Charleston’s bustling commercial real estate market is boosted by post-pandemic habits

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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 work to weather the pandemic-induced downturn of the past two years.

National commercial real estate and investment firm CBRE, with offices in Charleston, reports that 9.69 million square feet of speculative and custom industrial products are under construction in the Charleston market, and that 3.5 million square feet have been absorbed in 2021. rates are below 2%.

Much of this new development is in warehousing and distribution, and much of it is driven by changes in shopping habits brought about by the pandemic.

“It’s e-commerce. It’s different levels of e-commerce and retail,” said Robert Barrineau, senior vice president at CBRE, which specializes in industrial real estate. “It’s furniture, clothing, household items, it’s just a broad spectrum right now, the likes of which I’ve never seen before.”

Barrineau and Matt Pickard, senior brokerage partner at Colliers International in Charleston, attribute much of the growth in warehousing and distribution to the forward-looking vision of Jim Newsome, the port’s former president and CEO.

The Port of Charleston has always emphasized manufacturing support, which has led to major investments from companies such as Boeing, BMW, Volvo and others. But Newsome had a vision of what was to come and how to leverage it, Pickard said, and four or five years ago the port pivoted to start attracting more e-commerce and retail users.

“That’s when we started to see container volume go up, building sizes get bigger, and we became more of an import hub for distribution,” Pickard said, “and everything this just went into hyper speed with Covid and everyone is buying everything online.

According to Barrineau, “the pivot is a natural progression for me. If you can meet the demand of an auto or aerospace manufacturer just in time, which the state and port have been doing for years, retail goods should be no different.

Charleston’s industrial market is now about 60 million square feet in total, Pickard said, “and when you look at the development pipeline right now, it’s 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 are under construction right now, with another 11 to 12 million expected in the next 18 to 24 months. Because there is such huge demand, Pickard also pointed out that “all of the new products that are coming up right now are pre-lease. I don’t think we’ll have a single building delivered in 2022 with a 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 development pushes the Interstate 26 corridor, where land is available , to I-95 and Columbia. A broker joked that Charleston now starts in Orangeburg.

“As demand increases, new construction continues to shift to Summerville and Ridgeville,” Colliers said in its fourth quarter report.

CBRE, in its fourth quarter report, noted that the Camp Hall Industrial Park, off I-26 in Ridgeville, Berkeley County, and the Omni Industrial Campus in Summerville had three new projects launched in the last quarter. of 2021.

Recovery of the office market

Colliers also reports that the Charleston office market is recovering quickly from the two-year impact of the pandemic. And like in other markets, some tenants are moving into higher quality spaces as more workers begin to return to the office.

Colliers reported for the fourth quarter that the 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 was absorbed last year while 441,000 square feet of new space was delivered.”

Demonstrating the dynamism of the market, rental rates increased by 50 cents per square foot during the year.

Much of the market’s attention over the past year has been on downtown Charleston and its central business district, said Kristie Roe, senior brokerage partner and office specialist at Colliers International. .

The area’s total office market is approximately 14 million square feet with approximately 3 million downtown, making it a small subset of the Charleston Peninsula. But Roe noted that several different developers have come to market with a product totaling around 800,000 square feet. “Probably about half of that was delivered in the last 24 months,” she said. Due to Charleston’s geography, much of this growth is happening just north of the traditional CBD and creating a whole new downtown submarket, she said.

The story in the office world has been whether office tenants – the law firms, banks, financial services firms and management companies that were typically located in Charleston’s central business district, south of Calhoun Street — will remain downtown, Roe said. . While those businesses’ leases are up for renewal, will they stay because Charleston has become very expensive and very congested with tourists and traffic, Roe said. “The city center is very dense now, and it’s very difficult to get around in and out of the city center,” she said.

Regional law firm Parker Poe Adams & Bernstein has already announced it will be moving from Bank of America Plaza on Meeting Street in the heart of the CBD to the 12-story Morrison Yard office building near Ravenel Bridge in a known area as North Morrison. , minutes from downtown Charleston.

North Morrison, gentrified and gentrified, is where the new Class A office buildings are being built, Roe said, “right in the middle of what was not a super desirable area. It’s a submarket that has never existed before.

Although there are fears that more businesses will move into some of these newer, taller, more modern buildings and move out of the smaller downtown buildings, there has not been a mass exodus. “People don’t go out. But that’s still the question mark as some companies reinvent themselves in CBD,” she said.

Shoppers return as tourism boosts retail trade

From a retail perspective, Charleston has absolutely recovered from the impact of the pandemic, said Patrick Nealon, brokerage partner and member of the retail services team at the Colliers Charleston office. Restaurants have recovered from restricted hours and shoppers are returning to physical retailers as retail activity in Charleston is boosted by tourism. The SC Department of Revenue said year-over-year retail sales in November were up just over 20%.

Due to the pandemic, Nealon said, “the biggest thing we’ve seen, especially on the restaurant side, is that the demand for patios and drive-thrus has exploded.” Restaurants like Chipotle or Panera that didn’t have a drive-thru now want a drive-thru space, he said. And suddenly, “the price per square foot of a space with a terrace or drive in the suburbs has just skyrocketed”.

Colliers reported that the retail vacancy rate in the Charleston market fell from 5.36% to 4.12% during the fourth quarter of 2021, and Nealon noted that while there is a vacancy rate of around 10% on King Street, the main upscale shopping center in the downtown area, many of these spaces are not just on the market, but rather awaiting redevelopment.

“Someone has a plan for it. They’re not renting it out yet because they have things going on, whether it’s redesigning a hotel or doing some kind of project like that.

From a retail perspective, it’s more of a tenant market, and it’s really hard to find space right now,” Nealon said. “If you find a good space right now, you find it off the market. You find it when a lease comes in and pitch it before it hits the market. Because once it hits the market, there will be so many people after it,” he said.

Retailers and estate agents are waiting for new spaces, many in outlying suburban markets, to log on to help smooth things over. “But it can’t come fast enough,” Nealon said.

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