CAROLINAS RETAIL ENTERS ITS EXPANSION PHASE CAROLINAS from page 1 The Bowl of Ballantyne will serve as a retail component for the 2,000-acre Ballantyne master-planned community in south Charlotte. The Bowl will feature two residential towers and a concert venue, as well as shops and restaurants including the second location of Olde Mecklenburg Brewery, [solidcore] and Flower Child (above right). “So when they go to the mall, they know that what they’re looking for is going to be there, where they can get it and what options they have,” says Lebovitz. “It’s a program we’re test-ing over the next year to determine if it’s feasible to rollout further. The way tech is interfacing with physical stores is a big change coming out of COVID.” After years of muted development, the retail sector is now expanding in an exciting way, albeit conservatively as interest rates remain elevated. “Retail never got too overheated; it performed well through COVID, much to people’s surprise,” says Adam Russ, senior vice president of CBRE National Retail Partners group covering North and South Carolina retail investment sales. “Retail has emerged in a better place than where it was. Institutional capital is now looking at retail and is coming up with more strategies to get involved.” These trends are especially preva-lent in North and South Carolina, a two-state region that is a popular landing spot for consumers and re-tailers alike. Geoff Beans, senior as-sociate of NAI Earle Furman, says that brands such as Whataburger and Wawa are coming to the Carolinas in an effort to tap into the region’s growth story. “A lot of proven brands that are al-ready in other regions of the country are choosing North and South Caro-lina for their next steps of expansion,” says Beans. Will Sherrod, broker and retail spe-cialist with NAI Charleston, adds that the Carolinas are benefitting from be -ing in the larger Southeast region and surrounded by other growing mar-kets such as Atlanta and Nashville. “The general trend is that the Southeast is where everybody wants to be — whether it’s retail, industrial or even office,” he says. “Charleston is a good market and it’s a good time to be doing what we’re doing.” While retail is expanding, generally speaking a lot of what is coming out of the ground are unanchored retail centers, which typically range from 10,000 to 20,000 square feet, as well as single-tenant, net-lease concepts that serve as outparcels or occupy lone hard corners. Russ says that even with rising interest rates, these types of devel-opments are still being executed be-cause the retailers are willing to “pay the freight” of higher rental rates that cover the elevated construction costs. “There is really no shortage of ten-ant demand, the limiting factor is re-ally just quality land sites,” says Russ. “Especially on the single-tenant side, these developers really don’t have any issue making deals pencil out, as long as they can get a hold of a qual-ity site.” “Interest rates are certainly stack-ing against developers on one hand, but that stack cost gets transferred straight to the retailers,” adds Sher-rod. “And increases in property in-surance is certainly having an impact because owners are passing those expenses on to a tenant in triple-net leases. Premiums are doubling in some cases and they’re trying to pass those on to their tenants that may be stretched a little thin already.” Russ adds that the demand is so high for unanchored developments in part because of how the U.S. work-force has adapted to hybrid and re-mote work schedules. Many of these strip retail centers are cropping up in suburban markets, which have seen a renewed level of traffic thanks to workers sticking closer to home throughout the work week. The “big four” markets in the Caro-linas are Charlotte and Raleigh-Dur-ham in North Carolina and Green-ville-Spartanburg and Charleston in South Carolina. All four have experi-enced strong fundamentals in terms of rental rate and occupancy growth due to limited construction in recent years. According to fourth-quarter 2023 research from Colliers, Charleston had a nearly 3.8 percent vacancy rate and Greenville-Spartanburg had a rate of over 4.1 percent. Reagan Crabtree, partner of The Providence Group, says that the ta-bles have completely turned in his home market of Raleigh-Durham and that the lack of available space is now the challenge for those tenants seek-ing to enter the market. “The biggest issue is the lack of op-portunity, or existing vacancy,” says Crabtree. “The Triangle has a very, very low vacancy rate in retail.” Big four taking off As retailers try to overcome the competition due to low availability of existing retail space and adequate land sites in the Carolinas’ top mar-kets, the supply-demand dynamic is also tipping the scales due to lofty de-mand. Demand drivers including em-ployment and population growth are increasing the need for retail space of all genres. Citing the city’s history of financial services and its growth in sectors in-cluding healthcare and energy, Russ say that Charlotte is a ‘boomtown,” with multifamily developers active-ly building all around the market to house the city’s swelling population. “Young people are moving here in droves, there’s a lot of growth in the city’s multifamily sector,” says Russ. According to research from North-marq, there were nearly 30,000 apart-ment units under construction in metro Charlotte at year-end 2023. For context, the average for deliveries be-tween 2018 to 2022 was approximate-ly 8,700 units per year. Crabtree concurs that employment growth in Raleigh-Durham has been a catalyst for the retail sector’s de-mand. The market also benefits from its legacy growth due to its concentra-tion of top-tier universities including Duke University, University of North Carolina at Chapel Hill and North Carolina State University, as well as healthcare systems and life science users within Research Triangle Park (RTP). “We’re getting announcements on a regular basis from tech companies,” 18 • March 2024 • Southeast Real Estate Business www.REBusinessOnline.com
Southeast Real Estate Business March 2024: Page 18
