Charleston is entering into its ninth year of economic expansion, and retailers are feeling the pinch for new retail space as demand exceeds the supply of available space. It now takes up to 18 months to identify and move into a new space. This is the result of four factors, a few of which are unique to this Southeastern city.
The first economic factor that leads to difficulty for tenants to locate and move into a new space affects retailers across the country. Before the Great Recession in 2008, retailers were more willing to open a store in a variety of locations, since sales volume increased where ever there was a store opening. Since the recession, this is not necessarily the case, and retailers must focus on renting in core retail areas to see an increase in same-store sales during an opening of a new site. Nationally retailers now demand store space in established locations that include restaurants, health and fitness centers, and entertainment opportunities. In Charleston, vacancy rates in core retail areas are at 4.1 percent versus less desirable locations with a vacancy rate of 8.1 percent.
The second factor that makes it difficult to move into a retail space is that Charleston’s vacancy rate is historically low. The vacancy rate for Charleston was 6.1 percent, (excluding King Street locations) while one third of small shop spaces of 527,000 square feet are available to rent in North Charleston alone – the largest area geographically and lowest income levels in Charleston submarkets.
Retailers are left with a choice to either negotiate with current tenants who are doing poorly and want to break their lease early, wait up to 18 months for a new space under construction or for one being redeveloped, or wait for a current space to open up and make a bid for the space.
The development pipeline is more limited than in the past since developers also want new centers close to new residential developments, which is a particular challenge in the Lowcountry since the area has many protected wetlands. Investors and lenders are constraining the funds necessary to build new sites due to the glut of retail space nationally, and are limiting new retail development to property that is pre-leased or in core economic areas. By June of 2017 there were only three shopping centers with 152,110 of available retail space footage under construction in Charleston region.
Finally, the widespread construction boom in Charleston, has meant longer waits for the development of new retail space, since there is a diminished pool of construction workforce available to do the work, and overwhelmed development departments reviewing applications to issue permits, which can delay approval of a development project.
Source: Collier’s International Research and Forecast Report, Charleston, SC Q2 2017, “Patience Required for Charleston’s Retail Tenants,” by Ron Anderson
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