S.C. enjoys strong growth in commercial real estate markets statewide
By John C. Stevenson And L.C. Leach III
Leaders in South Carolina’s real estate industry said there is great growth potential statewide in the commercial real estate market, in many cases either despite of or because of the lingering grip of the Covid-19 pandemic.
That forecast for Palmetto State commercial real estate seems to mirror national indicators as well, as states work at varying degrees to shake off the economic consequences of the pandemic.
“I think, truly, we are seeing a rebound or resurgence in all three (geographic) markets in South Carolina,” said Greenville’s Steve Smith, CBRE managing director of South Carolina. “When the pandemic became real in March of 2020, things kind of came to a screeching halt, especially on the office side of things, and retail.
“Much to the opposite,” he continued, “the industrial market kicked it into high gear and almost had a record year (at CBRE) from an industrial standpoint.”
Smith said the office-space market was particularly hard hit in 2020, not just in South Carolina, but everywhere.
“During the pandemic in 2020, very few office tenants were looking to relocate or renew or get more space,” Smith said. “They were just really trying to figure out this work-from-home experiment.”
Smith also noted that smaller commercial real estate markets throughout the Southeast have been better protected during the pandemic than traditionally high-flying markets such as New York City, Chicago and Atlanta.
“Usually what happens in a down curve, in South Carolina we don’t feel the extremes – we don’t have that far to fall, and we don’t have that much room to increase the activity level,” he said.
David C. Lockwood III, Columbia-based executive vice president and CEO of Colliers International – South Carolina, concurred, and noted the strength of the pre-pandemic real estate markets in the state.
“This time a year ago, you could say the market was incredibly strong across the board,” Lockwood said. “Every product type had really strong fundamentals, investment had really strong fundamentals for the investment market. We were not seeing overbuilding, but we were just starting to see an appropriate amount of (speculative) building in each of the markets (Upstate, Midlands, Lowcountry).”
A Feb. 16 Wall Street Journal article, “Foreign Investors Load Up on U.S. Warehouses,” also noted the growing popularity of smaller U.S. cities as potential markets of interest for global investors.
“While foreign investors traditionally have focused on the major U.S. cities they have visited and know best, brokers say some foreign investors are warming up to the idea of buying real estate in smaller, sunnier cities…” the newspaper reported.
Lockwood said the Palmetto State is reaping benefits from this changing investment pattern, and credited a surprising culprit.
“It is because of the pandemic,” he said. “It changed everything. It changed the logistics and supply chain. It changed global manufacturing, bringing a lot of that global manufacturing back to the United States – onshoring it. And where’s the preference for some of those manufacturing plants to be located is the Southeast. They don’t want to be in the Northeast, they don’t want to be on the West Coast. So, the Southeast has become a really preferred market for manufacturing to move back into the United States.
“If you look at the Southeast, where do you want to be?” Lockwood continued. “Really, the heart of the South is where you want to be, and that is why we’re seeing a lot of activity in South Carolina.”
Smith said South Carolina offers a variety of benefits for businesses looking for real estate. He noted the state’s “pro-business climate” and right-to-work laws, as well as the overall cost of living. Lockwood included the state’s “aggressive” economic-development programs as another effective lure for businesses and industry.
Another pandemic-related change that is benefitting the state has been the intensified shift to online shopping from in-person shopping, for everything from groceries to automobiles. The change is a driving factor behind a dramatic increase in warehouse construction, from the foothills to the coast.
“Warehouses have built up,” Lockwood said. “New warehouses are being constructed. Large distribution centers – the land is being purchased and they are being built, whether it is Port of Charleston, the Inland Port in Greer; whether it’s central South Carolina.”
Office space, however, continues to be a question mark on the real estate landscape.
“We feel that the office users, office occupiers – again, there’s going to be some impact from the work-from-home initiative or experiment, but we really feel like it’s too early to tell what the total impact will be,” Smith said.
Meanwhile, social distancing and other safety precautions “have upended demand for office space, retail stores, hotels and other types of commercial real estate where close-contact and engagement is intrinsic to the property’s value proposition,” said Charles Dougherty, an economist with Wells Fargo in Charlotte. “And while the pandemic has certainly had a profound impact on commercial real estate, what is less certain is to what extent the short-term, stop-gap measures put in place to contend with the pandemic become long-lasting.”
At the beginning of Covid-19, many people were forced to consider a remote-shopping option for safety – and then chose to keep it once the heart of the danger had passed.
Now, more than a year after the pandemic first hit South Carolina, Wells Fargo reports that remote shopping, such as provided by Walmart and Amazon.com, led to retail vacancy rates rising to 5.1 percent in the final quarter of 2020.
By the end of 2020, this vacancy contributed to more than 12,000 U.S. stores closing, amid a rising tide of bankruptcies.
“The decline (of retail) has only been hastened by an aversion to in-store shopping and accompanying leap toward purchasing items online,” Dougherty said.
But, he added, the recent hardships of retail can’t be laid entirely at the door of the pandemic – especially since “a vaccine will clearly help bring back all forms of in-store shopping.”
“Rumors of retail’s demise have been greatly exaggerated,” he said. “Even with a growing share of sales occurring online, retail sales have more than bounced back from the initial losses experienced last spring, and total sales were up 7.4 percent on a year-over-year basis in January.”
The addition of curbside service and e-commerce platforms are not only expected to grow in the retail sector, but oddly, make in-store shopping more attractive.
Dougherty likened it to the “town-center” concept of incorporating traditional outdoors activities, such as gyms and playgrounds, with residential, office and entertainment, banks, hair salons and medical facilities.
“Not only do we see town-center formats flourishing, but we also see many traditional enclosed shopping malls transitioning toward this format,” he said. “Retailers will also increasingly incorporate a ‘bricks and clicks’ strategy that utilizes the efficiency and time-saving aspects of e-commerce, while having a limited physical store to fulfill the need for consumers to vet products for quality and authenticity in-person.”
Remote Working, Remote Officing
Not so long ago, working from home was a rare luxury. Now in many places, and for many
businesses, it’s becoming the new normal of business and thereby saving money on office space and other rental expenses.
“The need to socially distance has necessitated work-from-home (WFH) for most office workers, which has led to weaker demand for office space,” Dougherty said.
Matt Carter, broker in charge with Berkshire Hathaway’s Joyner Commercial in Greenville, added that since much of the U.S. workforce has the technology to work from home, large companies “no longer need to locate in primary markets with similar employers.”
“And employers have, for decades, wanted to shrink the overhead attributed to building cost,” Carter said.
As of Feb. 19, 2021, Joyner Commercial reported that Greenville County had 9,504 existing commercial properties, representing 167.56 million square feet of commercial real estate. But at that same time, the county also had 10.45 million square feet of vacant commercial space.
“This vacancy of 6.2 percent is about one-and-a-half percent higher than 2018,” Carter said. “Commercial vacancy has grown slightly but steadily from 2018 through 2020. But with that said, we have also added about 3 million square feet of commercial space during that time.”
And like the expected rebound of retail, Carter also expects the demand for commercial office space to be potentially higher in the future due to more migration by people from other states – and the need to “still interact with co-workers.”
“Concepts like team work, camaraderie, and synergy are real,” he said. “And while everyone expects more work-from-home jobs and flexibility to result in less office space demand, long-term effects may also include employers migrating too to be near a readily available employee base. Which could further mean needing a larger amount of square footage for employees who have to come into an office or a work space away from home.”
So which direction will gain more of an upper hand in 2021?
Colliers International, a global leader in real estate services and investment management, predicts that it will depend on two factors: the number of pandemic vaccines that come available in the next several months; and, the end of the coming summer because of current space leasing agreements.
“A lot of space is going to be up for renewal in the fall, so patrons are going to have to make a lot of decisions soon about renewing leases or let employees continue working from home,” said Ron Anderson, Colliers’ vice president of research in Columbia. “Most national and regional firms are deferring any changes to their location or configuration until a vaccine is largely deployed and they feel they can safely reenter the workplace. We believe this will be around Labor Day.”
Elsewhere, experts say hotels, restaurants, entertainment, and many forms of tourism are desperate for business.
“No other industry was hit as hard by Covid-19 as the tourism industry,” said Duane Parrish, director of the South Carolina Department of Parks, Recreation & Tourism (SCPRT). “And no other industry has experienced such a prolonged recovery.”
In the first two months of the pandemic, 140,000 tourism jobs were wiped out within just a few weeks – roughly half of all the tourism jobs in South Carolina.
In that same time frame, SCPRT reported tourism revenue losses amounting to $2.1 billion, and Parrish added that for all of 2020, “we are estimating about a $6 billion loss in revenue to state tourism.”
The outlook for 2021 is more hopeful, but no one knows how long the losses will continue.
Hotels, for instance, which are an integral part of commercial real estate and vital to the state’s tourism and business economy, have had far more vacancies than patrons.
For the week ending Feb. 20, 2021, overall occupancies in South Carolina hotels were at 45.1 percent. That means that for every 45 rooms occupied on any given day that week, 55 were vacant.
Reflected in year-to-date numbers, South Carolina hotel occupancies dropped from 2.9 million occupied units in February 2020 to 2.4 million in February 2021 – a total year-to-date loss of 500,000 units.
And considering that the number of regular hotel rooms in all of South Carolina total approximately 115,000, the expected continuance of this downward trend through 2021 doesn’t equate to nearly enough friends for all of the state’s current hotels to keep operating.
“Hotels that cater to the business traveler and conventions are suffering mightily,” Anderson said. “And they will continue to suffer until mid-2022 when business travel returns.”
However, “assuming vaccine deployment is successful, there will likely be a resurgence in bookings, as consumers seek to make up for vacations, weddings and other special events that were canceled in 2020,” Dougherty said.
Unlike retail, hotel and office, the Industrial sector has not only prospered through the pandemic, but is expected in 2021 to surpass what is already being seen as unparalleled growth.
“The industrial sector of the commercial real estate market has benefited from soaring e-commerce sales and increased demand for warehouses and distribution facilities,” Dougherty said. “It’s a trend that we expect to continue in the years ahead.”
Colliers reports that the state’s industrial market comprises about 449.2 million square feet within 6,967 buildings.
And the amount of industrial space is growing at a pace that is barely able to meet demand:
In Columbia and the Midlands region, the industrial market is at an all-time high, with the addition of 765,000 square feet each year since 2016. And from 2016 through 2020, vacancy rates decreased from 10 percent to 3.81 percent.
During the fourth quarter of 2020, Greenville-Spartanburg’s industrial market absorbed 1.73 million square feet. Within the next three months, it is expected that all industrial construction – both new and speculative – will already be absorbed, and that new development will be crucial to keep up with demand.
In the Charleston area, 1.12 million square feet of industrial construction is in the pipeline.
Developers are searching for land sites to acquire new industrial properties, and buildings completed in the next 12-18 months are expected to be quickly absorbed.
“Charleston continues to attract out-of-market businesses due to ongoing success of the ports and convenient logistics throughout South Carolina,” Anderson said. “And due to an uptick in home improvements during the pandemic, home goods, furniture and home improvement businesses are thriving and looking to expand or find new space.”
Millions of square feet of commercial space
currently under construction around SC
By John C. Stevenson
South Carolina’s appeal as a place to start or grow a business has led to a bumper crop of commercial real estate projects across the Palmetto State that are currently either planned or underway, with many of these projects slated for delivery in 2021.
While Charleston and the Upstate both draw much of the attention, the Midlands has also demonstrated its appeal as a destination for business, with offerings including the University of South Carolina’s main campus as an integral part of a vibrant downtown.
“White Claw (Mark Anthony Brewing) was the largest industrial announcement in South Carolina in the past year, and it’s being built in Columbia,” said David C. Lockwood III, Columbia-based executive vice president and CEO of Colliers International – South Carolina. “We’re just seeing a flood – in a good way – of industrial opportunities in South Carolina.”
Among the dozens of projects currently underway across the state are:
Walmart Ridgeville Import Distribution Center
Walmart has invested $220 million in this Dorchester County project, which is expected to be completed this year. The distribution center is expected to create 1,000 jobs, according to S.C. Gov. Henry McMaster. The almost-3-million-square-foot center is in the Ridgeville Industrial Campus, located adjacent to Interstate 26. When completed, the distribution center will supply goods to as many as 850 Walmart and Sam’s Club stores through Walmart’s regional distribution centers. The distribution center could increase volume through the Port of Charleston by as much as 5 percent, according to port officials.
Charleston Trade Center Tract 1A
At 1,019,200 square feet, this building under construction at the Charleston Trade Center is the largest speculative industrial facility ever constructed in the Charleston area, according to the Frampton Construction website. The facility is located on an approximately 62-acre tract adjacent to Interstate 26, and will feature 120 dock doors, two drive-in doors, and ample parking for automobiles and trailers.
The project was developed by The Keith Corp. in partnership with the S.C. Ports Authority; leasing is through Jones Lang LaSalle Inc. Greenville’s McMillan Pazdan Smith Architecture completed the building design. The project is slated to open in the fourth quarter.
The Bullstreet District
The redevelopment of the property that was once home to the S.C. State Mental Hospital promises to be transformative for Columbia and the Midlands of South Carolina. According to master developer the Hughes Development Corp., the 181-acre tract located off Bull Street in Columbia’s downtown is home to the largest urban-revitalization project in a downtown city east of the Mississippi River.
While the project is years from its ultimate completion, it is already the home of Columbia’s Minor League Baseball team the Fireflies, which plays at Segra Park. Hughes Development also notes that the master plan for the mixed-use project has conserved 275,000 square feet of historic buildings within the project.
Mark Anthony Brewing
The brewing company responsible for the popular White Claw Hard Seltzer and Mike’s Hard Lemonade brands, among others, has invested $400 million to construct a state-of-the-art brewing and production facility in Richland County that will bring 300 new jobs to the area. It is billed as one of the largest breweries to be constructed in the United States in more than 25 years.
The facility, located in Columbia’s Pineview Industrial Park, will produce White Claw, Mike’s Hard Lemonade, Mike’s Harder Lemonade and Cayman Jack Cocktails. The facility will also include warehousing and distribution capabilities. Production is scheduled to begin mid-year.
Hong Kong-based TTI, a manufacturer of a wide range of consumer and industrial products including power tools under the Milwaukee and Ryobi brands and vacuum cleaners under the Hoover and Dirt Devil brands, is in the midst of a $100 million expansion at its facilities in Anderson County. The investment is expected to bring as many as 525 new jobs to the Upstate over the next several years. Completion is currently slated for 2022. The project will include the construction of a 1 million-square-foot manufacturing plant and warehouse that will support production and assembly operations at the facility.
Greenville County Square
The project to redevelop Greenville County’s County Square took a step forward in January when ground was broken on a new administration building. This early phase of the $1 billion redevelopment project is expected to cost $68 million, and will use about five acres of the tract that comprises almost 40 acres in downtown Greenville.
Project development is being overseen by developer Phil Mays of RocaPoint Partners. Construction on the administration building is expected to be completed in 2023, at which time plans call for the demolition of the original County Square complex to make way for further development of the tract. Complete buildout of the redevelopment could take as long as a decade, according to Greenville County officials.
As currently envisioned, the completed administration building project will include 250,000 gross square feet spread through two, five-story office towers that will be connected by a common terrace level, a landscaped courtyard, bridge and exterior structural canopy.
Fox Hill Industrial Park
In June 2020, the Greenville Area Development Corp. announced plans for the creation of Greenville County’s first new Class A business park in almost two decades – Fox Hill Business Park, located on a 172-acre tract in Fountain Inn, at the southern end of the county’s Golden Strip corridor.
According to the developer, New Jersey-based Sudler Cos., when built out, the site will include 2.5 million square feet of industrial and distribution development, and could bring almost 2,200 new jobs to the area.
Pattillo Construction and McMillan Pazdan Smith have been chosen for design and construction of the first building, which could include up to 206,410 square feet of speculative industrial space.