When Dunston Powell moved to Charleston in the mid-1990s, the region’s main commercial drivers were the port and a naval shipyard that was on the brink of being shut down. Years later, it’s sometimes hard for the commercial real estate broker to recognize the city he has since called home.
“We’ve diversified,” said Powell, principal at Carolina Commercial Real Estate. “It’s all the different products and companies and users coming from all the different sectors of the economy, whether it’s the port or technology or Boeing or Volvo. When I moved here, that wasn’t the case. Now we’ve got six or seven horses to ride, and that certainly helps, not to mention the hospitality side. We’re very fortunate to have that.”
That diversification, evident in cranes looming over downtown and Dreamliners lined up outside the Boeing plant, powers a robust commercial real estate market that’s remained especially strong in the industrial and retail sectors. Driven by an influx of almost 100,000 jobs since 2000, metro Charleston’s commercial scene has attracted builders from around the country, undeterred by higher construction costs and longer development timelines than in other comparable areas.
“Charleston is clearly one of the stars in the country as far as job growth,” Dr. Lawrence Yun, chief economist of the National Association of Realtors, said in the Charleston Trident Association of Realtors 2018 Commercial Market Forecast, “and that’s why you’re seeing increased commercial real estate activity.”
Industrial and retail
In its 2019 Southeast market outlook, CBRE calls Charleston one of the fastest-growing markets in the region, spurred by a $2.4 billion port improvement project and a manufacturing base that recently added Volvo’s $1.2 million production plant. As that rare combination of both a port city and a burgeoning manufacturing hub, “Charleston has become a prime target for industrial users,” according to CBRE.
The region “has evolved a lot industrially in the last 10 years since Boeing came to town,” Powell said. “I think there’s been plenty of supplier activity in terms of supporting Boeing, Volvo and Mercedes, but I’d say even a larger component of it has been port-related. Charleston is poised to continue its industrial growth, and I can’t imagine anything disrupting that activity in the next couple of years outside of some global, black swan economic event.”
Augmenting Charleston’s industrial profile is a resilient retail sector, even as many brick-and-mortar stores are being chiseled away by ecommerce. Online sales comprised 10 percent of all national retail in 2018, a figure expected to grow to 12 percent by 2020, according to Statista. But fast-growing suburbs and affluent tourists have helped the Charleston area buck the trend.
Suburban retail particularly “is doing great,” Powell said. “There’s a lot of retail that hasn’t done particularly well on the internet, and that people still get in their cars to go buy. I don’t see that changing.”
While rising rents on the peninsula create more retail turnover and vacancy downtown, “it’s still healthy,” Powell added. “We’re not looking at dark storefronts.” CBRE’s outlook calls the Charleston market “one of few in the Southeast U.S. currently experiencing significant increases in consumer retail demand,” adding that economic growth “is phenomenal and should minimize downside risk of the market.”
Office space shuffle
While downtown remains the region’s most desirable office address, the peninsula is bound by building regulation and zoning limitations as well as space. That’s produced runoff into adjacent areas, particularly Mount Pleasant, where attempts to capitalize on downtown development are evident on the other side of the Ravenel Bridge.
“Look at the development right at the foot of the bridge. Who are they trying to get as their tenants? They’re trying to get the same people the Cigar Factory has,” said Dan Henderson of The Dan Henderson Jr. Company. “Look at what people downtown are having to contend with as far as leasing office space, and employees having to park two blocks away. For Mount Pleasant, that’s a selling point.”
Henderson worries supply in Mount Pleasant is outpacing demand, pointing to 71 active for-lease office listings as of early 2019 with rates ranging from $12 to $36 per square foot. A glut of projects has softened suburban office demand, CBRE reports. But the building continues — there’s money available from lenders, there are transplants bringing their businesses with them, and there’s a tightening market downtown.
“Mount Pleasant’s demand for office is more an overflow from downtown, and the fact that everybody’s moving here,” Henderson said. “You look at those people who are moving to Sullivan’s Island, who are people who have the money to work remotely or want move their business headquarters here. I think that’s what Mount Pleasant is feeling.”
The CBRE report forecasts that office owners on the peninsula will hold on their properties as occupancy remains high and rental rates rise. Stephen Zoukis, chief executive officer of Raven Cliff Co., foresees offices eventually becoming squeezed out of lower downtown altogether.
“My bet is in 10 years, there’s no office use south of the Crosstown except for government agencies,” he said in the Charleston Trident Association of Realtors 2018 Commercial Market Forecast.
There are certainly challenges ahead, perhaps none greater than finding affordable housing for the manufacturing workers powering the region’s expanding commercial base. But Charleston has overcome challenges before, and become stronger as a result.
“Certainly there are trade issues and political issues that if they linger on forever are going to affect everybody’s market, including Charleston,” Powell said. “But Charleston I would say continues to have the wind at its back, and is poised to continue to grow and absorb space as it comes online.”