By Tommy Molin, vice president, advisory and transaction services, CBRE
Of the three primary commercial real-estate sectors — office, industrial, and retail — retail has been altered the most since the recession. Retail, unlike its commercial counterparts, is more subject to the ebb and flow and relative strength of the local economy. And Greenville has enjoyed sustained economic growth for the last eight years, but retail development during this phase of the cycle is spartan compared to historical precedent. It is important to understand that not all retail is the same, and the dynamics of downtown Greenville provide a strong case study.
Retailers are evolving in an environment where e-commerce limits the emphasis on physical retail for the sale of goods. While a physical presence still plays an important role, the post-e-commerce retailer typically has fewer stores with smaller footprints. Not all retail is the same, however, as restaurants, as a sector, are doing very well. Additionally, there is growth among grocery-store operators, who to this point have been largely insulated from the evolution of retail.
Over the course of the last five to 10 years, downtown Greenville has undergone a marked shift from a retail perspective. We are more-often finding regional and national chains establish operations in downtown Greenville, including CVS, Brooks Brothers, Anthropologie, and Kilwin’s. In general, these larger-scale tenants provide stronger credit than local retailers and as a result, are raising the expectations of what developers and landlords can expect in rents from their retail spaces.
This also coincides with a strong economy and the success of experiential retail. The types of retailers that are experiencing success are those that provide a strong experience that is impossible to replicate via e-commerce. Restaurants that pair quality food with a high degree of customer service meet the exact definition of experiential retail. There is a reason why restaurant retail is flourishing in downtown Greenville.
The retail sector is somewhat unique in that rate information can be misleading. It is not uncommon for locations as little as a block away to have asking rates from $4-$6 per square foot less than the rates on Main Street. Additionally, it is common for top-of-market rates to not be publicly advertised, as retail rates can vary greatly from tenant to tenant.
The availability of vacant space for prospective retailers is dwindling and helping to justify increasing asking rents. Greenville’s current top-of-market retail rent stands at $40 per square foot on a triple-net basis which, upon first glance, may seem high. Downtown retail tenants should take note, however, of the fact that top-of-market rents for Charlotte, Atlanta, Asheville, and Charleston are higher; in some cases, much higher. Top-of-market rates in Charleston exceed $90 per square foot. For the purpose of comparison, several other major cities in the Southeast and their respective asking rates are illustrated in the chart below.
Retail asking rates in downtown Greenville are dependent upon a number of factors such as property location, property size, the quality and the condition of the projected building space, as well as the accessibility and convenience of parking. For example, existing properties located along Greenville’s North Main Street maintain an average asking rent of between $24 and $30 per square foot, while those properties located on South Main Street are slightly lower, ranging between $19 and $25 per square foot. The average retail asking rent in downtown Greenville has fluctuated slightly over the last 24 months, but in general has been holding steady around $20 to $21 per square foot, which is affordable compared to other regional cities.
Without a doubt, Greenville is in the midst of an evolving commercial real estate market that will continue to adapt according to economic advancements, shifting demographics, and eventually, the resurgence of new construction. Keep in mind that mixed-use retail construction is often tied to the completion of projects in other sectors, meaning the generation of new supply is not solely driven by retail market fundamentals.
Tommy Molin serves as a vice president with CBRE’s advisory and transaction services team in the Greenville-Spartanburg market, specializing in retail properties. Molin focuses on the leasing, acquisition, and disposition of retail and investment properties in order to create value for property owners and occupiers. He is a native to South Carolina and has worked in the commercial real estate industry since 2001.