Sherry Jackson also contributed to this report.
As downtown Greenville’s core continues to mature, there are bound to be growing pains.
Businesses relocate downtown and then close or move to the suburbs. Restaurants and retail shops open and then seemingly close unexpectedly. Why? Is it that rent is too high along Main Street? Is it an inability to find good — or enough — employees? Can Mom and pop shops make it along with regional and national chains? Or, is this all just part of a regular cycle?
“We are still seeing the local restaurant and retail concepts calling Main Street home, but we have observed more and more out-of-market concepts entering downtown,” says John Odom, a senior associate broker with Avison Young.
The reasons for that are varied, he says.
Odom works side-by-side with Rakan Draz, also a senior associate broker with Avison Young, specializing in tenant representation — meaning they are acutely aware of the challenges that face local retailers and restaurant owners as they seek to open business downtown.
From lease negotiations with landlords seeing nearby comps at more than $35 per square foot, to understanding how drastically even the smallest square-footage increase can impact profit margins, Odom says it’s difficult to label one factor as an indication of success or failure. A main cause for budgetary increases, however, for both tenant and landlord is construction costs.
“Downtown has seen a rise in rents and construction costs over the past few years,” Odom says. “It is more expensive than ever to build a restaurant space, which means higher overall initial costs for both the tenant and landlord. Restaurateurs should think the less square footage, the better, and design the most efficient floor plan possible to maximize customer experience and sales.”
Additionally, Draz says he and Odom work with landlords and tenants regularly to find solutions that create a win-win scenario.
“It’s up to both landlord and tenant to work together at finding a middle ground during lease negotiations,” Draz says. “If landlords are presented with a qualified operator that has a solid concept in tow, then an incentive in the form of ‘free rent’ or tenant improvement allowance could help compel a prospective tenant’s ability to pursue a longer term lease while making it easier to pay the current rates we are seeing in the CBD.”
As for restaurant closings, Odom says multiple factors come into play.
“There are more people downtown than ever before but also more restaurant competition,” he says.
The downtown vacancy and lease rates alone don’t tell the whole story, as they fluctuate depending on when they are gathered and reported, but they can help springboard a discussion about the climate of retail and restaurants in Greenville’s central business district.
As of second quarter 2018, downtown Greenville’s retail vacancy rate was at 7.4 percent, according to CBRE, a commercial real estate investment and services firm. That’s higher than it’s been since 2011. But the number has dropped in Q3 closer to 4 percent, according to CoStar, a commercial real estate information company.
At the same time in Q2 there was also 186,506 square feet of vacant retail space, which is also the most since 2011. The average retail rent in Q3 is sitting around $22.6 PSF but is still way above the $13-$14 PSF average of 2011.
CBRE says 39 percent of tenants downtown are restaurant or food-service retailers.
“I think the most important statistic to look at is the rise in rental rates in downtown Greenville versus tracking the vacancy rates,” says Tommy Molin, vice president, CBRE. “When you look at vacancy rates, available space is tracked as soon as it is being marketed. There is a lot of retail space under construction in new mixed-use projects that takes several years to complete. More importantly, much of this retail space is already pre-leased but announcements are normally made several months later or once project is nearing completion which can cause an increase in the vacancy statistic.”
More and more regional and national players are eyeing downtown’s celebrated Main Street because of multiple factors, while our average lease rates in the low-to-mid $20s are inching near those of larger markets, such as Nashville, Tennessee, and Austin, Texas.
“Greenville is on the map,” Odom says. “The quality of life and the approachability of our downtown is attractive for locals and tourists alike. Downtown is a logical landing spot for national and regional tenants to consider when choosing a location in the Greenville market.”
So how do other similar cities in the region compare to Greenville?
Like Greenville, Nashville’s urban downtown market is experiencing tremendous growth. At mid-year, Nashville had 600,000 square feet of retail space under construction, reports Colliers.
“Nashville’s retail market is extremely hot and competitive for both dirt and shop space,” says Drew Wagner, a broker at Colliers. “Recent trends in food and beverage have shown a shift from mom-and-pop establishments to both local and regional hospitality groups.”
Nashville’s vacancy rate is around 3.5 percent with an average market rental rate of $23.50 PSF.
Downtown Charleston is South Carolina’s No. 1 tourist attraction, so it’s no surprise that rental rates are high at $49.63 PSF. Restaurants play a huge role in Charleston’s retail mix with 32 restaurants opened in the second quarter of 2018 with another 18 coming soon, according to Avison Young. But Charleston’s retail boon isn’t just downtown. Areas including Mount Pleasant, North Charleston, Summerville, and others are all experiencing growth with an average vacancy rate of 4.2 percent and average asking retail rent of $22.48 PSF.
Our state capital has been having its own downtown renaissance but is still somewhat affordable — at least for now. The average retail rent is at $11.89 PSF, reports CoStar, with 95,469 square feet of retail space under construction as of mid-year 2018. The retail vacancy for the second quarter of 2018 came in at 5.4 percent.
Technically, Austin is outside our region, but many compare Greenville to Austin and look to the Texas city as where Greenville is headed — so much so that a few years ago, a group of city and business leaders traveled to Austin to tour the city to meet with their leaders to discuss infrastructure, growing pains, and planning strategies.
According to NAI, the “retail market fundamentals are on fire,” with occupancy at 95.8 percent and 366,000 square feet absorbed in Q2 2018, down slightly from the previous quarter’s 424,000 square feet. Retail rental rates in the Austin market are at $22.03 PSF for the metro area and $27.09 PSF in the central business district.