CHARLESTON AREA HUMS WITH CONSTUCTION AS COMMERCIAL VACANCY RATES GO BELOW 10%
Construction crews work to finish the new Boeing Research and Technology Center in the Crosspoint Industrial Park off Palmetto Commerce Parkway, North Charleston. Brad Nettles/Staff/Post&Courier
Originally published in The Post and Courier
BY WARREN L. WISE
Posted: September 28, 2014
Five years ago, shuttered storefronts, vacant warehouses and a glut of office space piled up around the Lowcountry as the last downturn wore on.
Today, prime retail spots are fetching top dollar, office space is maxing out, and new large-scale commercial buildings are under construction or in the planning stages.
After enduring a long slog, the Charleston area’s commercial real estate industry is once again humming with activity. Earth is being turned, buildings are rising and empty spaces are being backfilled.
On the Charleston peninsula, Upper King Street is red hot, with prime commercial space bringing $40 to $45 per square foot a year, said Will Sherrod, a retail specialist with the local office of commercial real estate firm Lee & Associates.
ike White with Charleston Industrial real estate firm talks about construction of commercial buildings at Crosspoint Industrial Park off Palmetto Commerce Parkway. Brad Nettles/Staff/Post&Courier
“On Upper King Street, we are now trending above pre-recession levels,” Sherrod said.In Mount Pleasant, Johnnie Dodds Boulevard is a hot commodity. In West Ashley, Savannah Highway, especially near Avondale and St. Andrews Shopping Center, is the ticket. Numerous hotel projects are in the works throughout the region. In Summerville, retail space on North Main Street is attracting industry attention, at an eye-opening $30 per square foot.
“That’s unheard of,” Sherrod said.
Broadly speaking, the entire commercial real estate market “has definitely picked up in the past year,” he said.
“We are running lower on available space than we have in the past six years,” Sherrod said. “There is interest from retailers, developers and investors.”
Fueling the activity is the local job market and a renewed sense of confidence in the region’s economy. Part of the bullishness stems from the presence of Boeing Co., where employment has swelled to about 8,000 workers over the past five years and is expected to continue to grow.
People traveling on Crosspoint Drive can see plans for future development in the 335-acre Crosspoint industrial park off Palmetto Commerce Parkway. Brad Nettles/Staff/Post&Courier
Also, Charleston is attracting more than its share of new residents who are flocking to the region for myriad other reasons.
John Orr of Colliers International’s Charleston office said some come looking for jobs. Many of those newcomers will buy homes, cars, consumer goods, medical services and restaurant meals, all of which drives up demand for commercial real estate.
Prices for income-producing real estate have risen as a result.
“The pendulum has swung from a tenants’ market to a sellers’ market,” Orr said. “There are more purchasers than are properties available.”
The retail bustle
The tightest market is for retail space. Lee & Associates estimated that the local vacancy rate at local shopping centers and other storefronts was 6.4 percent as of August. Ten percent is considered healthy.
“We have gotten to the tipping point,” Orr said. “The demand cycle is such that it demands new construction … throughout the Lowcountry.”
It’s already happening in some areas. Among the projects, a new 65,000-square-foot shopping center in Summerville will be anchored by an Earth Fare supermarket. Academy Sports is building a new shop in northern Mount Pleasant. Gander Mountain is renovating space in North Charleston. Nordstrom Rack is going into the former Kmart center in Mount Pleasant. The closed Food Lion on St. Andrews Boulevard in West Ashley is expected to see new life by the end of the year.
But not every area is sharing in the retail revival.
Plenty of space is available along Sam Rittenberg Boulevard in West Ashley and areas off high-traffic thoroughfares. Citadel Mall still has space to fill. Even high-demand Mount Pleasant has a couple of shuttered restaurants.
In the office
The amount of available office space also is getting low as it dips below 10 percent.
CBRE’s Charlie Carmody, a specialist in office real estate, said the region is approaching a healthy vacancy level and rental rates are starting to bounce back up.
“It is time to build some new buildings,” he said. “It’s Charleston. Everybody wants to be here.”
The Charleston peninsula is below 3 percent vacancy in office space, namely because of land constraints and city restrictions.
North Charleston has the most available space because it has the biggest supply and has been a little slower to recover, Carmody said. “If you have a bigger boat, it takes longer to turn it,” he said.
There is demand in Mount Pleasant with a 40,000-square-foot office planned over parking on Coleman Boulevard and another 60,000-square-foot structure set for the base of the Ravenel Bridge. Long-range plans call for a couple of buildings at Patriots Point, and an 80,000-square-foot building could be built on Daniel Island. Another office complex is planned for upper Meeting Street on the peninsula. And there’s talk of an 80,000-square-foot building going up in Faber Place in North Charleston.
Office space has tightened up because recession-hardened lenders want developers to have tenants lined up before they finance new construction, said Jeremy Willits with the commercial real estate firm Avison Young.
“The market is having to adjust to circumstances coming out of the recession,” he said.
But the longer office construction lags, the tighter the market gets, said Reid Davis with Lee & Associates. That’s caused rents to tick up a bit, but the vacancy rate hasn’t dropped to the point that rates have soared, Davis said.
Industrial heat
Mike White with Charleston Industrial real estate firm, talks about construction of commercial buildings at Crosspoint Industrial Park off Palmetto Commerce Parkway. Boeing’s new Research and Technology Center will be housed in the building in the background. Brad Nettles/Staff/Post&Courier
Demand also is strong for industrial and warehouse space. That largely port-driven real estate sector is “as strong as it’s ever been,” said Mike White of Daniel Island-based leasing and brokerage firm Charleston Industrial.
“It’s one of the hottest areas on the East Coast,” he said.
Mike White with Charleston Industrial real estate firm, talks about construction of commercial buildings at Crosspoint Industrial Park off Palmetto Commerce Parkway. Boeing’s new Research and Technology Center will be housed in the building in the background. Brad Nettles/Staff/Post&Courier
The latest example was Boeing’s announcement last week that it is leasing 104,000 square feet for a research and technology center in Palmetto Commerce Park’s Crosspoint development, which White’s firm represents.
He said there’s more supply and demand in the pipeline.
A 273,000-square-foot speculative building at Crosspoint is under construction next to the future Boeing research site. An automotive firm and a new aerospace supplier are negotiating to take over more than a third of the “spec” space, White said.
Other industrial buildings are rising, too.
Georgia-based developer Patillo is looking to build a 142,000-square-foot building behind Daimler Vans in Palmetto Commerce Park, and MeadWestvaco wants to build two “spec” buildings in Northpoint off North Rhett Avenue in Hanahan – one 350,000 square feet and another 285,000 square feet, according to Bob Barrineau with CBRE.
White added that Boeing’s calling card has attracted money from both national and international commercial real estate investors to the Lowcountry.
“Risk capital is being drawn to Charleston because of the positive nature of Boeing’s expansion,” White said. “Investors have a high degree of confidence that Boeing will need more space. We’ve absorbed all the spec buildings, and now we have to supply more.”
It’s a good problem to have, he said.
“This is the most exciting time in my 22 years in the business,” White said.
Reach Warren L. Wise at 937-5524 or twitter.com/warrenlancewise.
Originally published in The Post and Courier