CHARLESTON RETAIL 2Q 2012

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1 L I N C O L N H A R R I S R E : S O U R C E C H A R L E S T O N R E T A I L 2 Q With signs that the economy is improving, there is a movement towards more risk-taking by expanding existing businesses or opening new ventures to capitalize on an anticipated upswing. The Downtown area is poised to benefit most from this entrepreneurship and has seen leasing shift to lower-cost second- and third-floor spaces and carriage houses. Overview With a 12-month change in manufacturing employment of 11.0 percent from May 2011 to May 2012 the highest of any metro area in the nation the area is firmly on the mend. Though the unemployment rate has ticked up steadily in the spring months of 2012, mostly due to a growing labor force, the May 2012 rate of 7.9 percent is still below both the state and national levels. Several large tenant move outs caused overall vacancy to ramp up 14 basis points quarter-over-quarter to 8.01 percent in second quarter. The submarket, which surpassed the 10.0 percent vacancy threshold in second quarter, saw the biggest declines in occupancy especially in the beleaguered Dorchester Road and Northwoods Boulevard area, as the region s population shifts and retailers respond to changing demographics and revenues; for example, the 40,320 square foot Sofa Super Store closed at 8551 Rivers Avenue. Additionally, the closure of Food Lion locations that began in the first quarter of the year continued in, which realized the vacancy of a 34,130 square foot location at Belle Station. Though and were the only submarkets with increasing vacancy rates, rental rates across the market were impacted by the pause in leasing momentum and asking face rates sputtered to an average $12.76 per square feet, which is 3.7 percent less than recorded one quarter before. Downtown experienced by far the most tightening in second quarter with the vacancy rate falling 192 points over the quarter to 6.24 percent due to occupancies at Bay Street Shops and Majestic Square, which included a relocated Elysium Salon. With signs that the economy is improving, there is a movement towards more risk-taking by expanding existing businesses or opening new ventures, especially franchises, to capitalize on an anticipated upswing. The Downtown area is poised to benefit most from this entrepreneurship and the types of spaces seeing the most competition and ultimately being leased has shifted to lower-cost second- and third-floor spaces, as well as carriage houses. Typically offering rental rates 50 to 75 percent off of first-floor spots on King Street, these alternative retail options AVERAGE DIRECT ASKING RENT BY RETAIL TYPE $20.00 $16.00 $12.00 $8.00 $ ,000 80,000 60,000 40,000 20, ,000-40,000 N E W S U P D A T E HISTORICAL VACANCY AND NET ABSORPTION 3Q Q Q Q 2012 Net New development vacancy 9.00% 8.50% 8.00% 7.50% 7.00% Even though Henrich Properties has withdrawn its petition for the Gregg Tract, Mount Pleasant s Town Council has removed the requirement that development over 70,000 square feet must reside on at least 50 acres of land. This opens Mount Pleasant up to big-box development in the future. Boosted by activity by Boeing and Boeing s extended supply chain, the region saw the largest jump in manufacturing jobs over the past year than any other metro area in the nation. 1Q Q MONTH FORECAST Market Supply (SF) 18,990,072 18,990,072 Under Construction (SF) 0 42,013 Vacancy 7.87% 8.01% Net Absorption 39,144-27,897 YTD Net Absorption 39,144 11,247 Direct Asking Rent (NNN) $13.25 $12.76 For the first time in several years, we have had competing offers on smaller, welllocated spaces in the market - Trey Lucy, Vice President Bridgeside, a 46 acre mixed-use community planned near Patriots Point and the end of the Ravenel Bridge, was also approved by Mount Pleasant officials. The site could accommodate 573 apartment units, 450 hotel rooms, 330,000 square feet of office space, and retail space. $0.00 Average asking rent by retail type There is also investor appetite for office construction in Downtown, where Holder Properties broke ground in the 52,000 square foot building at 4 Meeting Street. The project, which will house a CertusBank branch, is expected to be complete in spring Q 2012 page 1

2 M A R K E T K N O W L E D G E : C H A R L E S T O N R E T A I L O V E R V I E W are great incubator spaces that are extremely conveniently located for feet at Ashley Crossing. A new DentalSmart location also opened in a 6,000 customers willing to go up a flight of stairs or to look behind a streetfacing recession building. Sneaker, of formerly known as Uptown Sneaker Boutique, is of the fastest growing segments of the market, s square foot stand-alone building at Quadrangle Shopping Center. As one Charlotte s continued focus on economic diversification has served it well as the area slowly recovers from the financiallyled a perfect example of a retailer betting on an unconventional in-fill location, biggest challenge continues to be the dearth of well-located, quality small leasing a 1,650 square foot carriage house at 237 King Street that is right shop space of 2,000 square feet or less. Despite a number of large blocks across the street from the Place Hotel. Moreover, to the north, available, is currently a landlord s market due to this lack of the Cannonborough/Elliotborough neighborhood is also enjoying a pick-up desirable small space locations. The other suburban node of activity was the in leasing activity from tenants seeking a Downtown address with reduced submarket dominated by Mount Pleasant that had an uptick costs. This late-stage transitional area is attracting significant attention in restaurant activity along Coleman Boulevard and Ben Sawyer Boulevard as from restaurants and bars as commercial uses emerge to serve the growing business owners worked to avoid locating off of under construction Highway residential population; some tenants, eager to tap into the demographics of /Johnnie Dodds Boulevard. Santi s Restaurante Mexicano opened its third the neighborhood, are becoming more inclined to pay for space renovations regional location at 1471 Ben Sawyer in the former Momma Brown s Barfor a prime location and are also increasingly willing to accept the area s B-Q space, while J. Paul z is now operating out of 1405 Ben Sawyer. Sesame inherent parking issues in order to do business there. Burgers & Beer was the lone exception as it opened its third and largest With much of the positive activity concentrated in Downtown, the suburbs location at Plaza Shopping Center off of Highway. were particularly quiet during second quarter; of the negative 27,897 square Though the retail market saw a moderate slowdown in activity feet of net during the quarter, a total of negative 35,8 square from first quarter, the two speculative projects containing retail that recently feet of net activity occurred in the six suburban submarkets. However, most broke ground are a positive bet on the future. At Azalea Square Shopping of the suburban areas saw vacancy drop with the exception of Center, a 12,725 square foot shadow building is being speculatively built, and by modest amounts; the area with the steepest while multifamily-driven, mixed-use The Boulevard, which broke ground in vacancy decline was, which saw vacancy drop by 31 basis March 2012, is now underway on Coleman Boulevard with 29,288 square points over the quarter to 7.22 percent even as Shoe Carnival relocated feet of first floor retail space. from 12,740 square feet at Westwood Plaza to approximately 8,000 square SUBMARKET-BY-SUBMARKET NET ABSORPTION SUBMARKET-BY-SUBMARKET ASKING RENTAL RATES -50,000-35,000-20,000-5,000 10,000 25,000 2Q 2012 Net $0.00 $4.00 $8.00 $12.00 $16.00 $20.00 $24.00 Neighborhood direct asking rent direct asking rent S I G N E D L E A S E T R A N S A C T I O N S TENANT SHOPPING CENTER SUBMARKET SF Anthropologie 0 King Street 7,478 DentalSmart Quadrangle Shopping Center 6,000 Lane Bryant Northwoods Marketplace 5,419 Salon 331 Summerall Square 2,700 Tech Savvy 885 Island Park Drive 1,870 2Q 2012 page 2

3 B Y T H E N U M B E R S : C H A R L E S T O N R E T A I L R E T A I L S T A T I S T I C S BY SUBMARKET Inventory (SF) vacant SF vacancy % Quarter net YTD net asking rent PSF Neighborhood asking rent PSF Under construction SF 414,652 25, % 7,929 7,929 $16.58 N/A 29,288 3,435, , % -10,8-12,033 $18.72 $ ,8 76,4 8.19% 2,341 2,341 $13.76 $ ,648, , % -47,004-45,777 $9.03 $ ,671,703 1, % 3,973 16,394 $12.86 $ ,725 4,553, , % 14,145 36,684 $11.57 $ ,333, , % 897 5,709 $15.43 $ MARKET TOTAL 18,990,072 1,521, % -27,897 11,247 $12.76 $ ,013 BY RETAIL TYPE Inventory (SF) vacant SF vacancy % Quarter net YTD net asking rent PSF Under construction SF Community 3,001, , % 35,989 37,216 $ ,288 Free-standing 3,234,428 40,787 1.% -40,320-40,320 N/A 0 Neighborhood 7,330, , % -27,429 5,869 $ Outlet 396, % 0 0 N/A 0 Regional 1,253,280 46, % 4,986 4,986 $ Strip Center 1,519, , % -9,052-4,433 $ ,725 Super-regional 1,971,569 34, % 0 0 $16. 0 Urban Retail 282,015 25, % 7,929 7,929 $ MARKET TOTAL 18,990,072 1,521, % -27,897 11,247 $ ,013 S A L E T R A N S A C T I O N S ADDRESS CITY, STATE, ZIP CODE YEAR BUILT SF SALE PRICE SALE PRICE/SF 106-B Church Street, SC ,064 $215,000 $ Society Street, 1st floor, SC ,794 $578,000 $ A King Street, SC ,825 $800,000 $ King Street, SC ,373 $3,580,000 $ Highway 41 Mount Pleasant, SC ,240 $133,000 $ West Coleman Boulevard Mount Pleasant, SC ,8 $675,000 $116 As gateway markets such as New York City, Washington, D.C., and San Francisco heat up and institutional money pushes cap rates ever lower in those locales, many out-of-market investors are looking to second- and third-tier markets to offer higher returns. Though the market is relatively small and primarily dominated by local users and investors, the sale of adjoining buildings at King Street for $185 per square foot by Washington, D.C.-based Foxhall Partners is a perfect example of a national investor scooping up well-priced, in-fill product. There is also a stark contrast in the value of urban and suburban product, with retail units in typically selling for twice what suburban product is able to fetch, even compared to product in well-positioned Mount Pleasant. 2Q 2012 page 3

4 F O C U S O N : R E C E N T K I N G S T R E E T R E T A I L E R C H A N G E S Ranked amongst the top 10 shopping streets in the nation last year by U.S. News and World Report, King Street offers a unique blend of walkability, a spectrum of dining options, and a mix of local, national, and international retailers. Many of the clothiers and other merchants that dot King Street have their sole U.S. operation on the well-known street. With the slowly improving economy, purse strings for locals and visitors alike have been loosening, leading to some big-name moves on King Street as retailers reevaluate their market strategy and positioning, seize an opportunity for expansion in holes left by competitors, or roll out of their current leases. Sneaker snagged a 1,650 square foot carriage house at 237 King Street, located right across the street from the Place Hotel Victoria s Secret at 254 King Street is currently closed for renovation as it revamps its look in light of new competitors Taking the former 7,478 square foot Abercrombie & Fitch space at 0 King Street, Anthropologie is opening its second South Carolina store in October 7 6 Liberty St 5 Wentworth St Meeting St Women s clothier Biton is closing its 15,000 square foot store at 275 King Street Lululemon has moved from approximately 800 square feet on the third floor of 237 King Street to first floor space at 279 King Street King St King St King St Beaufain St 1 Market St Local entrepreneurs opened their second location of Belgian Gelato at 324 King Street Filling a need for more Asian cuisine in, CO opened in April at 340 King Street with a variety of Vietnamese offerings for lunch and dinner Sneaker Victoria s Secret Anthropologie Biton Lululemon Belgian Gelato Co King St King St h N 2Q 2012 page 4

5 A N E Y E T O T H E F U T U R E : R E T A I L F O R E C A S T Though second quarter activity was not as upbeat as in first quarter, with vacancy up slightly to match, the area s 8.01 percent vacancy especially considering a lot of the older product in is still quite healthy. A number of local users have expansion plans as they contemplate tapping into the distinctive market segments offered by Downtown,, Mount Pleasant, and /, while several larger regional and national players are kicking the tires on a move into the area. This activity may take a few more quarters to materialize than retailers and consumers alike would prefer, but most importantly the interest is there. The beginnings of speculative retail building in disparate corners of the market are a promising indicator as savvy developers work to get ahead of demand. SUBMARKET MAP ABOUT LINCOLN HARRIS Lincoln Harris, an affiliate of Lincoln Property Company, is a full-service corporate real estate company focused on development, commercial brokerage, corporate real estate services, retail services, land services, project services, property management and asset management. Based in Charlotte, NC, Lincoln Harris has twenty-three service offices across the country. More information about Lincoln Harris can be found at CONTACT INFORMATION SUMMERVILLE GOOSE CREEK Sarah Godwin Research Manager sarah.godwin@lincolnharris.com International WEST ASHLEY 700 KIAWAH N CHARLESTON 5 Executive DANIEL 5 5 MT PLEASANT CHARLESTON Mt Pleasant Regional 41 SULLIVAN S ISLE OF PALMS Chip Mark Senior Vice President South Carolina chip.mark@lincolnharris.com Blair Belk Vice President blair.belk@lincolnharris.com Trey Lucy Vice President trey.lucy@lincolnharris.com Christine Majernik Administrative Assistant christine.majernik@lincolnharris.com 2012 Lincoln Harris. All rights reserved. All information provided in Lincoln Harris research reports are from sources deemed reliable, but no warranty or representation is made as to its accuracy thereof and same is submitted subject to errors, omissions, or other conditions. 200 Meeting Street, Suite 204, SC office