Charleston’s rising star is shining a light on another economic milestone, with sales of investment real estate breaking through the $1 billion barrier for the first time last year.
The figure comes from a new report by Colliers International that looked at acquisitions of commercial real estate in the local market in 2015.
It was the sixth straight year of sales gains of income-producing properties, from apartments to shopping centers to office buildings.
“Charleston is just a great place right now to own real estate and be a seller,” said Scott Rogers, senior brokerage associate and investment sales specialist at Colliers’ downtown office.
Newcomers to the market are driving much of the buying activity, which mirrors what’s happening on the residential side of the market.
The bulk of the horse-trading last year — or 52 percent — was concentrated in the rapidly expanding apartment sector, with 26 deals totaling nearly $522 million, according to Colliers. The biggest transaction was the sale the 253-unit Riviera at Seaside Farms in Mount Pleasant, which a Yonkers, N.Y.-based firm snapped up for $60.5 million from an affiliate of The Beach Co.
“A growing demand for rental units and the consequent rise in occupancy and rental rates are driving investment in this segment,” according to the Colliers report.
Shopping centers came in a distant second last year, with sales of $131 million.
As Rogers sees it, the region’s above-average employment and population growth and a growing list of blue-chip employers are the big draws for these deep-pocketed investors.
“Certainly, Boeing, Volvo and Mercedes-Benz are catalysts for job growth, and that’s where investors want to be — where jobs are being created,” he said. “And those are good jobs. That creates demand for office space, shopping centers and warehouses. It becomes kind of a self-fulfilling prophesy.”
Other factors are in play, such as access to cheap money.
Also, commercial investors are now willing to look at smaller cities with strong fundamentals, like Charleston. The reason is that the returns they can earn in the now-overpriced major “gateway” real estate destinations are too paltry.
“From a population standpoint, we’re still a tertiary market. From an investment standpoint, we are not,” said Chris Fraser, managing director for South Carolina for the commercial real estate firm Avison Young.
Fraser said outside investors with deep pockets are more familiar with the region than they were in previous real estate cycles.
“Charleston has been continually pushed to the top of the page in just about every publication you can think of — whether it’s for business, for tourism, for the technology industry, whatever,” he said.
That can go a long way in putting a smallish but stable market on the map, he said.
“So we have capital from other places coming here in volumes we have not seen before,” Fraser said.
Those investors also are willing to accept lower returns on their money, generally in the 6 percent range for a fully leased property.
“Which is a statement of confidence about our market,” Fraser said.
One of the downsides of the investment boom is that local investors with fewer financial resources are getting priced out. A related concern is affordability, which can exacerbate other issues, namely traffic.
“We don’t have the dot-on-the-map with the 360-degree radius to grow like Greenville,” Fraser said. “We’re bottlenecked to grow in one direction. The close-in stuff has become extremely expensive.”
An almost rhetorical question is how the jump in commercial real estate prices will play out as leases expire at apartments, offices, warehouses and shopping centers, particularly in the more desirable locations. Some local King Street retail tenants already know the answer.
So-called institutional investors have been parking their cash in Charleston properties for decades, but mostly it was limited to big insurance companies and publicly traded real estate investment trusts. Now, tight-lipped hedge funds and private equity firms are part of the mix.
It’s difficult to pinpoint exactly when this investment boom started, but the momentum picked up after Boeing announced in 2009 that it would build its 787 Dreamliner at Charleston International Airport. The region’s sterling reputation as a tourist destination has triggered a surge in hotel sales and development activity. Also the port is growing, feeding demand for warehouse space.
Looking out, Charleston’s star doesn’t appear to be dimming anytime soon. Colliers noted that interest rates remain low and that local occupancy rates are tightening.
“The investment sales outlook appears optimistic through 2016,” the report said, adding that the time is right “to trade properties and take advantage of favorable market conditions.”
Contact John McDermott at 843-937-5572.