The Charleston metropolitan area continues to see rapid expansion in its population, and is expected to grow over the next five years at a rate of 39 people a day moving here. Charleston is expected to have 810,000 people calling this area their home, and is considered one of the fasting growing cities in the nation. Tourism continues to grow with 1.9 million people coming through arrivals at Charleston International Airport. Construction of 556 hotel rooms were added in the past two years, and 1,300 hotel rooms more are expected to be built. This growth has a strong impact on the city’s retail market.
The strong residential growth has led to a more difficult regulatory environment, and increasing land and construction costs. Landlords are remodeling and renovating their shopping centers to take advantage of a robust retail market, and in response to the new challenges faced in developing new buildings. Many shopping centers are renovating and remodeling to upgrade their tenant mix. Landlords are raising rental rates and net operating incomes. The rental rate for retail space has increased by 6.6 percent in the last year and is at $23.24 per square foot, with a 6.2 percent vacancy rate, according to Colliers International latest research and forecast report, “Tightening Market Leads to Shopping Center Repositioning.”
Factors leading to a tightening market
Construction is booming throughout the Charleston market for all properties, creating a constrained labor market, and higher labor costs. The Bureau of Labor Statistics in South Carolina shows that hourly wages for the construction industry has increased by 28 percent to $23 an hour since 2007. Since 2011 overall the hourly rate for labor in the Southeast has gone up for general laborers from $13.97 to $15.42. The hourly rate for the work of heavy equipment operators has gone up from $23.77 to $28 in 2016.
The availability of land for retail development in Charleston is constrained due to increased regulatory requirements. The new flood zone maps recently became effective, with new requirements for higher elevation and strengthened wetland protections. The growth in residential populations has led to more opposition to new development for all properties and the prolonging of the permitting process. All these factors have made the reuse and repositioning of existing properties more attractive to investors and landlords.
Source: Colliers International Q4 2016 Research and Forecast Report, “Tightening Market Leads to Shopping Center Repositioning,” by Bryana Mistretta
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