It is impossible to have a discussion about retail commercial real estate without considering the implications of shifting demographics. This is true both nationally and in the Columbia market. The unique demographic characteristics of the local market serve as an explanation for the current situation in retail real estate.
The trends in retail real estate in Columbia echo those on that national level, although with the local market’s heavy concentration of Millennials (one of the highest in the Southeast), the opportunity for disproportionately high growth is significant. Those trends involve the sector being the last to emerge from the recession with low levels of retail development on a broad scale, but increasing activity and viability in urban and infill environments, especially for restaurants.
Ansel Bunch, CBRE
Much of the retail activity in the market uniquely caters to that 20 to 34 age demographic. At this stage in their lives, the overwhelming majority of the younger demographic is focused on living in an active lifestyle, preferably in urban environments. This is making the prospect of infill retail, particularly as a component of mixed-use development, more feasible. This is resulting in increasing retail and multifamily development in Columbia’s downtown.
For urban retail, there are three areas experiencing different trends: The Vista, Main Street and Bull Street. The Vista has evolved into a trendy retail playground for the region’s population of 880,000 people, vibrant with activity throughout the day. Main Street, where the heart of the office market is located, is seeing increased retail activity due to the growing strength of the office market. The Commons on Bull Street is a third area of retail activity that is currently under development. Anchored by a new minor league ballpark, the long-term expectation is that the area sees increasing retail activity over the next decade. Developer Hughes Development has referenced an expectation of 400,000 square feet of retail expected at the site.
With several grocery store brands active in the market in terms of planning, under construction or recently opened, it is safe to say there is a substantial amount of suburban retail activity as well. In the Southeast submarket, redevelopment of existing centers and new construction are occurring. A former Kmart is being redeveloped as Rosewood Crossing, a 98,000-square-foot center. Additionally, the 163,000-square-foot Landmark Square shopping center is undergoing redevelopment and Jackson Square, a 27,000-square-foot center is under construction as well. As is the case with most new retail, the majority of the space is pre-leased. Additionally, Killians Crossing, a mixed-use development in the Northeast submarket, delayed by the recession, has begun construction.
Broadly, two primary economic drivers drive the Columbia market: government and the University of South Carolina. Governmental presence acts as an economic stabilizer while the presence of the largest university in the state offers the promise of higher growth. Given the high concentration of Millennials in the market, it is reasonable to expect a very high rate of suburban single family growth in the next 10 to 15 years, which bodes well for the prospects of additional retail development.
With all of that being said, the full ramifications of e-commerce have not come to fruition. While e-commerce is cited as a major reason for lackluster development volumes with retailers concentrating their footprints, it has, up to this point, had minimal impact on grocery retail. It is possible to envision a scenario in which retailers resume their pre-recession growth rates in terms of numbers of stores, but even grocery stores may have reduced footprints.
In the last two years, the Columbia market has witnessed rising asking rents. Due to rising construction costs and the fact that many newly constructed retail is pre-leased or build-to-suit rather than speculative, this rise in asking rents has been coupled with declines in vacancy as well. For the next two years, we expect the pace of development to accelerate slightly, with modest vacancy declines.
The retail trends evident in the Columbia market mirror those found at the national level: increased urban development, driven by increasing multifamily residential activity and a tightening office market, paired with retail development in the suburban markets that is still a little bit sluggish coming out of the recession. Where those trends diverge is with the large presence of young professionals, which are expected to drive retail development at a faster pace than at the national level.
— By Ansel Bunch, Senior Associate, Retail Services, CBRE. This article originally appeared in the May 2016 issue of Southeast Real Estate Business.