1Q17: Charleston MSA Retail Market Report

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1 1Q17: Retail Market Report The Charleston Retail Market is Changing Along with the Times VACANCY 3.4% Vacant space has seen a slight increase over the past four quarters NET ABSORPTION -64,470 SF +175,827 SF in 4Q16 AVERAGE RETAIL RATE $20.46 PSF Averages the following categories: Community Center, Shopping Center, General Retail, Power Center, Specialty Center CONSTRUCTION 277,784 SF of retail space under construction at the end of the first quarter GENERAL RETAIL RATE $25.01 PSF Rental rate increased from Q4 By: Andrew Braden, Broker Fueled by job growth, consumer spending and tourism, Charleston continues to be on fire in 2017, earning one accolade after the other. Following the significant recognition by Travel + Leisure Magazine as World s Best City in 2016, Charleston ranked number one on Southern Living Magazine s list of the South s Best Cities The continuous national and international recognition of this city incentivizes retailers to invest in the market. The saying when one door closes, another door opens can be taken literally along downtown Charleston s iconic King Street, as at least nine retailers prepared to close their doors and nine opened during 1Q17. Downtown rental rates continue to test new heights, making a jump from $40.54 per square foot (PSF) in 4Q16, to $43.86 PSF, and even reaching as high as $89.00 PSF on lower King Street. Though the peninsula is seeing the most dramatic increase, rental rates across the are on the rise as well, increasing from $18.57 PSF at the end of 2016 to $20.46 at the end of the first quarter of As the rental rates increase, so does the amount of overall vacant space in the market. Sky-high rates and a struggling brick-andmortar industry are causing tenants to leave their spaces, nudging the vacancy rate up to 3.4% at quarter s-end. While some property owners are closing on-site businesses and selling their real estate to hungry buyers, others are choosing to sublease their spaces. Vacant sublet space has trended down, lessening from 36,900 square feet (SF) at the end of 2016 to 12,497 SF, currently. Although Charleston has seen a slight increase in vacancy rates, the current vacancy of 3.4% is exceptionally low by industry standards. Developers are continuing to feel confident in the Continued on Page 2

2 3.2% 0.1% 3.1% 1Q16 $18.25 $20.46 Vacancy Rates 3.4% 3.1% 3.1% 3.0% 0.1% 3.0% 0.1% 3.1% 3.0% 3.4% 0.0% 0.0% 2Q16 3Q16 4Q16 1Q17 Direct Sublet Overall Rental Rates $16.39 $17.99 $25.00 $21.71 $35.00 $35.00 $21.67 $25.01 Charleston market, filling the pipeline with new retail developments. Since the year began, 13 buildings totaling 101,964 SF were delivered to the market, and 277,784 SF of retail space is currently underway. By year-end, over 100,000 SF of space is scheduled for delivery. The decline of brick and mortar retail stores has begun pushing developers and tenants to create spaces that offer more than the traditional shopping/dining experience. This trend is reflected in developments including Courier Square, Pacific Box & Crate and WestEdge, as well as in new retail stores like The Skinny Dip on King Street, which takes boutique shopping to the next level, boasting a second-story coffee and wine bar inside. As creative retail experiences in the area ramp up and e-commerce continues to take over the industry, the national trend of certain big box retailers shuttering their doors is present in Charleston. The dark trend is seen with the departure of Kmart from its space at 8571 Rivers Avenue, and the approaching departures of J.C. Penney from the Citadel Mall and Sears from the Northwoods Mall. However, big box retailers including Costco, Home Depot and Tractor Supply Co. will refresh the market this year, with new locations already in the works. Overall Market Shopping Center Power Center 119, ,499 1Q16 1Q17 Rental Rates 39,238 67,047 2Q16 116,252 3Q16 82,480 General Retail Net Absorption 2017 Retail Market Trends Retailers incorporating entertainment elements for enhanced shopping experiences Specialty grocery stores taking off Shuttering of certain department stores & large discounters Mall 1Q16 Rental Rate 104,612 4Q16 175, ,964 1Q17 Net Absorption Deliveries Under Construction (64,470) Aside from big boxes, grocers are also seen coming and going. The most notable grocery store to leave the area during 1Q17 was Bi-Lo, from its 46,000 SF space at Mount Pleasant Square. This follows suit of its previous downtown store closing. Down the street, discount grocer Aldi opened during 1Q17 at 613 Johnnie Dodds Blvd, replacing a former bowling alley. This new store is amongst the 520 stores Aldi plans to open throughout 2019 for its global expansion. Additionally, a new 49,500 SF Lowes Foods is currently underway at the Oakbrook Square Shopping Center in Summerville. This will be the grocer s first store in the. Other grocers on the way to the area include: Publix at WestEdge Harris Teeter at Carnes Crossroads and Nexton BJ s Wholesale Club in Summerville Piggly Wiggly in North Charleston Lidl in Goose Creek Whole Foods in West Ashley Fresh Market in Mt. Pleasant There was a time when a limited number of grocers dominated the region, but it is evident in the variety coming to the area that those days are over. Specialty grocers have taken the reigns.

3 King Street Corridor Update OPENED IN 2017: Oobe Jordan Lash Vans Vom Fass Rodney Scott s BBQ Pancito & Lefty The Pizza King Spartina 449 The Skinny Dip CLOSED/CLOSING SOON: La Hacienda American Apparel Boones Bar Magnifilous Emporium Bull Street Gourmet Phillips Shoes Belgian Gelato Dixie Furniture George s Loan Co. What s in the Pipeline? Pacific Box & Crate Retail Space: Over 90,000 SF Development Size: ±113,000 SF Location: 1505 King St. Expected Delivery: TBD Courier Square - Phase 1 Retail Space: ±19,000 SF Development Size: ±450,000 SF Location: Meeting St./Columbus St. Expected Delivery: Q WestEdge Retail Space: ±80,800 SF Development Size: ±50 Acres Location: Lockwood Dr. Expected Delivery: October 2018 Market Forecast Many building bricks supporting the retail market are on an incline, such as housing value and consumer spending. With the 55 people moving to Charleston a day, on average, the retail market is bound to reap the benefits. New residential developments on the outskirts of Charleston, like Nexton and Carnes Crossroads are creating retail sectors within the communities, bringing new opportunity to the area. Residential developments downtown, including Courier Square and WestEdge are also incorporating retail spaces. The expanding retail market is also evident along the upper peninsula, with national retailers such as Starbucks and The Athlete s Foot already in place. The face of Charleston retail, which was once comprised of mom-and-pop-shops, is evolving into regional and national retailers who are capitalizing on the market. As outside investors continue to take advantage of the opportunity the region has to offer, sinking capitol into the market, the local economy will prosper. And, based off of the commercial real estate market s recent track record, it doesn t appear to be slowing down any time soon.

4 Significant Lease and Sale Transactions Northwoods Pointe LEASED: 23,780 SF Address: 7671 Northwoods Blvd. Tenant: Carpet To Go Landlord: J & A Associates Laing Middle School SOLD: $12,000,000 Property Size: 9.9 AC Address: US Hwy 17 & Six Mile Rd. Buyer: Home Depot Seller: Charleston County School District West Island Center SOLD: $3,500,000 Building Size: 38,738 SF Address: 2049 Savannah Hwy. Buyer: Ganesh Garden LLC Seller: Seacoast Christian Church, Inc. Citadel Mall SOLD: $17,000,000 Building Size: 290,620 SF Address: 2070 Sam Rittenberg Blvd. Buyer: Trademark Properties Seller: CW, Capital Investments LLC The Quadrangle SOLD: $8,801,000 Building Size: 88,349 SF Address: 630 Skylark Dr. Buyer: Fincher, Patrick, Weir, LLC Seller: The Beach Company Walmart Neighborhood Market SOLD: $12,136,100 Building Size: 49,921 SF Address: 1610 Central Ave. Buyer: Montebello Jta Group, LLC Seller: Summerville Retail Investment, LLC

5 Submarket Statistics DORCHESTER COUNTY RBA: 5,408,256 SF Net Absorption: 17,813 SF Vacancy: 5.3% Rental Rate: $16.89/SF OUTLYING BERKELEY COUNTY RBA: 7,313,906 SF Net Absorption: -17,147 SF Vacancy: 2.2% Rental Rate: $15.21/SF EAST CHARLESTON COUNTY RBA: 77,450 SF GREATER CHARLESTON RBA: 8,091,621 SF Net Absorption: 23,391 SF Vacancy: 3.3% Rental Rate: $17.59/SF WEST CHARLESTON COUNTY RBA: 438,745 SF Net Absorption: -7,205 SF Vacancy: 7.5% Rental Rate: $8.73/SF NORTH CHARLESTON RBA: 10,222,024 SF Net Absorption: -23,014 SF Vacancy: 3.7% Rental Rate: $16.92/SF EAST ISLANDS/ MT PLEASANT RBA: 6,064,167 SF Net Absorption: -23,420 SF Vacancy: 3.8% Rental Rate: $23.67/SF WEST ISLANDS RBA: 580,969 SF Net Absorption: -6,281 SF Vacancy: 4.6% Rental Rate: $26.94/SF DOWNTOWN CHARLESTON RBA: 3,856,559 SF Net Absorption: -26,205 SF Vacancy: 2.3% Rental Rate: $43.86/SF JAMES ISLAND/FOLLY BEACH RBA: 1,830,103 SF Net Absorption: -2,402 SF Vacancy: 0.9% Rental Rate: $18.87/SF Featured Listing FOR LEASE *New Construction Courier Square Downtown Charleston Up to 19,000 SF of Class A Retail Space Lease Rate: $40.00 PSF, NNN Includes a $40.00 PSF TI Allowance

6 About Us NAI Charleston is a full-service commercial real estate firm, with industry experts serving the Lowcountry for more than 25 years. The NAI Charleston brokerage team consists of market leaders in the industrial, retail, office and land sectors who are consistently ranked among the region s top producers, and have been recognized by the Charleston Trident Association of Realtors (CTAR) for their outstanding achievements. NAI Charleston is committed to delivering excellence throughout the region. NAI Charleston is a member of the leading owner-operated commercial real estate network, NAI Global. NAI Global has more than 400 offices strategically located throughout North America, Latin America, Europe, Africa and Asia Pacific, with over 7,000 local market professionals. For more information, contact one of our commercial real estate experts: E. David Grubbs, Jr. Broker Partner dgrubbs@naicharleston.com Thomas M. Boulware, CCIM Broker-in-Charge Partner tboulware@naicharleston.com David J. Ingle Broker Partner dingle@naicharleston.com Dexter C. Rumsey, IV Broker Partner drumsey@naiacharleston.com Scott P. Peevy, CCIM Broker speevy@naicharleston.com R. Elliot Calhoun Broker ecalhoun@naicharleston.com Ruth Marie Embler Broker Retail Specialist rmembler@naicharleston.com Andrew Braden Broker abraden@charleston.com Sheppard Benjamin, MRED Broker Industrial Specialist sbenjamin@naicharleston.com