Charleston’s Bustling Commercial Real Estate Market Being Driven by Post-Pandemic HabitsApr 11, 2022 05:23PM ● By C. Grant Jackson
For Charleston, the focus on commercial real estate is the robust industrial market driven by the Port of Charleston. Real estate brokers see a market poised for strong growth for years to come.
Charleston’s office and retail market segments are also seeing growth as they strive to overcome the pandemic-induced downturn of the last two years.
National commercial real estate and investment firm CBRE, with offices in Charleston, reports that 9.69 million square feet of speculative and build-to-suit industrial product is under construction in the Charleston market, and that 3.5 million square feet was absorbed in 2021. Vacancy rates are below 2 percent.
Much of that new development is in warehousing and distribution, and much of that is being driven by changes in shopping habits brought on by the pandemic.
”It is e-commerce. It is different levels of e-commerce and retail,” said Robert Barrineau, a senior vice president with CBRE who specializes in industrial real estate. “It is furniture, it is clothing, it’s household goods, it’s just a broad spectrum right now, like I have never seen before.”
Barrineau and Matt Pickard, a senior brokerage associate with Colliers International in Charleston, attribute much of the growth in warehousing and distribution to some forward visioning by Jim Newsome, the former president and CEO of the port.
The Port of Charleston has always had a focus on supporting manufacturing and that has led to major investment by companies such as Boeing, BMW, Volvo and others. But Newsome had a vision of what was coming and how to capitalize on it, Pickard said, and four or five years ago the port pivoted to start attracting more of the e-commerce and distribution users.
“That is when we started to see the container volume increase, the building sizes getting bigger, and we became more of an import hub for distribution,” Pickard said, “and all of that just got put into hyper speed with Covid and everyone buying everything online.”
Said Barrineau, “the pivot is a natural progression to me. If you can meet the demand of a just-in-time automotive or aerospace manufacturer, which the state and the port have done for years, retail goods shouldn’t be any different.”
Charleston’s industrial market is now about 60 million square feet total, Pickard said, “and when you look at the development pipeline right now it is pretty staggering to see some of the numbers. If you were to look at it on a piece of paper it really jumps out at you, but if you really understand the backstory, it really makes a lot of sense.”
Pickard says about 6 million square feet is under construction right now, with another 11-12 million planned in the next 18-24 months. Because there is such huge demand, Pickard also pointed out that “all of the new product that is going up right now is pre-leasing. I don’t think we are going to have a single building delivered in 2022 with any vacancy, which will be a first for Charleston.”
Because Charleston is a peninsula with water on three sides and other development constraints, such as a national forest to the north, much of the market’s development is pushing up the Interstate 26 corridor, where land is available, toward I-95 and Columbia. One broker jokingly said that Charleston starts in Orangeburg now.
“As demand increases, new construction continues to move toward Summerville and Ridgeville,” Colliers said in its fourth-quarter report.
CBRE in its fourth-quarter report noted that both the Camp Hall Industrial Park, off I-26 in Ridgeville in Berkeley County, and the Omni Industrial Campus in Summerville had three new projects break ground in the last quarter of 2021.
Office market recovering
Colliers also reports that the Charleston office market is recovering quickly from the impact of two years of the pandemic. And as in other markets, some tenants are moving into better-quality spaces as more workers begin returning to the office.
Colliers reported for the fourth quarter that recovery from the pandemic accelerated with 187,829 square feet of office space absorbed. “Demand in the market was so strong,” Colliers reported, “that 406,459 square feet were absorbed in the last year while 441,000 square feet of new space was delivered.”
Showing the vibrancy of the market, rental rates increased by 50 cents a square foot over the year.
Much of the market’s attention over the last year has been on downtown Charleston and its Central Business District, said Kristie Roe, a senior brokerage associate and office specialist with Colliers International.
The area’s total office market is about 14 million square feet with about 3 million downtown, making it a small subset on the Charleston peninsula. But Roe noted that several different developers have come to the market with product totaling about 800,000 square feet. “Probably about half of that has delivered in the last 24 months,” she said. Because of Charleston’s geography, much of that growth is occurring just north of the traditional CBD and creating a whole new submarket downtown, she said.
The story in the office world has been whether office tenants – the law firms, banks, financial services firms, and management firms that have typically been in the Central Business District of Charleston, which is south of Calhoun Street – will stay downtown, Roe said. As those businesses’ leases come up for renewal, are they going to stay, because Charleston has gotten really expensive and really crowded with the tourists and the traffic, Roe said. “It’s very dense downtown now, and navigating in and out of downtown is very difficult,” she said.
The regional law firm Parker Poe Adams & Bernstein has already announced it will move from Bank of America Plaza on Meeting Street in the heart of the CBD into the 12-story Morrison Yard office building near the Ravenel Bridge, in an area known as North Morrison, that is just minutes from downtown Charleston.
Edgy, gentrified North Morrison is where the new class A office buildings are being built, Roe said, “right in the middle of what had been a not super desirable area. It’s a submarket that has never existed before.”
While there is concern that more firms are going to move into some of those newer, taller, modern buildings and out of the smaller buildings downtown, there has not been a mass exodus. “People are not coming out. But that is still the question mark while some of the firms are renewing in the CBD,” she said.
Shoppers returning as tourism boosts retail
From a retail perspective, Charleston has absolutely recovered from the impact of the pandemic, said Patrick Nealon, a brokerage associate and member of the retail services team in Colliers Charleston office. Restaurants have recovered from restricted hours, and shoppers are returning to the bricks-and-mortar retailers, as retail activity in Charleston is boosted by tourism. The S.C. Department of Revenue reported that year-over-year retail sales in November increased by a little over 20 percent.
Because of the pandemic, Nealon said, “the biggest thing we have seen, especially on the restaurant side, is that the demand for patios and drive-throughs has gone through the roof.” Restaurants like Chipotle or Panera, which didn’t have a drive-through, now want a space with a drive-through, he said. And consequently, “the price per square foot for a space with a patio or a drive-through in the suburbs has just gone through the roof.”
Colliers reported that the retail vacancy rate in the Charleston market declined from 5.36 percent to 4.12 percent during the fourth quarter of 2021, and Nealon noted that while there is a vacancy rate of around 10 percent on King Street, the major high-end downtown shopping area, a lot of those spaces are not just sitting on the market but rather waiting to be redeveloped.
“Someone has a plan for it. They are not leasing it up yet because they have some things going on, whether they are going to redevelop into a hotel or do some sort of project like that.”
From the retail perspective it is really more of a tenant market, and it is really hard to find space right now,” Nealon said. “If you’re finding good space right now you are finding it off market. You are finding it when a lease is coming up and you are getting in front of it before it hits the market. Because once it hits the market there are going to be so many people after it,” he said.
Retailers and real estate people are waiting for new spaces, many in the outlying suburban markets to come online to help loosen things up. “But it can’t come fast enough,” Nealon said.