Strong positive indicators for retail generally in combination with a sluggish community-neighborhood shopping center market provide a mixed performance overall for the Charleston area retail real estate market. “The lengthy drought [for retail] might be ending in the Charleston region,” The Post and Courier observed in May. As noted in a second quarter report by locally-based Lincoln Harris citing U.S. News and World Report, central Charleston’s King Street ranks “among the top 10 shopping streets in the United States.” Accordingly, one of the largest projects currently planned metrowide, the 315,000 square retail component of the Midtown Charleston project at King and Spring street, is located in the area. Substantial apartment and office development is planned and underway only a few blocks away on and near Meeting Street.
Other locales attractive to retailers according to Lincoln Harris include West Ashley, Mount Pleasant, and Summerville/Goose Creek. Adds this source, “several larger regional and national players are kicking the tires on a move into the Charleston 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.”
While that interest percolates, meanwhile, the 9.8-million-square-foot community-neighborhood shopping center sector tracked by Reis continues to struggle. Net absorption year-to-date through mid-year was negative 53,000 square feet. Vacancy, while improving long term, remains elevated. The rate ended the second quarter at 11.5%, up 50 basis points since year-end 2011, down 90 year-over-year and 70 points above the second quarter national rate for that property category. Rents remain weak. At $13.38 psf and $11.43 psf, asking and effective averages for the second quarter, unchanged for the period, were down 0.2% and 0.3% since year-end 2011 following last year’s respective gains of 0.1% and 0.3%. The 5,000 square feet of positive net absorption that followed over the July-August period were accompanied by no additional change in the vacancy rate and respective gains of 0.2% and 0.3% for the mean asking and effective rents. No retail projects of this type, or any other type, were under construction per the end of July.
Reis’ data on the local power center market is a bit more favorable. At 5.6%, second quarter vacancy was down 40 basis points for the period, was up 30 basis points year-over-year and was 70 points below the second quarter national rate for this property type. At $26.27 psf, the mean asking lease rate for non-anchor power center space was up 0.2% for the quarter alone and was up 1.5% year-over-year. In May, meanwhile, Hobby Lobby announced it will build a 55,000-square-foot freestanding location at Six Mile Marketplace on U.S. Highway 17 in Mount Pleasant, The Post and Courier reported at the time. This source described the Hobby Lobby deal as a “sign that retail development is coming back to life.” And Gramling Brothers Real Estate & Development Inc. announced plans in May for a near-term groundbreaking near the Target-anchored Azalea Square center in Summerville. Reis cites a 12,725-square-foot addition planned for the Azalea Square power center. Lincoln Harris describes the project as a speculative “shadow” building.
While some areas and some elements of the local retail market are showing positive signs, struggles may continue for the community-neighborhood shopping center sector overall. Vacancy could rise to near 12.0% by year-end amid additional negative absorption. Small declines in average rents are expected for the year as a whole.