Charleston has two major factors that drive its economy: tourism and the Port of Charleston. With the events of last September, the city's tourism dropped momentarily but is now running strong. With its wonderful climate, visitors flock to Charleston to enjoy area beaches and golf and tennis resorts. An announcement was made that the World Cup of Golf will return to Kiawah Island, and the Family Circle Cup of Tennis on Daniel Island hosted its second tournament this year to sold-out crowds.

The Port, the fourth largest container port in the country, has continued to be a driving force in Charleston's economy. It was recently announced after much negotiation that the former Navy base in North Charleston has been divided for use by the city of North Charleston for residential and commercial development and the Port Authority for the expansion of another terminal.

An estimated 4.1 million visitors came to the area in 2001, resulting in a total estimated economic impact of $4.5 billion. Housing starts are up, population is growing and, in the minds of Americans, Charleston remains one of the top 10 places to live and work.

- Joyce Beach, broker associate

Retail

Despite the national economic recession, retail sales in the Charleston region managed a rise in 2001. The reasons for the increase were the continued growth in the area's population, a strong visitor industry and an expanding labor force.

The Charleston metro retail area is comprised of approximately 13 million gross leaseable square feet. Vacancy has increased slightly from January 2001 at 11.8 percent to the current rate of 12.2 percent.

Although the 18th and 19th century architecture of the historic district does not fit the normal suburban shopping center criteria, Peninsula Charleston still has an important hold on the tourist shopping dollars. With over 300,000 square feet of retail space, tenants continue to wait in line for the prime locations on King, Market and Meeting streets.

The retail market is comprised of six submarkets surrounding Peninsula Charleston: West Ashley, North Charleston, East Cooper, West Islands, Summerville and Berkeley County. The North Charleston area contains the region's highest concentration of retail space with more than 4.2 million square feet, representing one-third of the total market. Following in second place is the West Ashley area with over 3 million square feet. Within these two areas are the two regional malls, Northwoods and Citadel, which are owned by JBL.

Other than downtown Charleston, the East Cooper area, which includes the Town of Mt. Pleasant, boasts the area's lowest vacancy rate -- 2.2 percent. In the area, Konover Property Trust recently sold The Towne Center, a 500,000-square-foot neo-traditional shopping center that includes most of the national and regional stores and restaurants that one would find in an indoor mall. A Walgreens and Talbots are under construction in the area and there seems to be no end to tenants' and shoppers' interest in the area.

Some of the new entries into the area this year are Target and A. C. Moore's. Target opened its first location in the area in a former JC Penney store at the Citadel Mall this spring. The retailer will open three additional stores in the area within the next 2 years. Stein Mart has opened its second area store in Mt. Pleasant at AAC Real Estate Services' new Belle Hall Center, and Circuit City is under construction in one of the former Phar Mor locations in Kimco's North Rivers MarketPlace center.

- Joyce Beach, retail specialist broker

Office

The office market in Charleston consists of approximately 6.36 million square feet. The average rental rate is currently $18.44 per square foot and the vacancy rate is 12.6 percent. The market is divided into five submarkets: Downtown, West Ashley, East Cooper, North Charleston and Daniel Island.

The Downtown submarket consists of approximately 1.6 million square feet and has an average rental rate of $21.20 per square foot and a 10.2 percent vacancy rate. Rental rates range from $15 to $28 per square foot, fully serviced. Victoria Center, a new 68,000-square-foot office building, is scheduled for completion in spring 2003. This will create a few pockets of larger spaces. Two other new buildings, 100 Calhoun and Gateway Center II, are also planned and will proceed once tenants are secured.

The West Ashley submarket consists of approximately 900,000 square feet. The average rental rate is $16.38 per square foot with a 15.2 percent vacancy rate. Rental rates range from $12 to $24 per square foot, fully serviced. South Park Center, located at Interstate 526 and Highway 7 in front of the Citadel Mall, contains 138,000 square feet in three buildings and currently has up to 30,000 square feet.

The East Cooper submarket consists of approximately 1 million square feet. The average rental rate is currently $18.47 per square foot and the vacancy rate is 10.9 percent. Rental rates range from $12 to $25 per square foot per year, fully serviced. The vacancy rate has dropped slightly from 13 percent at the beginning of the year. Interest in purchasing continues to be strong.

The Daniel Island submarket continues to grow. It currently consists of nearly 500,000 square feet with an average rental rate of $21.17 per square foot and a 15.9 percent vacancy rate. Blackbaud is currently trying to sublease up to 50,000 square feet in its 230,000 square foot building. Downtown Daniel Island is a mixed-use retail/office development with over 160,000 square feet. It will be built in stages and will have up to 80,000 square feet of office available.

North Charleston has the greatest amount of office space, approximately 2.3 million square feet. The concentration of the Class A space is located at The Executive Park at Faber Place, the area's only Class A office park. The first half of 2002 has shown a slight decrease in this submarket's vacancy, from 16.1 percent to 15.5 percent. Rental rates range from $8 to $21 per square foot on a full service basis, the average rental rate for Class A being $19. As the cost and availability of parking becomes an increasing problem in the downtown submarket, more companies are looking at North Charleston.

Overall, the Charleston office market is showing signs of improvement from the lull experienced in the third and fourth quarters of 2001. The vacancy rate has gone down and the average rental rate has gone up. Look for a continued strengthening in the second half of 2002.

- Martine deLoach

Industrial

It would have been hard for the Charleston industrial market to maintain the growth that it experienced in 2000 and 2001. This year has seen a slowdown in speculative development as well as an increase in vacancy.

True, Charleston has experienced a slow first half, but there have been some significant new announcements and expansions:

• American LaFrance announced that it would be taking over a building that had been closed by one of its sister companies, Western Star. The new plant will manufacture fire truck and ambulance bodies. It is expected to reach full employment of 800 employees by 2004. The company moved into the 2-year-old, 400,000-square-foot facility in the Palmetto Commerce Park and already plans to expand the facility by 100,000 square feet.

• Jerich USA expanded and moved from the port terminal to a 175,000-square-foot facility owned by Maybank Properties in Hannahan. The building had only been vacant for a few months.

• Jones Apparel Group leased another 300,000-square-foot spec building in Northpoint Industrial Park. Jones Apparel has a sister company in the same park. Construction had barely been completed at the time the lease was signed.

• Pearson Properties has expanded a 300,000-square-foot building leased to Sam's Club last year to a total of 500,000 square feet.

• Johnson Development is building a 115,000-square-foot build-to-suit for a Biotech firm in Mt. Holly Industrial Park and a 60,000-square-foot build-to-suit for Vital Records next to its spec building in North Rhett Center.

Rental rates on new space range from $3 to $3.85 per square foot. Vacancy rates have increased to approximately 11 percent over last year's rate of approximately 7 percent.

Rental rates have remained stable, and in all probability, vacancies should hold steady due to the lack of new speculative development. The only new spec development on the horizon is a 196,000-square-foot building in Palmetto Commerce, which Pattillo Construction is developing.

Since June there seems to have been an increase in activity and several new accounts landed by existing third-party logistics companies. Charleston's biggest advantages are its port, labor base and quality of life. As long as the Port of Charleston continues to thrive, Charleston will continue to grow as a logistics center. The State Ports Authority has taken another step forward in securing their future by coming to an agreement on an approximately 400-acre portion of the Old Naval Base in Charleston, thus assuring that Charleston will be able to handle any future demand loads.

Charleston is the largest container port along the Southeast and Gulf coasts and ranks fourth nationwide. On the entire East and Gulf coasts, only the Port Authority of New York & New Jersey handles more containers than Charleston.

The two major factors in the Port's success are efficiency and location. Charleston is consistently ranked as one of the United States' most efficient ports and has implemented new procedures to cut gate time by more than half. Strategically located along the Eastern Seaboard, Charleston's location is equidistant between New York and Miami.

- Bob Barrineau

Investment

The Charleston market remains on the radar screen for many investors, including individual private investors and investment groups. The largest investment sale in recent history was the purchase of Liberty Property Trust's Charleston portfolio to Jupiter Realty Corporation in late December 2001. Jupiter purchased the entire Liberty portfolio consisting of seven office buildings and 20 acres of developable land in 200 Meeting Street with an attached parking facility, Faber Place Executive Center and a warehouse facility.

Jupiter has since sold two office/showroom/warehouse buildings totaling 81,000 square feet for $9 million and one single-tenant, 10,800-square-foot building for $1.6 million at Faber Place. There are two additional 65,000-square-foot buildings listed for sale with CB Richard Ellis Carmody -- each at $9.5 million. Jupiter's plan has been to clean up, lease up and market the properties individually. The typical capitalization rate of the sales is between 9 and 10 percent based on existing net income.

Downtown Charleston continues to hold high demand for investors. The appreciation rate for quality properties on the peninsula remains the strongest in the market while the capitalization rate downtown is the lowest. King Street's retail/apartment buildings continue to trade with the demand for apartments close to the College of Charleston remaining strong. Numerous transactions have been generated by 1031 investors that continue to search for reasonable income producing properties in the market.

While office leasing has slowed in all segments of the market over the past year, office space users have been purchasing space for their companies. Several office buildings have either been converted to or developed as condominiums to provide purchase space to users. Prices for space range from $177 to more than $300 per square foot, typically including an improvement allowance of $25 to $30 per square foot. Several buildings have been developed as or converted to office condos, including 18 Broad Street, 192 East Bay Street, Wingo Way Office Park, 268 Coleman Boulevard and Long Point Office Park. With the demand for quality investment real estate heating up, these projects have either been selling to users or leased to users and sold to investors.

The investment sales market in Charleston is healthy and continues to show signs of improvement. Investors appear to be looking for more solid, quality investment options, and commercial real estate in Charleston certainly has an exceptional reputation of being high quality.

- Charles Carmody, CCIM, SIOR


©2002 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.