might start up again, Broemer says an industry turnaround isn’t pegged to any sort of timeline.  When businesses start hiring again, retail expansion will follow. “Once employment growth starts again … then you’ll see growth in convenience retail first, and then you’ll see some of the power centers get their legs,” he says. “This area is predicted to have some of the best growth over the next 15 years in the whole country. Even here, until you get the employment growth going again … you’re not going to see any real changes in the market.”

Columbia, S.C.

The exodus of Circuit City, Linens ‘n Things and other big-box retailers from the Columbia marketplace has pushed the current vacancy rate to more than 16 percent, but brokers at Grubb & Ellis | Wilson Kibler are confident occupancy will soon rise. With the lack of large national retailers comes the opportunity for smaller players to move into the area. Tenants looking for mid-size openings of 10,000 to 15,000 square feet have started coming to Columbia, says Ben Johnson, the firm’s research director.

“Compared with other markets in the Southeast, we’d be in the higher vacancy rate group,” he says. “On a more positive note, we are seeing some activity, particularly from a lot of smaller tenants — a lot of restaurants are looking for spaces and some of the more urban corridors are still doing pretty well.”

Academy Sports + Outdoors is primed to develop its first location in the city later this year. Johnson and the firm’s Mike Edwards get excited when talking about another new prospect, Mast General Store. Using some city funding, the tenant is moving into the old Lourie’s building in the 1600 block of Main Street. The location, which is more than 100 years old and will undergo restoration before the tenant moves in, is expected to open next year. Edwards says Mast locates in university areas and tourist towns — the company has stores in Knoxville, Tennessee, and Asheville, Boone and Greenville, North Carolina. 

“That’s an exciting development for Columbia because our main street has become like all the other ones — a real estate graveyard dominated by offices and banking,” Edwards says. “It’ll be a nice addition.”

While the first 3 months of 2010 have brought some good commercial real estate news, Edwards and Johnson predict retail activity in Columbia will be flat for the rest of the year. Banks have continued to stay out of the lending game, meaning buyers can’t purchase retail land that is currently sitting on the market. While the Columbia retail market will eventually return to respectable levels, it might take a while.

“It’s not going to happen like we want to see it,” Edwards says. “We want to see it happen today, but it’s going to take a long time.”

Charleston, S.C.

Blair Belk of Grubb & Ellis | WRS in Charleston saw the disintegration of the area retail market during the fourth quarter of last year. Deals were taking longer to complete, and the amount of calls that had been coming into his office slowed considerably.

“Fourth quarter 2009 — it was kind of like the wheels fell off. There were so many options out there, people were paralyzed by analysis,” Belk says. “So far, 2010’s been great.”

Most of the interest last year centered around Class B and C properties — buildings where tenants could get a good deal on reduced rent. Transaction velocity has picked up considerably this year. Belk has seen his firm handle about as many deals with national retailers in 2010 as it did during all of 2009, and he’s hopeful this activity will help bring down the area’s vacancy rate, which stood at 8.4 percent at the end of last quarter. 

Harris Teeter is a tenant that is moving forward without waiting for the industry to fully recover. The chain is anchoring Six-Mile Marketplace on Six Mile Road in Mt. Pleasant, which is due to deliver in May. Another Harris Teeter is being developed near the area’s Dunes West gated community. This little bit of development bodes well for the coming year, but it may prove to be the exception instead of the rule. Regardless, Belk predicts 2010 will help boost the Columbia retail market from its current position.

“Activity Is going to pick up. I don’t think development will really pick up this year, but leasing activity is going to pick up,” Belk says. “People are just moving on. They see the light at the end of the tunnel and are actually doing something now. I think they’re ready to go out and start selling again.”

Greenville, S.C.

Sporadic growth is the key phrase to use when describing Greenville’s retail market, says John Jamison of RealtyLink. Both national and regional retailers are experimenting with growth at an uncertain time — some of them are having success, and some of them are finding that market conditions haven’t yet reached the point at which expansion becomes a feasible strategy.

“The retailers that just slowed down are beginning to pick up a bit,” Jamison says. “You’ve still got some retailers and restaurants that just aren’t growing at all. We’re starting to see [other retailers] come back into the market.” Jamison points out that, in general, national tenants are the ones that left Greenville once the market got tough and are now trying to decide whether to re-enter the game. Local tenants that have been in Greenville for a while, he says, are more attune to the city’s economic history and have tended to ride out the bad times in hope for a better future.

On the sales side, the number of deals RealtyLink fields has been slowly increasing. Most of Jamison’s business concerns shopping centers and free-standing locations; he says investment interest in these properties in the past 3 months has been increasing. Jamison ascribes this interest to the lack of new development combined with the stabilization of cap rates. Additionally, while long-term financing is still hard to find, lenders offering short-term loans are starting to loosen the vice grip on their financing.

“There are some lenders coming back in the market now — not aggressively — that weren’t there at all 6 to 12 months ago,” Jamison says. This will continue throughout the year, he adds. “You’ll see a slow but steady number of lenders on the permanent lending market come back but not an overwhelming change — probably enough to stimulate more investment sales. You’ll see very little change from the way the market currently is on construction financing. “

A bit of good news is coming in the form of Colorado-based electric bus manufacturer Proterra, which is expected to start building a facility at the Clemson University International Center for Automotive Research this spring. According to the state government, Proterra’s facility will span 240,000 square feet and create more than 1,300 jobs during the next 7 years.

This $68 million investment will help spur retail growth by creating jobs and contributing to the overall economic wellbeing of the area. At a time when retail development has stopped, this news signals that change is coming to the Greenville retail market.

“It’s extremely complicated; the marketing is very aggressive,” Motley says of the current sophistication of the auction process. “It’s not standing in the back of a pickup truck selling a piece of real estate anymore.”

©2010 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.