Charleston Retail Market: Balancing Growth and Stability

Charleston's retail market has thrived on luxury tourism and long-term population growth, keeping demand strong over the past decade. Recently, however, plateauing consumer spending has led to slower leasing volumes. Despite this, the availability rate only ticked up slightly to 3.2% in Q1 2024, remaining well below pandemic-era peaks.

Steady Fundamentals Amidst Slower Leasing

Although leasing activity has slowed, the limited new retail supply has kept fundamentals stable and availabilities low. Reuse and redevelopment have become more popular than new construction, especially in Charleston's historic districts. New construction is focused on neighborhood centers or mixed-use developments in suburban submarkets, with most of it preleased or built to suit. Of the 804,000 SF delivered since 2022, nearly 90% is leased. The 360,000 SF currently under construction, representing just 0.7% of total retail inventory, is 75% preleased, limiting supply-side pressure on market fundamentals.

Investor Interest and Economic Uncertainty

National investors remain interested in Charleston's retail market, but rising interest rates and economic uncertainty have led to declining volume through Q1 2024. About $263 million traded hands over the past year, with more than two-thirds involving national buyers. Despite continued rent growth, total sales volume declined by about 45% in 2023, with early 2024 data indicating the slowest first quarter since 2013.

Market Metrics Snapshot

Leasing Trends and Demand

Charleston's port access, coastal location, and relative affordability have continued to attract retailers and new residents. Regional and national tourism remains strong, and Charleston's population growth outpaces the national benchmark. However, plateauing consumer spending and a shift to smaller retail footprints have led to slower leasing volumes. The average lease size since 2023 is around 2,600 SF, down from over 3,500 SF between 2010 and 2019.

Total leasing volume in 2023 was down about 20% compared to 2022 and 38% below the pre-pandemic average from 2015-2019. Lack of available space limits retailers' ability to expand. Despite the slowdown, vacancies remain below the national average at 3.0%.

Recent larger leases include experiential tenants like K1 Speed and Adrenaline Monkey, and discounters like Sav-a-Lot grocer. Grocers like Aldi, Publix, and Harris Teeter are also active, following new rooftops in suburban submarkets like North Charleston, Summerville, and West Ashley.

Rent Growth and Construction Activity

Average asking rents in Charleston are the highest in South Carolina at around $25.00/SF. Tourist spending and population growth have bolstered retail demand, and rents have continued to accelerate. Overall, rents are up 4.1% year-over-year. Power centers and neighborhood centers, driven by new housing growth, perform the best with 5.3% and 4.5% annual rent growth, respectively.

Rents vary by submarket, with Downtown Charleston averaging nearly $45/SF, driven by strong foot traffic from tourists and students. Newer suburban spaces range from $30/SF to the low $40/SF.

Retail construction has been limited, keeping vacancy rates lower than the national average. About 360,000 SF is currently under construction, with three-fourths preleased. Most new development is less than 40,000 SF or part of larger mixed-use projects, with significant activity at developments like Nexton in Summerville and the Navy Yard redevelopment in North Charleston.

Sales and Economic Outlook

Continued rent growth has attracted investors, but higher capital costs have led to smaller deals. Total sales volume fell by about 45% in 2023. Notable transactions include a 25-property portfolio on Kiawah Island sold for $125 million and a six-property portfolio at Azalea Square Boulevard sold for $59.65 million.

Charleston's economy benefits from broad-based employment growth, a growing industrial sector, and strong tourism. The Port of Charleston is a key economic asset, handling significant volumes of cargo and driving the manufacturing sector. Recent investments in the port and tax incentives have attracted advanced manufacturing, automotive, and aerospace industries.

Charleston's professional services and tech industries are growing, supported by increasing mobility of capital and remote workers drawn to coastal amenities. Despite some softness in the tech sector, the market remains attractive for office developers and investors.

Conclusion

Charleston's retail market remains resilient, supported by strong fundamentals and limited new supply. With a thriving tourism sector and ongoing population growth, the market continues to attract retailers and investors. Despite economic uncertainties, Charleston's unique advantages ensure its continued appeal in the retail landscape.

Key Metrics

Charleston's retail market is characterized by steady demand, limited new supply, and rising rents. With its growing population and strong economic fundamentals, Charleston remains a key destination for retail investors and tenants alike. Stay tuned as this market continues to set the pace.

www.thepgrgroup.com