CITY HIGHLIGHT, SEPTEMBER 2007

COLUMBIA CITY HIGHLIGHTS
Ted Pitts, Ron Anderson, Alan Brady and David Lockwood III

Columbia Industrial Market

The Columbia industrial market continues to have a very good outlook. The overall vacancy rate currently is around 6 percent. for the roughly 27 million square feet Grubb & Ellis | Wilson Kibler tracks. The overall industrial conditions are especially good for owners of existing buildings coming back on the market and a little tougher for developers and users with the continued increases in construction and land costs.

In Columbia there is a shortage of buildings with at least a 28-foot and higher ceiling height required by many of today’s users. Most large industrial projects in the Midlands are, and have always been, single-tenant build-to-suit or user projects, like recent projects for Target Distribution, Stock Building Supply Truss Plant, xpedx, Coastal Moving and Storage, SCANA, and Pella Windows.

The only speculative project more than 40,000 square feet in the last 5 years is the 408,757-square-foot Carolina Pines warehouse park. Carolina Pines has been developed in three phases by developer Miller Valentine and leased by Chuck Salley of Colliers Keenan. The property is 100 percent leased with the last 40,000 square feet being leased for $4.75 NNN with no tenant improvements. Carolina Pines IV another 180,000-square-foot building should be available in the summer of 2008.

Rates for space in the 20,000-square-foot to 100,000-square-foot size range are $3.75 to $4.75 NNN. Industrial buildings in that size are selling for $30 to $55 per square foot. The 42,000-square-foot Spectra True Colour Printing building at Rivermont closed in June for $27 per square foot and the 28,000-square-foot former Blanchard Parts Facility closed in May for $48.84 per square foot.

The market for smaller industrial space, ranging between 5,000 and 15,000 square feet, also is doing well. Smaller single-tenant and multi-tenant properties continue to experience little vacancy. Cohn Development has built twelve multi-tenant projects, leasing blocks of 5,000 to 15,000 square feet to tenants, across the greater Columbia area during the past 5 years. The projects total 258,175 square feet and they are 93 percent leased with rents ranging from $5.25 to $6.00 per-square-foot NNN. The leasing has been handled by Alan Moyd of Grubb & Ellis | Wilson Kibler and the buildings have been fully leased within 8 months of completion. William Durham with the William Durham Company has marketed five speculative single-tenant 10,000 to 20,000-square-foot warehouses in the Interstate77 South Industrial Park and leased those properties within 3 months of completion. The smaller blocks of office/warehouse space are getting $5 to $6 per-square-foot NNN, while buildings in this size range are selling for $40 to $60 per square foot. One of Cohn Development’s buildings, located at 1291 First Street South, sold in 2006 for $55.28 per square foot.

It is getting harder to find industrial sites with convenient interstate access ready for development that have the required utilities and zoning. The two hot industrial areas in Columbia are South Columbia at the I-77 Shop Road/Bluff Road interchanges and Northeast Richland County along I-77 near Blythewood. Industrial land costs in these two areas have gone up 10 percent a year for the past 3 years and are in the $50,000 and $75,000 per acre range. A 10.5-acre site at I-77 and Hardscrabble Road closed last month for $65,000 an acre without sewer.

The redevelopment of downtown and relocation of the State Farmers Market combined with the condo and student apartment development around the old Farmers Market and Williams Brice Stadium have created a shift of users to the other side of I-77 and across the Congaree River into Lexington County. Lexington County has just finished the planning on land for its new industrial park at 12th Street Extension at the I-77 / I-26 connector. The park’s first facility will be a SCANA building on the southern end of the park. The last industrial park to hit the market in the South Columbia area was the I-77 South Industrial Park in 2003 off Atlas Road, the park only has one available parcel which is a resell.

The Northeast Richland County corridor, along I-77 near Blythewood, is the manufacturing/warehousing hub, with Bose, Trane, Lamson Sessions, Lang Mekra, Coca-Cola, Patterson Dental, and Koyo Barring having large operations in this area. There is speculation about a site in the northeast area owned by the City of Columbia potentially being used as a server farm for a large internet company. The Northeast area continues to be of interest to manufacturers with the developments at the Midlands Tech Northeast campus, which has state of the art training programs developed specific to a company’s employees’ needs.

The future for the Columbia industrial market should show much of the same activity — low vacancy with a steady pace of smaller speculative developments and most larger projects being driven by users and executed leases. The question is not if lease rates, land prices and building prices will continue to rise but by how much.

— Ted Pitts, CCIM, is a broker with Columbia, South Carolina-based Grubb & Ellis | Wilson Kibler.

Columbia Retail Market

Columbia has approximately 16.6 million square feet of retail space in three counties: Richland, Lexington, and Kershaw. The largest and most-active submarkets are the Irmo/Harbison market that is anchored by Columbiana Centre Mall, owned by General Growth Properties, and the Northeast Richland market, anchored by Kahn Development’s Village at Sandhill.

The most-active trend is the new development being driven by discount stores — Wal-Mart and Target. Fletcher Bright just opened two Wal-Mart Supercenters in Batesburg-Leesville and in the St. Andrews submarket along Bush River Road and there are three Wal-Mart Supercenter-anchored centers under construction by other developers. WRS is developing the Shoppes at White Knoll in the Redbank market. Fletcher Bright is developing a center in the Northeast Richland market along Killian Road and another store on Broad River Road in the Chapin-Ballentine market. All three will serve under-served market segments in their respective submarkets.

Target recently opened its first location in the town of Lexington — also the fourth store in the overall market. Edens & Avant just opened the 230,000-square-foot Lexington Pavilion, which is anchored by Target, Best Buy and Petsmart, in the Lexington submarket.

A second notable trend is the redevelopment of second and third-generation retail centers. A large amount of vacant square footage has converted to non-retail uses and the remaining properties have been re-tenanted.

The overall retail market is very strong. Occupancies are high in all of the suburban markets and rents have surpassed the $20 per square-foot barrier for shop space in the premier locations. Going forward, there continues to be concern about the impact of high energy prices and the collapse of the subprime housing market. However, to date, neither development appears to be negatively impacting the overall retail market.

In the last year, a number of lesser-quality properties have traded. Investors seem to be interested in everything with any potential upside. Single-tenant properties and under-utilized retail properties seem to be in the greatest demand.

As part of the acquisition of Inland Retail REIT, Diversified Development purchased the 405,000-square-foot Columbiana Station, anchored by a movie theatre, Dick’s Sporting Goods, Goody’s, Circuit City, and PetSmart, for $50 million ($125/SF). This community center is located in one of the region’s strongest retail markets, Irmo/Harbison. The sale of Columbiana Station is indicative of the consolidation amongst large owners of commercial real estate, globally.

Morris Ventures sold Woodberry Plaza, an 82,000-square-foot center anchored by Big Lots and Family Dollar, in August 2007 to the Mimms Company. This property is located in the Cayce-West Columbia market. This is indicative of the continuing trend to buy properties with significant redevelopment potential. This property is at a prominent location within its market and should benefit from a limited number of competing sites over the long term.

Discount store-anchored centers, and unanchored specialty strips near them, account for nearly all the new construction activity in the market. There are a number of grocery-anchored centers planned in the market, but it is unclear when they will proceed at this time.

In the future, there are five significant retail corridors that should absorb the bulk of the region’s future growth. The Clemson\Killian corridor already has Wal-Mart under construction and national developers control the bulk of the significant adjacent sites in anticipation of future demand. Target just opened along Sunset Boulevard (U.S. 378) in Lexington. Other large sites are now under the control of regional and national developers. Garners Ferry Road has a number of development projects pending. Broad River Road between Interstate 26 and the planned Wal-Mart Supercenter is seeing significant national interest. Finally, activity in the central business district is building, although it is principally food service and hospitality-driven at this point.

— Ron Anderson is vice president of research and technology with Columbia, South Carolina-based NAI Avant.

Columbia Multifamily Market

Columbia has a diversified and stable employment base with major employers ranging from the business of government to the Palmetto Health Alliance to the University of South Carolina. The economic backdrop for the Columbia multifamily market is positive with an increase of 12,000 jobs during the last 12 months and an improving unemployment rate that now stands at 5.2 percent.

Continued job growth will fuel the demand for rental accommodation and there have been a number of major job announcements that may impact market demand. Staples Inc. announced a relocation of its financial support functions from Massachusetts and Illinois to a new 75,000-square-foot facility in Richland County, creating an initial 250 new jobs. Another development that is likely to have a positive impact upon rental demand is the USC Innovista research campus project. Located on 200 acres, this facility will offer 5 million square feet of research labs, office space, mixed-use retail and affordable residential housing. Innovista has secured its first private tenant, Duck Creek Technologies, an insurance software firm, which will employ 200 people at this location. A potential negative impact is the announcement that a subsidiary of Blue Cross and Blue Shield of South Carolina would lay off 700 employees or approximately one third of its Columbia workforce as a result of losing two major contracts.

In terms of specific performance for the apartment market, the vacancy rate for Columbia began to trend downwards from a peak of 9.8 percent in 2004 to 7.7 percent as of October 2006, before increasing once again above 8 percent. The vacancy rate was lowest for the Lexington submarket at 4.3 percent and highest for the North submarket at 26.3 percent (due to the impact of a significant renovation on this smaller sized market). Recent rental rate growth has been moderate with same-store rents increasing by nearly 3 percent in the past year.  

The most active markets for new construction are the Northeast and Lexington submarkets. In the Northeast submarket, Karl Fairchild has 240 units under construction at Greenhill Parrish Crossing, located at Spears Creek and Two Notch Road. In the Lexington submarket, CIP Construction is developing the 300-unit Cedar Crest community, which is located at Cedar Crest Drive.

— Alan Brady is a market analyst with Real Data.

Columbia Office Market

The Meridian Building was added to the Columbia skyline in recent years.

The Columbia office market has been characterized in the past as a market with predictable growth and a steady pace of absorption. Yet, as population growth surges in South Carolina, with more than 70,000 new residents last year, the real estate markets have exceeded expectations and gone beyond the predictable. In recent years, two significant buildings have been added to the Columbia skyline. The 300,000-square-foot Meridian Building and the 180,000-square-foot First Citizens Bank Building have sparked new life into Columbia’s Main Street. Columbia experienced one of its best 6-month periods for office absorption in recent history. The local office market has historically relied on the expansion of existing businesses to account for much of the office absorption. Yet, new companies locating in Columbia has been the driving force in the market and created absorption of more than 120,000 square feet in the first half of 2007. There is no indication this pace will not carry during the second half of this year as well. As occupancy rates increase to more than 90 percent for Class A space and more than 88 percent for Class B space, the market will soon experience an acceleration of rent rate growth that has not be present in recent years.

As the market continues to tighten, causing rental rate increases to accelerate, there are at least two private projects in the planning stages. The two buildings, totaling 200,000 square feet, will offer space for lease or office condos for sale. Much of the focus of local growth is on the central business district and the Vista area because The University of South Carolina is a major driving force in Columbia and as such there is much focus on private sector development in and around the campus. The office project planned for the CBD is the Horizon Center, located in the middle of the USC’s research campus, which is being developed by Craig Davis Properties.

The second building planned is located in the rapidly developing and extremely popular area called the Vista, which is within blocks of USC and the State Capitol, where USC continues to march forward with aggressive steps to develop Innovista. This multiyear development project will bring up to 5 million square feet of university and third party private sector space to the market, along with the development of nearly 100 acres of green space. University space will include student housing, research, classroom and sports venues.

An additional announcement on a new Main Street building is also in the works as the CBD garners much of the focus of growth in the Columbia office market. 

Although there is great momentum in the CBD and Vista areas, the suburban markets are also experiencing limited options for Class A space which will draw the attention of developers beginning to look for the next suburban Class A office product to fill the void. 

Columbia’s growth during the past few years has been exciting to say the least. For the next few years, the market is poised for significant growth opportunities that go far beyond the predictable.

— David C. Lockwood, III, SIOR, CCIM, is senior vice president and principal with Colliers Keenan Inc., in Columbia, South Carolina.


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