Leasing Activity, New Construction Prop Up Charlotte Retail Market
The Charlotte market is emerging from the sluggish economy of the last several years and is booming with economic and commercial activity. In fact, Forbes recently recognized Charlotte as the fourth fastest growing city since the recession. The retail market is no exception and is continuing to improve with tenant activity increasing and vacancy rates dropping. From desirable South Charlotte to Independence Boulevard, new projects are coming out of the ground in an effort to meet the needs of the tenants in the market that are struggling to find locations.
The suburban markets are seeing increased growth as people continue to move to Charlotte. South Charlotte continues to be the most desirable market for tenants, but limited availability has been a problem. The new Waverly project, a joint venture between Crosland Southeast and Childress Klein, will help to provide some options for tenants looking to expand into South Charlotte. Waverly will be located at the intersection of Providence Road and I-485 and is a 90-acre, master-planned development anchored by Whole Foods. The project will deliver in 2016 and consists of more than 230,000 square feet of retail space in addition to 330,000 square feet of office and medical space, a 150-room hotel and 561 apartments and single-family homes. Response from tenants has been strong and focused on high-quality restaurants and retailers.
Waverly is not the only large joint venture project in Charlotte. A joint venture between Tanger Factory Outlet Centers and Simon Property Group will bring a 400,000-square-foot outlet mall to southwest Charlotte with more than 100 stores including Saks Fifth Avenue OFF 5TH. This project will be a regional shopping destination and has acted as a catalyst for new development in the surrounding market.
The core markets of Charlotte have remained strong and continue to improve. New infill projects are providing retail opportunities in tight submarkets where there was previously little or no vacancy. The implementation of the LYNX light rail system has created high-density development along the South Boulevard corridor and multifamily development is thriving with more than 3,500 units being developed. This activity has breathed life into a transitional corridor and created new demand for retail space. A new Publix is under construction and several restaurants, breweries and service-oriented retailers have landed in South End. Harris Teeter is responding to Publix’s entry into South End with a planned 53,000-square-foot store anchoring the $190 million mixed-use redevelopment of Sedgefield Shopping Center by Marsh Properties and Aston Properties.
Uptown Charlotte has also seen a surge in retail activity. With the addition of new office buildings, a minor league baseball stadium and several new residential and hotel projects, the retail demand has improved significantly. Existing retail in Uptown is limited, so retailers such as Walgreens and Panera Bread have had to get creative and redevelop ground floor office into retail in order to accommodate their needs. This trend has gained momentum in the market with a number of street-level redevelopment projects underway, including Bank of America Plaza at the corner of Trade and Tryon (Charlotte’s Main & Main). Spearheaded by Center City Partners, Charlotte has a strong initiative in place focused on bringing retail to Uptown.
The increased demand from tenants has also led to the redevelopment of older, vacant retail centers in the market. The Coliseum Center located on Independence Boulevard has remained largely vacant for the past several years. Real estate investment firm FMOC based in Austin, Texas, is planning to spend $15 million to redevelop the 218,000-square-foot property and several national tenant negotiations are underway.
New retailers continue to take notice of Charlotte and are expanding into the market. For example, Conn’s Electronics out of Texas recently opened a 300,000-square-foot distribution center in southwest Charlotte in order to support their aggressive expansion in the city and throughout the Carolinas. Cabela’s has started construction on a 97,500-square-foot store just south of Charlotte near Carowinds. Additionally, Publix has started their expansion across the border into North Carolina. Several projects are currently under construction in Charlotte, adding competition in the already highly competitive grocery category.
Overall, Charlotte is well-positioned and demonstrating strong momentum. The healthy leasing activity during the past 12 months has reduced the overall vacancy rate to 7.3 percent and as a result, driven rates higher. In some of the premier locations we are seeing near record rental rates. There continues to be a wealth of opportunity in Charlotte, and we expect to see exciting projects come to life during the next 12-24 months.
From an investment perspective, Charlotte continues to be an attractive market for a wide range of capital. Grocery-anchored centers remain highly sought after with recent buys by public REITs (Kimco and Kite), private REITs (PECO-ARC and Cole), foreign investment groups (Slate) and private investment groups (Equity Investment Group, Westwood Financial and The Simpson Organization). The largest transaction in the last six months was Stockbridge Capital’s purchase of Afton Ridge, a 296,000-square-foot community center in Concord.
Property level fundamentals are improving and attractive long-term financial alternatives have produced substantial price gains across the spectrum of retail real estate. Charlotte’s strong job growth, new housing and long-term growth prospects have made the MSA one of the most desired areas for investment in the Southeast.
— By Mike Lucier, Vice President of Retail Brokerage, CBRE. This article originally appeared in the June 2014 issue of Southeast Real Estate Business.