The Carolinas’ population is booming, corporations and retailers crave the area, investment volume is making records and major mixed-use developments are rising to create community centers. It all makes for bullish brokers and developers.
Thanks to a mild climate, low cost of living and educational opportunities, North and South Carolina metropolitan areas secured five spots on U.S. News & World Report’s Fastest-Growing Places in the U.S. in 2021-2022, based on net migration. Myrtle Beach, South Carolina, ranked first; Spartanburg, South Carolina, scored the 12th spot; Charleston nabbed the 19th; Charlotte notched 22; and Raleigh and Durham, North Carolina, landed No. 23.
Even as many companies allow employees to work remotely, from anywhere, corporate migration to the Carolinas is rising.
In April, Apple announced a 1-million-square-foot campus and engineering hub that it says will create more than 3,000 high-paying jobs in North Carolina’s Research Triangle. In addition, Apple will invest over $1 billion in the state. Healthcare enterprise Centene Corp. will create an East Coast regional headquarters and technology hub in Charlotte, investing over $1 billion and bringing another 3,237 jobs to the state. Google will create an engineering hub in Durham that will bring 1,000 jobs.
And three companies have announced sizable commitments in Columbia, South Carolina: power tools manufacturer Techtronic Industries, protective packaging manufacturer Pregis and automotive equipment provider Plastic Omnium.
“Something that we’ve probably done
better than I think anybody else in the
country is recruiting consistent, high-pay,
quality jobs to our region, and that’s
driving everything else around it.”
“I think one of the top drivers of commercial real estate is job growth,” said John Wright, Jr. president of McCoy Wright Commercial Real Estate, a brokerage transacting in upstate South Carolina and North Georgia. “Something that we’ve probably done better than I think anybody else in the country is recruiting consistent, high-pay, quality jobs to our region, and that’s driving everything else around it.” Indeed, McCoy Wright just had its best quarter since it went exclusively commercial in 1995.
All those workers will need places to live, work, gather and shop, and developers are answering the call.
In September, Crosland Southeast and Nuveen Real Estate started demolition at Commonwealth, a 12-acre experiential mixed-use redevelopment in Plaza Midwood, one mile east of Charlotte’s city center. Plans call for 100,000 square feet of retail and restaurants, 383 luxury apartments, a boutique hotel and 400,000 to 500,000 square feet of office.
Phase 1 of the redevelopment of Commonwealth, also pictured at top, includes two early-1900s buildings for experiential retail and restaurants, a six-story office building with retail at the base, and the multifamily building on the right. Phase 2 will include the office building on the left and a hotel. Renderings courtesy of BB+M
There’s a need for this type of project, as the retail and restaurants in Plaza Midwood are relatively sporadic. “This particular neighborhood is already incredibly established and dynamic, “but it is missing a centralized gathering place,” said Crosland Southeast senior vice president of mixed-use investment Bobby Speir. Commonwealth “is at the Main and Main intersection, the heart of the neighborhood.”
Construction has commenced on Phase 1 of Jamestown and Grubb Ventures’ 18-acre Raleigh Iron Works, which will feature 500,000 square feet of creative office, 65,000 square feet of retail and more than 200 residential units.
Phase I of Raleigh Iron Works is slated to open in mid-2022. That will include a $150 million investment for 219 apartments, 184,000 square feet of office, 65,000 square feet of retail, a 683-space parking deck and 275 surface parking spaces. Image credit: Raleigh Iron Works
“We saw an opportunity to translate our adaptive reuse strategy to Raleigh and create something that doesn’t exist in the market,” said Jamestown president Michael Phillips. “Raleigh Iron Works will be a new mixed-use innovation hub that caters to Raleigh’s growing creative community while also preserving the area’s history and character. Raleigh has been one of the country’s fastest-growing metros for years, and this project will help serve that demand.”
At the end of last year, Hines, Columbia Development and USAA Real Estate started construction on the 69-acre, mixed-use Fenton in Cary, North Carolina, 10 minutes from Raleigh-Durham International Airport. The project includes retail, restaurants and entertainment, as well as multifamily, office and a hotel. The retail portion alone spans 350,000 square feet, according to Columbia Development partner Abbitt Goodwin.
Then there’s Hughes Development Corp.’s BullStreet District, known as the largest urban redevelopment project on the East Coast, zoned for 3.3 million square feet of commercial use. BullStreet has 150,000 square feet of commercial space, and another 130,000 square feet is under construction. Of that 280,000 square feet, 120,000 is retail.
REI Co-op opened a 20,000-square-foot store in The BullStreet District in downtown Columbia, South Carolina, in August 2020. Photo courtesy of the BullStreet District
“Columbia, South Carolina, is a very large capital city that has been underserved by national retailers for decades, but BullStreet is the first centralized location for retailers to co-locate in the market and attract customers from the entire [metropolitan statistical area] of close to 840,000 residents, which is on top of more than 65,000 college students who call Columbia home,” said Hughes Development president Robert Hughes.
The pandemic hasn’t dampened investment interest , either. Berkeley Capital Advisors, which has underwritten and sold retail shopping centers and malls in the Southeast since 1997, is on pace to have a record year. In 2021, it will complete 67 multitenant transactions in the Carolinas, up from 44 in 2018, 51 in 2019 and 39 in 2020. Those deals represent $780 million this year, up from $571 million in 2018, $605 million in 2019 and $500 million in 2020.
Even nontraditional buyers are acquiring retail assets in the Carolinas. They’re seeking yield, “and it doesn’t take long for investors to recognize outsized returns,” said Lance Hagaman, director of retail and office at Ziff Properties, which owns and operates nine shopping centers in the Carolinas. “And retail offers that.”
Darrell Palasciano, a landlord broker at The Providence Group, said out-of-state investment in the Carolinas always has been strong but is hotter than at any time during his 18 years in the business. He added: “I don’t see it ending anytime soon.”
As everywhere, grocery-anchored retail has been trading favorably. “We’re seeing pricing on the grocery-anchor product rival, if not outdo, pre-COVID 2019 in terms of cap rates,” said Berkeley Capital Advisors partner Rad von Werssowetz. Her company represented the seller of South Carolina’s 120,000-square-foot Pawleys Island Plaza, which a REIT bought at a 5.59% cap rate. The price was $26.25 million.
This month, South Carolina’s Publix-anchored Pawleys Island Plaza sold at a 5.59% cap rate. Photo credit: Unmanned Aerial Solutions
Discount stores, grocers, fast-food restaurants, coffee joints and car washes have shown demand, according to tenant broker Alan Freeman, executive vice president and managing director of the Carolinas for TSCG. Palasciano said Providence has seen not only homegrown retailers and restaurants but also a lot of national and international brands secure space in the Carolinas.
Areas outside the metros are benefiting, too. “In North Carolina, the boost in e-commerce significantly increased sales tax revenues in small rural counties and towns, while large cities that were typically the shopping destinations in the state experienced relatively flat levels of spending during the initial recovery phase,” wrote Michael Simmons, economist for Mecklenburg County, the second-largest county in North Carolina and home to Charlotte, which is the second-largest banking center in the U.S. “This is due to how sales tax revenues are collected and distributed.”
Demand for rural and suburban retail in the Carolinas also is rising as residents migrate there as a result of COVID. And according to Palasciano, the suburbs “are absolutely on fire with very, very few exceptions. I can’t think of any actually.”
Wright said investors are interested in areas outside the cities, too: “People are less concerned with it being a prime location than a credit-worthy tenant. There’s such a shortage of good-quality retail investment property out there that people are going to rural to capture the return.”
By Lauren Elkies Schram
Contributor, Commerce + Communities Today