RETAIL REAL ESTATE Southeast US Market Report SPRING 2015 EXECUTIVE SUMMARY & METHODOLOGY EXECUTIVE SUMMARY I am pleased to present the 2015 Crossman & Company Retail Report for the Southeast. The remaining 24 secondary and tertiary markets are grouped by state, and the states are listed alphabetically. We included pictures of significant properties in each market on This report is the result of a tremendous amount of effort from our research department the state cover page. We collected data from a variety of sources and reported them in and the many outstanding relationships that we enjoy throughout the country. Our an easy-to-navigate infographic. We also include quotes from people operating in those partnerships with universities, trade organizations and many industry leaders lend markets. Please note: we annotated the data in the ‘Data Sources’ page at the back of a unique and dynamic perspective to this report. A list of our contributing partners is the report instead of citing the sources on each page. included at the end of the report, and we are grateful for and proud of our association with these groups. CLOSING COMMENTS The report closes with supporting information about: This report is a snapshot of a living, breathing market: if you read it and notice that a • The Editorial Board project that you are involved in or aware of isn’t mentioned, please give us your feedback. • List of Contributors We expect to release updates throughout the year, and we welcome your voice to our • Crossman & Company Scope of Services platform. • List of Data Sources • Glossary of Terms. We were asked once if we were seen as leaders in commercial real estate. Our company was much smaller at that time, and it was a tough question for us to answer. One of the Should you have any questions or comments, or want any additional information, please best definitions of leadership describes a leader as anyone who is seeking to influence call or email us at any time. We seek to be of service! people or process. Moms, coaches and teachers are leaders. By that definition, we see ourselves as leaders. Our desire for this report is to influence the industry by sharing Sincerely, high-quality data and making the market more efficient. RESEARCH METHODOLOGY Our presentation begins with editorial articles on key topics in the retail industry: capital markets, the state of the retail market in Florida, and three trends that are shaping the future. John Crossman After the editorial articles, we identified the top 29 markets in the Southeast. Of those Crossman & Company President 29, we took an in-depth look at the 5 top tier markets; the result is what we’ve come to January 2015 call the “Top 5 Deep Dive.” In addition to reporting the fundamental market metrics, we compiled a list of MAI certified appraisers, landlords, and principals who bought and sold assets in the markets and interviewed them to get their insights on factors they are watching in 2015. We highlight a few of the major developments, touch on tenant activity, and report updates on improvements in the infrastructure of the biggest metropolitan areas in the Southeast: Charlotte, Atlanta, Tampa, Orlando and Miami-Dade County. 2. TABLE OF CONTENTS INTERVIEW WITH A CEO: 4 SOUTH CAROLINA 43 Michael Carroll, Brixmor Property Group 4 Charleston 44 CAPITAL MARKETS: 5 Columbia 45 High Expectations and Low Rates to Collide 5 Greenville / Spartanburg 46 RETAIL IN FLORIDA: STEADY AS SHE GOES 6 Myrtle Beach 47 RETAIL TRENDS: THREE PATTERNS TO WATCH 7 TENNESSEE 48 DEEP DIVE 8 Chattanooga 49 1: Charlotte 8 Knoxville 50 2: Atlanta 11 Memphis 51 3: Tampa / St. Petersburg 14 Nashville 52 4: Orlando 16 EDITORIAL BOARD 53 5: Miami-Dade County 19 CONTRIBUTORS 54 ALABAMA 22 SCOPE OF SERVICES 55 Birmingham 23 DATA SOURCES 56 Huntsville 24 GLOSSARY 57 Mobile 25 Montgomery 26 CROSSMAN & COMPANY OFFICES FLORIDA 27 IN THE SOUTHEAST Pensacola 28 Tallahassee 29 Jacksonville 30 Cape Coral / Fort Myers 31 ATLANTA OFFICE Naples / Marco Island 32 Palm Beach County 33 Broward County 34 Insights From Other Florida Markets 35 GEORGIA 36 Augusta 37 Columbus 38 Savannah 39 ORLANDO NORTH CAROLINA 40 OFFICE Greensboro / Winston-Salem 41 Raleigh / Durham 42 BOCA RATON OFFICE 3. INTERVIEW WITH A CEO: MICHAEL CARROLL, BRIXMOR PROPERTY GROUP C&C Overall, how do you feel about 2015? In particular, do you see any new trends Brixmor’s regarding big boxes, outparcel tenants, expanding retailers and new developments? Victory Square center, M.C. I feel very positive about 2015. The supply across the shopping center industry is located in continuing to tighten. This is allowing for significant rent growth. We continue to Savannah, GA. see demand from big box retailers. Big box retailers are focused on maximizing Source: profitability through achieving the proper store size. We continue to see expansion Brixmor Media from off-price and sporting goods retailers, restaurants and a variety of service, Resources health and wellness uses. One category that has been particularly active has been the specialty grocery space. Retailers that are seeking space include Sprouts, Fresh Thyme, Lucky, Trader Joe’s, Mariano’s, and perhaps the most active is Wal- Mart Neighborhood Market. Your name, created by a blending of bricks and mortar, implies that you continue The economic recovery, which took so long to arrive, now appears to be in full C&C C&C to believe in the physical locations of retailers. Would you comment in general on force according to the results of your tenants. You now have more than three the rising level of online sales, and specifically, how your portfolio of properties years of consistent rent increases. How do you explain these results in terms of (70% grocery-anchored) seems to be affected? economic recovery? Our grocers provide a solid foundation to our shopping. We have not seen any We are very fortunate to have below-market leases throughout the portfolio, M.C. M.C. meaningful online penetration in the grocer category. Grocers deliver consistent allowing us to renew or re-lease expiring space at significantly higher rates. In sales and the traffic is not seasonal or cyclical. Portfolio wide, our grocer sales are addition, there is virtually no new supply in the shopping center sector. The lack approaching $540 PSF and have increased every year in the 2-3% range. Given the of new supply has given us the opportunity to meet continuing anchor demand by necessity nature of our portfolio, I believe we are well insulated. redeveloping and repositioning anchor space within our portfolio at significantly higher rents. We have taken the opportunity to recapture any underutilized space Given that many anchors are not expanding as much and that new development by existing retailers within our portfolio. We have been able to replace that C&C opportunities are limited in some cases, there seems to be increased focus on underutilized space with best-in-class anchors that are producing higher sales and redevelopment and repositioning. How is this trend impacting Brixmor’s core skill traffic and those changes have been strong catalysts for our shop leasing. sets? I noted from your website that your average shopping center age is 31 years. Does C&C Redevelopment and anchor space repositioning have always been core this require significant capital expenditures, and if so, how do you program these M.C. competencies of the company. Our recently-announced “Raising the Bar” program expenditures into your acquisition strategies? is an organization-wide focus on improving and transforming our asset base. Our focus is to continue to add best-in-class anchors to our centers, driving higher We use that figure to stress the mature and seasoned nature of the portfolio with M.C. sales and traffic and leading to strong shop space leasing. To date, this program in-fill locations, as well as the below-market leases that result from longer-dated has encompassed 179 properties resulting in 286 anchor leases with a total capital lease terms. The effective age of our properties is 14 years which takes into investment of roughly $500 million. account redevelopments or repositionings that have occurred. 4. CAPITAL MARKETS: HIGH EXPECTATIONS AND LOW RATES TO COLLIDE Joshua Harris, Ph. D., CAIA “Occupancy and leasing rates should Director, Dr. P. Phillips Institute for Research and Education in Real Estate Dr. P. Phillips School of Real Estate, University of Central Florida continue to improve, boosting the NOI of most assets. This effect may Looking forward to 2015, there are two major trends destined to collide and produce interesting temper some of the negative impact results for the capital markets in retail real estate. The first is the continued force of low interest rates (Exhibit 1). US Treasury rates dipping below 3% have caused capitalization rates of rising cap rates.” of institutional-grade commercial real estate to reach near-record lows, producing corresponding first-rate pricing in many markets across the nation. Retail properties have lagged behind office Exhibit 1 - Interest Rates for 10-Year T-Notes and multifamily but are poised to see relative improvements as core fundamentals such as 5.5% gains in GDP (Exhibit 2) and retail sales show impressive growth. 5.0% 4.5% 4.0% This represents a potential “collision” as interest rates should rise in the face of a robust, 3.5% growing economy, more so now that the Federal Reserve has ended its successive quantitative 3.0% easing programs. Most economists do not believe rates will move significantly in 2015, but 2.5% upward surprises are possible. This could cause lower pricing in all income-producing property 2.0% transactions, especially if lenders are forced to raise their rates.
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