Research & Forecast Report CHARLESTON, SC | RETAIL Q1 2017

Food Halls Arrive in Charleston

Bryana Mistretta Research Coordinator |

Key Takeaways >> The food hall trend arrives in Charleston. Market Indicators >> With the market almost at full occupancy, centers are upgrading Relative to prior period Q1 2017 Q2 2017* tenant mixes with better credit and concepts. VACANCY Food Hall Trend Arrives in Charleston NET ABSORPTION CONSTRUCTION Food halls, like its suburban cousin, the mall food court, are an ensemble of restaurants in a central location with a communal RENTAL RATE** dining area, yet are going a step above your typical fast-casual Note: Construction is the change in Under Construction. restaurants. Food halls are fostering the growth of entrepreneurial *Projected **Rental rates for current quarter are for CBD. Rent forecast is for metro-wide rents. chefs and start-up restaurants by reducing the cost of opening a brick-and-mortar site. The concept, popular nationally in primary markets, is a part of the larger experiential retail trend and is beginning to appear in the Charleston market.

Food halls have evolved in larger cities from outdoor markets to Summary Statistics Q1 2017 Charleston Retail Market Market Downtown Suburban indoor, serving fewer raw ingredients and more finished, specialty food products. Popular food halls include Eataly, Ferry Building Vacancy Rate 9.3% 3.7% 9.5% Marketplace in San Francisco, Pike Place Market in Seattle and Reading Terminal Market in Philadelphia. Success of these food Change From Q1 2016 (basis points) - -20 - halls has led to several smaller scale versions in cities like Atlanta, Absorption Raleigh, Washington, D.C., Houston and Dallas. (Thousand Square Feet) 49.6 76.8 -27.2 The food hall trend took off soon after the recession in 2008 as an New Construction (Thousand Square Feet) - - - opportunity for start-up restaurant concepts to build their brand. Under Construction Food halls can have multiple locations such as Eataly with locations 189.4 - 189.4 in New York, Boston, Los Angeles and Chicago or a single location, (Thousand Square Feet) owned by a company, that leases stalls with different levels of Asking Rents efficiencies such as access to a shared kitchen, private kitchen, or Per Square Foot Per Year preparation station. The restaurants leasing spaces in these venues Shop Space are new, local restaurant concepts with a focus on providing an $14.13 $24.15 $13.79 experience to customers by offering specialty foods and drinks that Change From Q4 2016 -0.4% 4.8% -0.9% blend the healthy, local foods trend with cultural experiences. Food halls, although not a new concept nationally, are to the than building new centers. Landlords and value-add investors Charleston market. The first to open in Charleston was Mercantile are capitalizing on this by remodeling and renovating well at The Cigar Factory in 2015, the second is the recently completed, positioned properties, upgrading their tenant mix and raising the Pacific Box and Crate project on King Street. The project is 130,000 rental rates and net operating incomes. Typical improvements square feet of office space including a 10,000-square-foot food hall. include upgrading the façades, repaving parking lots and adding The food hall, called Workshop, has six start-up restaurants: Bad landscaping and new signage, although some landlords are creating Wolf Coffee, JD Loves Cheese, Kite Noodle, Slice Co., Pink Bellies space to accommodate the interest from national and regional and Juan Luis. The trend is spreading with other food halls planned tenants by creating new big box spaces in their centers. Other in the market. landlords are upgrading the tenant mix by replacing older, local tenants with national and regional retailers. These improvements Charleston Reaches Full Occupancy are resulting in increased net operating incomes and providing better retail experiences for the growing number of residents and The Charleston retail market is booming with activity from national tourists. Examples include shopping centers such as Northwoods and regional retail tenants leading to higher occupancy in major Promenade, Westwood Plaza, and St. Andrews retail corridors and record high rental rates across the market. Center that were redeveloped over the last ten years. Most recently, These strong market fundamentals have encouraged landlords to Ashley Oaks, West Ashley Shoppes and Oakbrook Plaza have been upgrade their tenant mix and quality to increase the net operating purchased and are undergoing a redevelopment and repositioning. income at their properties, which are gaining attention from investors. Higher asking rental rates for retail spaces in Charleston The population of the Charleston-North Charleston Metropolitan are supported by the ever-growing population and the increasing Statistical Area was recorded as 664,607 people in the 2010 average household income. census. In July of 2016, the estimated population of the MSA was 739,000 people and was projected to be 810,000 people by 2021, In the first quarter of 2014, the overall market vacancy for retail an increase of approximately 39 people per day over the next 5 space in Charleston was 7.9%, this quarter it was recorded as years. The growth will occur primarily in the 35 - 44 and 75 - 84 5.9% with the absorption of 572,300 square feet in three years. age groups. Additionally, the average household income is expected More significant is the increase in average asking rental rates for to increase by 9.5% to $79,189 over the same time, likely due to the retail space in the market. The Charleston market has seen record increase in local employment. According to March 2017 data from high average asking rental rates for the last six quarters for shop the Bureau of Labor Statistics, 11,300 jobs have been added in the space, reaching $21.40 PSF/YR this quarter. At the end of the third MSA over the last 12 months bringing total non-farm employment quarter of 2015 the asking rental rate was $17.94 PSF/YR, 19.3% to 354,300 jobs. lower than today. In high-demand submarkets like Summerville, the average asking rental rate for shop space is approaching $23.00 National and regional tenants such as Planet fitness, Harbor Freight and the South Islands is nearly $31.00. In comparison, the less Tools, Aldi, Harris Teeter and Moe’s Southwest Grill have expanded commercialized, Berkley submarket has an average of $14.25 PSF/ within the market, announcing or moving into new locations. YR, yet is still up by 15.8% from the third quarter of 2015. Other retailers such as Lowes Foods, Lidl, Hobby Lobby, Academy Sports and Burlington Coat Factory are also active in the market. Strong residential growth, a difficult regulatory environment Continued increase in demand from national and regional tenants, and increasing land and construction costs make purchasing improvements to existing shopping centers and growth of the and repositioning shopping centers a more attractive option population are expected to raise average asking rental rates further.

Workshop Exterior | Pacific Box and Crate Workshop Interior | Pacific Box and Crate

2 South Carolina Research & Forecast Report | Q1 2017 | Charleston Retail | Colliers International Q1 2017 Retail Market Summary Statistics

Charleston, SC ANCHOR SPACE JR. ANCHOR SPACE SHOP SPACE (GREATER THAN 25,000 SF) (10,000-25,000 SF) (LESS THAN 10,000 SF) INVENTORY VACANCY RATE VACANT ASKING RENT VACANT ASKING RENT VACANT ASKING RENT MARKET (SF) (%) (SF) (NNN) (SF) (NNN) (SF) (NNN) Berkeley 1,299,055 2.9% - - - - 37,566 $14.25 East Cooper 3,572,252 6.7% 109,262 $18.82 10,000 $40.00 109,678 $24.44 King Street 918,974 10.6% 40,000 - - - 56,976 $58.33 North Charleston 3,908,074 8.0% 90,548 $10.00 50,686 $15.00 172,345 $16.55 Peninsula 165,647 ------South Islands 989,734 3.1% - - - - 30,417 $30.98 Summerville 2,344,925 4.4% - - 23,500 $16.57 80,000 $22.69 West Ashley 2,209,996 5.9% 31,762 31,400 $14.60 67,699 $21.03 Suburban Total 14,324,036 5.9% 231,572 $17.14 115,586 $18.63 497,705 $21.40 Market Total 15,175,410 6.2% 271,572 $17.14 115,586 $18.63 554,681 $26.50 Market Statistics North Charleston

The Charleston retail market continues to tighten. The market The vacancy rate decreased from 9.1% at the end of the fourth vacancy rate reached 6.2% at the end of the first quarter of 2017. quarter to 8.0% at the end of this quarter. The average asking The overall average asking rental rate for shop space was $26.50 rental rate for shop space was $16.55 NNN PSF/YR, a 2.7% triple net per square foot per year (NNN PSF/YR), up from $19.88 increase since last quarter . NNN PSF/YR at the start of 2016. Suburban vacancy is lower than the overall market at 5.9%. The average asking rental rate for shop South Islands space in suburban shopping centers was $21.40, although asking The South Islands is the smallest submarket, with 984,000 square rents in some well-positioned centers have reached $40 PSF. feet of inventory. The vacancy rate was 3.1%, down from 3.6% last King Street quarter. The average asking rental rate for shop space was $30.98 NNN PSF/YR, a 6.9% increase in one year. King Street, stretching from Line Street to Broad Street, ended the first quarter with a vacancy rate of 10.6%. The average asking Summerville rental rate for shop space along the corridor is $58.33 NNN PSF/ Retail is expanding rapidly in the highly demanded Summerville YR. The majority of the vacancy is due to the vacated Morris Sokol submarket. The vacancy rate was 4.4% at the end of the first store, which is 40,000 square feet. A design charrette has been quarter. The average asking rental rate for shop space was $22.69 hosted to find a new use for the space. NNN PSF/YR at the end of the quarter, a 9.6% increase from the Berkeley first quarter of 2016. Construction has begun at the new Lowes Foods as part of the Oakbrook Plaza redevelopment. The vacancy rate at the end of the quarter was 2.9%, a decrease from 3.2% at the end of the fourth quarter. The average asking West Ashley rental rate for shop space was $14.25 NNN PSF/YR. The vacancy The average asking rental rate was $21.03 NNN PSF/YR for shop rate is expected to increase slightly with the delivery of The Market space, up from $18.60 NNN PSF/YR a year ago. The vacancy rate at Carnes Crossroads, a 142,000-square-foot center. Lidl has was 5.9% at the end of this quarter. A 45,000-square-foot Whole announced a 36,000-square-foot store for St.James Avenue next Foods was announced adjacent to Dosher’s IGA on Savannah to the Crowfield Village Shopping Center. Highway. Construction continues on a new Harris Teeter in the East Cooper Westwood Plaza shopping center.

The vacancy rate in this submarket was 6.7% at the end of the first quarter, an increase from 5.5% at the end of the fourth quarter. The average asking rental rate for shop space was $24.44 NNN PSF/YR, up from $24.08 NNN PSF/YR a year ago. Construction is progressing at The Market at Mill Creek, a 78,000-square-foot Lowes Foods-anchored shopping center. This quarter Carter’s signed a lease at the Wando Crossing shopping center.

3 South Carolina Research & Forecast Report | Q1 2017 | Charleston Retail | Colliers International Employment and Gross Retail Sales Charleston, SC Retail Submarkets

Charleston’s growing population and tourism sector drive gross retail sales. The Charleston – North Charleston Metropolitan Statistical Area (MSA) is the combined Berkeley County, Charleston County and Dorchester County. The South Carolina Department of Revenue reported the Charleston- North Charleston, MSA gross 3 retail sales as $4.4 billion for the combined months of January and 4 February 2017, an increase from the $2.8 billion reported during 1 5 Downtown the same months of 2015. 2 2 East Cooper 6 A strengthening economy and growing number of major employers 1 3 Berkeley in the Charleston – North Charleston MSA has contributed to 4 7 Summerville strengthening employment. Employment in the Charleston – North 5 North Charleston Charleston MSA was recorded as 352,200 people in March of 2017. Since March of 2016, 2,700 jobs have been added to the MSA, a 6 West Ashley 3.8% increase. Over the last two years, 23,300 jobs have been 7 South Islands added, a 7.1% increase. Charleston, SC MSA Employment Trends Market Forecast 14,000 360 Total Non-Farm Employment (Thousands) 350 A growing residential population, job creation and a thriving tourism 12,000 economy will continue to drive spending and expansion of retailers 340 10,000 in the Charleston area. Several large master planned communities 330 in the Summerville area will lead to the continued expansion of the 8,000 320 Charleston’s retail market to the west. Grocers and other national retailers will lead the way in anchoring these large developments 6,000 310 and grocers will continue to expand in the other retail submarkets. 300 4,000 Demand for space will continue to increase, leading to further 290 decline in market vacancy rates and escalating the average asking 2,000 280 rental rates for retail spaces. - 270 Non-Farm Jobs Added Over 12 Months (thousands) Over Jobs Added Non-Farm Jul-13 Jul-15 Jul-16 Jul-12 Jul-14 Mar-17 Mar-13 Mar-15 Mar-16 Mar-12 Nov-13 Mar-14 Nov-15 Nov-16 Nov-12 Around South Carolina Nov-14 Jobs Added Total Employment Growing populations across the state are leading to the expansion Source: South Carolina Bureau of Labor Statistics and strengthening of existing retail nodes in South Carolina’s main retail markets. Grocers are continuing to expand in all markets along with other regional and national tenants. Commercial Real Estate Growth Cycle: Where the market stands and where it is going. Columbia, South Carolina NEW CONSTRUCTION RENTAL RATE >> Lowes Foods is building two stores in Lexington County, one EMPLOYMENT at the corner of Augusta Highway and Charter Oaks Road and OCCUPANCY another on the corner of Sunset Boulevard and Hope Ferry Road. PHASE 1: RECOVERY The Fresh Market is building two locations, on Two Notch Road near Village at Sandhill and on Sunset Boulevard in Lexington. PHASE 2: EXPANSION Greenville, South Carolina COMMERCIAL >> Greenville’s West End is gaining momentum from its high REAL ESTATE residential density, proximity to major employers and existing GROWTH historic, cultural and entertainment anchors. Development at the 37-acre University Ridge site will catalyze growth in the area. CYCLE PHASE 4: RECESSION PHASE 3: For more statewide commercial real estate news, check out our HYPERSUPPLY market reports at: www.colliers.com/southcarolina/insights

4 South Carolina Research & Forecast Report | Q1 2017 | Charleston Retail | Colliers International FOR MORE INFORMATION: 396 offices in Liz H. McCary Director of Marketing | South Carolina countries on +1 803 401 4269 68 [email protected] 6 continents Bryana Mistretta Research Coordinator | South Carolina United States: 153 +1 803 401 4252 Canada: 29 [email protected] Latin America: 24 Asia Pacific:79 CHARLESTON RETAIL PROFESSIONALS: John Orr, CCIM | Vice President EMEA: 111 +1 843 720 7504 [email protected]

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