From the Charlotte metro area to Raleigh-Durham and back down to Upstate South Carolina and Charleston, North and South Carolina are quickly becoming the top choices for retail developers, owners and consumers, leading retail industry experts say.
With new residents moving to the two-state region’s metro areas, grocers are moving in where they can. Raleigh has seen Harris Teeter expand, and Wegmans and Publix enter the market. Costco and Publix are expanding in Charleston. In Upstate South Carolina, Lowes Food and Sprouts Farmers Market are opening their doors to new residents as well.
Charlotte’s metro area population is estimated to be about 2.5 million in 2017, good for a 14 percent uptick from the 2010 U.S. Census report. Raleigh-Durham has seen its population grow at a 15 percent rate to more than 2 million people in the same time period. Additionally, Charleston’s population has grown by an estimated 10.4 percent, and the Greenville-Anderson-Mauldin MSA has increased its population by approximately 8.7 percent.
Economic drivers vary heavily from one region to the next. The Port of Charleston drives South Carolina’s coastal economy, while near Fayetteville, North Carolina, the economy is driven by Fort Bragg and other military-related entities.
In Raleigh-Durham and Charlotte, the economy is driven by major universities and technology firms. Financial service firms also play a huge role in each metro’s economy, evidenced by First National Bank anchoring two office towers under construction in both downtown Raleigh and downtown Charlotte.
No matter the driver, though, experts agree that people are moving to the Carolinas at an unprecedented rate, which helps support the need for more stores, restaurants and entertainment venues.
“The Carolinas remain a highly desirable market for national retail investors due to their high population and job growth,” says Zach Taylor, a founding member and principal of Taylor McMinn Retail Group, an Atlanta-based division of Marcus & Millichap.
Lakeland, Florida-based Publix is active in North Carolina, having just opened a 50,162-square-foot store in Waynesville and is also in the process of building a $300 million cold storage facility in Greensboro to help support the grocer’s Carolinas stores. The multi-phase project was announced in August 2018 and expected to be complete in 2022.
Dollar General is moving with pace to claim a seat at the retail table in the Carolinas, as well. According to Don McMinn, a founding member and principal of Taylor McMinn Retail Group, Dollar General has plans to open 975 stores across the country in 2019, several of which will be in the Carolinas.
“North Carolina is a very attractive market for Dollar General and other retailers due to its high population growth of 1.14 percent — which ranks 14th in the U.S. — and the state’s strong, diverse economy of information technology, energy and finance,” says McMinn. “Wherever you have jobs and population growth, retail is sure to follow.”
Triangle’s new residents
Grocery store chains have been able to emerge as one of the leading retailers in Raleigh-Durham due to the market’s accelerated population growth. Wegmans, a grocer based in New York, has three locations under construction, one proposed and one planned within the Triangle. Publix recently built two locations in the metro area as well, with another one under construction, two planned and two proposed.
With Publix moving northward into the Carolinas and Mid-Atlantic, and Wegmans expanding down the East Coast, Raleigh-Durham has become the meeting ground where the grocers are competing for market share.
“The North Carolina Research Triangle will be the place we learn about the impact of these two brands in one place,” says David Beitz, partner at Columbia, South Carolina-based Beitz and Daigh Geographics, which tracks the locations of new and proposed grocers nationwide through a mapping platform called Planned Grocery. “This will be the first area in the United States where a number of new stores from both brands have opened in the same place. It’s hard to say what the impact will be.”
Though grocers are moving in in force, Beverly Keith, principal at Commercial Properties Development Group (CPDG), believes that the growth is not sustainable, and consolidation of space in the grocery sector is in the not-so-distant future.
“I’m looking at maybe two years at the most,” Keith said when asked if grocers will continue to grow at the current pace. “While the residential growth is enormous, there’s no way we can support millions of square feet of grocery. It’s not going to happen.”
Like Keith, Beitz believes that potential overbuilding of grocers in Raleigh-Durham could be detrimental.
“The area has been growing in population so the new stores will be meeting pent up demand,” says Beitz. “But the older grocery stores could lose sales volume if the area gets overbuilt.”
According to CoStar Group, the vacancy rate in the Triangle is 3.8 percent. Dan McPhillips, executive vice president of retail services with Colliers International’s Raleigh office, says that retail development used to come after the curve, but with a low vacancy rate, retailers are needing to find a pocket that is starting to take off, rather than wait for it to boom.
CoStar forecasts metro Raleigh’s population will grow at three times the rate of the national average (0.7 percent). Coupled with a median income of $75,000 per year, there are few reasons why Raleigh won’t continue to boast high retail numbers in the coming years.
“No. 1, we’re the state capital, and No. 2, we have three major (research) universities here that provide a pretty good employment pipeline for high-tech industries,” says Joaquin Canals, a retail specialist with NAI Carolantic. “We have Research Triangle Park, a huge employer in our market. In addition to that, we have a lot of industries that are looking to relocate here or expand, so we have a very healthy economy. We don’t see anything on the horizon that is going to affect the health of this market right now.”
Research Triangle Park (RTP), known for housing more than 250 tech-savvy businesses and more than 50,000 employees, is also taking a step toward retail. Willard Retail purchased a 12-acre parcel in October 2018 within RTP for the purpose of developing a 150,000-square-foot mixed-use town center that will offer shopping, dining, 1 million square feet of office space, a hotel, 1,000 residential units and a conference center.
According to Elizabeth Gates, senior vice president of research for Avison Young, the Triangle also boasts a desirable population of well-educated consumers. With 47 percent of its residents holding a bachelor’s degree or higher, real estate investors are increasingly seeking opportunities to acquire assets in regions like Raleigh-Durham with strong STEM (science, technology, engineering and math) job growth.
“The Triangle meets these criteria in spades while also remaining more affordable than gateway markets, making it highly attractive to investors seeking to place capital where they can achieve higher returns,” says Gates.
It is those tech jobs and college graduates that McPhillips attributes to helping the Triangle through the Great Recession, as well as the economy’s recovery and expansion.
“Raleigh had its sour moments and its sour spots, but through the downtown, it continually grew because of our educational universities and institutions around here really just kept turning people into our market,” says McPhillips. “We were pretty well insulated.”
The metro’s suburbs aren’t expanding at the same rate as in Raleigh, according to Vijay Shah, senior vice president of TradeMark Properties. Durham is, however, expanding in its downtown core.
In mid-February, Trinity Capital Advisors, Wheelock Street Capital and SLI Capital announced an eight-story mixed-use building within downtown Durham’s Venable Center that will offer ground-level retail space. Amenities will include a sky deck lounge, fitness center and a conference center.
Additionally, Longfellow Real Estate Partners is building a 1.7 million-square-foot, mixed-use campus in downtown Durham. The campus, known as Durham.ID, will offer retail, residential units and office and lab space.
“With the close proximity to the nearby major universities, larger investment companies with a niche in science, technology and educational partnerships have entered the market,” says Shah.
Charlotte’s retail growth is coming mostly in the form of redevelopments throughout the metro area. With little opportunity for new growth, developers are needing to make-due with the space they have. This has created a boon in downtown Charlotte, as well as submarkets like South End and Uptown. With big-box retailers leaving vacant buildings, a lot of infill projects have been the focal point.
“Instead of new development, a lot of developers are going after redevelopment/renovation projects — the closed grocery stores and strip centers,” says Andy Mitwol, director of outparcels and redevelopment with Big V Properties in Charlotte.
CoStar reports that the amount of retail space under construction in Charlotte represents 0.9 percent of the market’s existing retail inventory. The limited amount of construction is something that won’t change in the future, according to Greg Dobur, senior director of outparcels and redevelopment with Big V Properties.
“That’s the new world we live in,” says Dobur, referencing the lack of new construction. “That’s going to be consistent moving forward.”
Mitwol also attributes the lack of construction to several zoning factors.
“We’ve got rising land costs, rising construction costs and challenges with municipalities and zoning dependent on the deal,” says Mitwol. “Clearly, if you’re looking at a redevelopment versus a strong land, vertical development, you’re not getting into storm water management issues, other site-related issues that affect your yield.”
Several of the redevelopments are mixed-use projects that offer office and residential space, and retail and restaurant space are typically included. With so many of these projects, developers are trying to outdo one another with amenities such as rooftop bars and open-air retail concepts.
Beacon Properties is developing one such concept in LoSo Station, a 15-acre mixed-use project in Charlotte’s South End neighborhood. The project will feature more than 500,000 square feet of creative office space, 30,000 square feet of retail and restaurants, 350 multifamily residences, a 150-room boutique hotel, rooftop entertainment, meeting space and an outdoor retail plaza.
The Spectrum Cos. and Invesco Real Estate are also building a mixed-use project on a five-acre tract linking South End and Charlotte’s Uptown business district. At full buildout, it will include a 200-room hotel with rooftop bar; two nine-story, 220,000-square-foot office buildings; urban plaza with event space; and 40,000 square feet of street-level restaurant and retail space.
“Every apartment complex along with every new office tower developer wants to incorporate the newest, coolest and most unique restaurants, bars and retailers,” says Keely Hines, vice president and broker with Foundry Commercial in Charlotte. “Rooftop and open-air venues are a major trend. With spectacular weather in Charlotte nine months out of the year, experiencing the outdoors is a top priority for consumers.”
Fayetteville trending upward
Residential growth isn’t the only factor that positively affects retail trends. Fort Bragg Army Base is driving the consistent, slowly improving retail market in Fayetteville. The military base houses more than 50,000 active-duty military members and is situated about 12 miles northwest of downtown Fayetteville and about 10 miles northwest of Fayetteville State University.
Rental rates have increased and vacancy rates have decreased over the past two years, according to Patrick Murray, principal at Grant Murray Real Estate.
“One thing that people haven’t understood about Fayetteville is how the military affects the economy,” says Murray. “Word is starting to get out and retailers are hearing stories of others that are opening in the area and having their best opening of their chains across the country here.”
Furthermore, Fayetteville is seeing a variety of landlords, rather than the relative few that used to own and operate in the area.
“In the past, more of the retail properties were controlled by fewer landlords, so with more of the national companies that are building and developing here, some of the other proposed developments coming on line in the next two years are new-to-the-market developers,” says Murray.
Charleston keeps growing
Charleston boasts economic drivers that differ from its counterpart markets in North Carolina: shipping and manufacturing. The port city is home to several industrial plants housing tenants that wanted to locate near the Port of Charleston.
The metro area’s retail market is expanding to the north in response to the rising rent rates and growth in the downtown and historic Charleston areas.
CoStar reports that the average asking rent in the metro area is $20 per square foot, while that rate doubles in downtown to $40. More than 565,000 square feet of retail space was delivered in the Charleston metro area in 2018. Historically, the average has been about 400,000 square feet per year.
“When you look at the skyline downtown, it seems that all you can see are cranes lately,” says Kevin Beringer, director of leasing and property management with Ziff Properties. “As you walk down historic King Street, another local business is closing every day to make room for higher rent paying luxury retailers. As Charleston grows, we are seeing ground up retail development further out in areas that are more affordable.”
Like Charlotte and Raleigh, Charleston’s retail market is in a grocery-led battle for space. Mt. Pleasant, which is located about 10 miles northeast of Charleston across Cooper River, is expanding north with the additions of Publix and Charleston’s second Costco location. The growth is benefitting Charleston, Berkeley and Dorchester counties.
Kimco Realty recently redeveloped a shopping center called Westwood Plaza where it rearranged some boxes and tore down others, according to Paul Puma, president of the Southeast region for Kimco. The redevelopment included a 50,000-square-foot Harris Teeter, brand new HomeGoods and a new Ulta Beauty store.
“We are very positive about all of our North Carolina and South Carolina properties,” says Puma. “Look at the growth that is happening in the Southeast with the influx of business, new jobs and population growth. It’s a rapidly growing region in our country.”
Blair Belk, principal and co-founder of Belk-Lucy, says that part of the reason retailers are moving away from downtown is because of construction factors. Like in most major metro areas, construction costs are on the rise in Charleston.
“Construction costs have been a hinderance for several new developments,” says Belk. “Coastal factors such as seismic and wind often lead to increased construction budgets.”
Tourism is also behind the metro area’s growth. Alan Freeman, a partner with The Shopping Center Group, says tourists are the dominant driver for the expansion of high street retail on King Street. Restaurants and bars are following the crowds in this area, driving expansion northward.
Gabrielle Charleston, Hotel Bennett’s signature restaurant, opened in February and is the only sit-down restaurant at Marion Square on King Street to offer outdoor dining. Monza, a 12-year-old restaurant located on King Street, expanded its space to the building next door in mid-February. Clothing store Untuckit opened at the beginning of February on King Street, occupying more than 1,800 square feet of space.
Developers are also taking advantage of the tourism industry south of Charleston, near Hilton Head Island. Sutton Properties is currently working on the retail component of Latitude Margaritaville, a 92-acre development. Margaritaville Bar & Grill has already been announced as the anchor tenant for the retail component, and the entire project will include 3,000 homes, conventional retail, entertainment retail, apartments and hotels. The multi-phase project will be close to 1 million square feet at full buildout.
Though the project is on the same site as the residential community, Sam Sutton, president of Sutton Properties, says the retail aspect will cater to traffic coming off Interstate 95 on the way to Hilton Head Island. Sutton also said they are battling the idea that Margaritaville communities are just for those 55 years and older, saying that there is an influx of younger people in the area.
“We’ll be more of a retail destination off I-95 and with the hotels for overnight or weekend stays, we’re going to be catering to more than just the immediate neighborhood,” says Sutton.
Sutton also says that they are not the only ones tapping into the tourism market.
“There are huge developments all along U.S. Highway 278 leading to Hilton Head Island,” says Sutton. “They just recently announced a 10,000-unit development just east of us. Between Sun City and some of the other projects around there, there is pretty rapid growth.”
Upstate’s beneficial location
Being located along Interstate 85 between Atlanta and Charlotte has aided Upstate South Carolina’s growth. With automotive industry giants like BMW and Michelin, and Inland Port Greer nearby, the 10-county region benefits from having high-paid, international engineering and technical professionals in the region, according to Darrell Palasciano, senior leasing advisor for The Shopping Center Group.
Downtown Greenville and West Greenville, which is just across downtown on the other side of Reedy River, have benefitted from these factors, says Palasciano. Greenville has become a spot for weekenders, having more than 1,000 dining options, hundreds of shopping options and more than 80 hotels, according to VisitGreenvilleSC.
“Growth in both these submarkets has reached a fever pitch primarily due to a residential infusion as a result of the expansion of the automotive industry,” says Palasciano. “Not only are international professionals entering the market, but young, college-educated millennials from throughout the Carolinas are putting down roots.”
Since the end of the Great Recession, Upstate South Carolina’s fundamentals have improved as well. Since 2013, the vacancy rate has dropped in Greenville from nearly 7 percent to 3.6 percent, according to CoStar. Rent rates were 15 percent higher than the pre-recession peak and in 2017, Greenville was one of the fastest growing metros in the country, trailing only Denver, Orlando and Nashville.
“Education, along with the cost of living remaining affordable, makes Upstate an attractive place to move,” says Palasciano.
That growth has manifested in submarkets like Simpsonville, where — like throughout the Carolinas — grocers are competing for the attention of residents. According to Palasciano, in the last 18 months, Publix, Lowe’s Food and Sprouts have all opened in Simpsonville, which serves an estimated 22,000 people.
Dallas-based TopGolf will enter the South Carolina market this year, with a location in Greenville and another in Myrtle Beach. TopGolf offers a high-tech driving range, bar and kitchen. The company said it is expanding to smaller markets that don’t have as many entertainment options as bigger cities. Morgan Schaaf, a spokesperson for TopGolf, said both locations will feature 72 hitting bays instead of the typical 102. Both locations are expected to open by the beginning of summer.
— Alex Tostado. This article originally appeared in the March issue of Southeast Real Estate Business.