By Tommy Molin
If there is one thing that is clear about the retail sector in the Greenville and Spartanburg central business districts, it is that the process for accurately assessing and predicting market conditions is getting more complicated. Recent data offers a conflicting message:
In the last three quarters:
Overall market vacancy rates for Class A and B retail properties: +830 basis points to 5.0%.
Rents: -5% to $12.13 per square foot on a triplet-net basis.
Greenville CBD vacancy rates: +5,200 basis points to 8.9%.
Rents: +27% to $25.51 per square foot.
Spartanburg CBD vacancy rates: +2,100 basis points to 7.8%.
Rents: +9% to $15.64 per square foot.
What do the retail stats above really mean? What is really happening in our market affecting these statistics? Retail rates vary greatly and are dependent upon the location, demographics, traffic counts, age, size, access, parking and visibility, as well as other factors.
When you look at the suburbs outside of the Greenville CBD and Spartanburg CBD, which
make up the majority of the overall market, existing Class A and B retail centers have been leasing up due to little new inventory, thereby reducing vacancy, and rates have remained steady for the product type.
The asking rents for existing Class A properties in the suburbs on desirable corridors with over 25,000 vehicles per days and favorable demographics typically range from $18 to 22 per square foot, and Class B properties typically range from $12 to $16 per square foot. The existing centers that are located on corridors with lower car counts and less favorable demographics have lower asking rents. Total market rates include a blend of all of these property types and averages $12 to $13 per square foot.
The majority of new development and redevelopment over the last 36 months in our market has been centered around grocery-anchored or urban mixed-use projects, which is a consistent trend in the U.S. With rising land cost and construction cost, asking retail rents for new projects typically range from $25 to 35 per square foot. The retailers that can afford to pay this rent must have high sales volumes that benefit from the anchor grocer or can maximize the benefits of an urban mixed-use setting — proximity to local residents, daily workforce and tourism.
Over the last 12 months in downtown Greenville and downtown Spartanburg, vacancy rates increased and asking rents also increased, which may seem counterintuitive. A deeper dive
reveals many of the new mixed-use projects in the CBD take a long time to develop and the retail spaces typically lease up after the major anchor (hotel, apartments, office) is open. The income generated from the anchor typically makes each project economically viable on its own. As a result, landlords of retail spaces in mixed-use projects can be patient to select suitable tenants who add value to the project and surrounding area.
Additionally, in the last quarter, several high-profile newer locations have come on the market in the Greenville CBD specifically with higher asking rents that have raised the average. The market rent (rent that tenants actually pay) can vary in CBD locations by $10 to $15 per square foot, depending on the block where a property is located. When evaluating older CBD properties, it is important to have a clear understanding of the market rents on that block but more importantly have a firm understanding of the cost to retrofit an older building to meet current code for a tenant’s use so that you can compare competing properties apples to apples.
Recent retail headlines communicate a clear message of retail’s decline. While it is true that many retailers are struggling in their adjustment to incorporate stronger e-commerce, the sector is still filled with opportunities. Due to conflicts between headline risk and confusing market conditions, the value of well-informed advisement has never been greater.
Tommy Molin is vice president of the Retail Group at CBRE in Greenville.
