2002 is shaping up to be a busy year in the Carolinas with dozens of retail projects in the works.
Two of the largest projects are slated for North Carolina's Raleigh-Durham market. The 1.3 million-sq.-ft. Streets at Southpoint opens in Durham this month, while the 1.2 million-sq.-ft. Triangle Town Center is scheduled to open in Raleigh in late summer.
“There is a very high predominance of growth industries around Raleigh-Durham in both the operational as well as the research side of the equation,” says Rick Polley, general manager for Streets at Southpoint, a new development recently acquired by The Rouse Co. from Rodamco North America. Research Triangle Park, for example, is home to a variety of firms ranging from Cisco to GlaxoSmithKline. “The diversification really helps in protecting us in significant downturns, and also allows us to enjoy sectors that are starting to blossom,” Polley says.
The Carolinas' solid economy has piqued both developer and investor interest. “The economies are well diversified in both states,” says Mike Burkard, vice president of investment properties at CB Richard Ellis in Charlotte. The Carolinas continue to be dominant in traditional sectors such as manufacturing, textiles and agriculture. Manufacturing accounted for 1.3 million of the 5.7 million jobs in the Carolinas in 2000, according to the North Carolina Department of Commerce. The coastal region of both states fuels tourism with destinations such as Myrtle Beach, S.C., and Cape Hatteras, N.C.
In addition, industries such as technology and financial services play an increasingly important role in the regional economy. Raleigh, Durham and Chapel Hill, or “The Triangle” as it is known, have gained a reputation as a high tech hotbed. Financial firms are another formidable niche solidified by companies such as Charlotte, N.C.-based Wachovia Corp.
“The Carolinas, in general, do not see the major swings that you see in a New York or California,” says John F. Bemis, a senior vice president with Jones Lang LaSalle in Atlanta. “They have a very diverse economy that is nicely spread across industries such as manufacturing, high tech and agriculture.”
In November, Jones Lang LaSalle took over the management and leasing of the 800,000-sq.-ft. Greenville Mall and neighboring 200,000-sq.-ft. Plaza at Greenville Mall. “We are very bullish, especially on Greenville,” Bemis says. “We are still seeing retail expansion, and the market is shifting into the Greenville Mall section of town.” The Plaza is 100% occupied, while plans are underway to redevelop Greenville Mall.
The two largest markets in the Carolinas — Charlotte and the Triangle — are attracting both developers and investors. “They have very good growth dynamics, and above-average household incomes and education levels,” Burkard says.
The seven-county Charlotte retail market spanned about 40.7 million sq. ft. as of July 2001. New construction helped to push the vacancy rate from 8.9% in January to 9.4% at mid-year. Net absorption of 676,000 sq. ft. was surpassed by completions of 1.1 million sq. ft, according to a market report by Karnes Research Co. in Raleigh. More than 2.3 million sq. ft. in 22 projects were under construction on July 1, and another 3.1 million sq. ft. of proposed space was scheduled to start construction by first quarter 2002, according to Karnes.
The inventory of shopping center space in the Triangle was 29.2 million sq. ft. at mid-year 2001. The vacancy rate for retail space in the Triangle inched up slightly from 3.7% in January 2001 to 4.2% at mid-year, according to Karnes. Nearly 500,000 sq. ft. was built during the first six months of 2001, and a total of 4.4 million sq. ft. of retail space was under construction as of July 2001.
Retail vacancies have increased due to retailer closings and new construction. “What North Carolina is experiencing as far as some over building in some sub markets is a mirror image of what has happened nationwide,” Burkard says. In addition, there is likely to be some tenant fallout in the early part of 2002 as retailers such as Service Merchandise and Phar-Mor close stores in the Carolinas due to bankruptcy.
The tenants that will drive activity in the next 24 months are grocery and discount chains such as Bi-Lo, Wal-Mart, Target and Kohl's. Bi-Lo is expected to expand in 2002 with plans to enter Raleigh and Fayetteville, and make a push into coastal markets, Burkard notes.
Kohl's opened its first and only South Carolina store in Greenville in October and has acquired two sites in the Columbia market, notes Michael Dodds, MAI, CCIM, Managing Director of Integra Realty Resources in Columbia, S.C. Walgreens has returned to the South Carolina market by building seven stores in the past couple of years, and others are under construction or planned.
The Streets at Southpoint and Triangle Town Center will have a significant impact on the Raleigh-Durham market. The Streets at Southpoint will be the first super regional shopping center to open in Durham in the past 20 years with anchors that include Nordstrom, Hecht's, Belk, JCPenney and Sears.
“Quite frankly, I think it will turn the market on its end a little bit,” Polley says. Significant changes are already in the works as anchors such as Belk and Penneys plan to close existing stores at nearby South Square Mall in Durham and University Mall in Chapel Hill. “That is going to create some additional pressure on remaining occupancy at those properties,” Polley notes.
Ultimately, 2002 will likely be a year of moderate growth as the Carolinas absorb new space, and retailers wait for an economic rebound. “We are seeing a slowdown in construction commensurate with the slowdown in retailer expansion plans,” Burkard says.
Beth Mattson-Teig is a Minneapolis-based writer.