Historically-High Rental Rates Become the New Normal

Key Takeaways

  • Rental rates set new records as the market tightens and shifts in favor of landlords.
  • A booming economy, job creation and residential growth are motivating retail development throughout the market.
  • Redevelopments are gaining popularity as land costs increase and competition rises.
  • Tight market conditions provide a favorable investment sales environment.
  • Charleston maintains accolades as a top-ranked city.
  • A strong tourism industry drives retailer activity on King Street.

Rental Rates Continue to Climb as Market Tightens and Favors Landlords

Strong demand for retail space throughout the Charleston, South Carolina retail market is resulting in declining vacancy, increased competition for space, and new construction activity, collectively contributing to the highest rental rates ever witnessed in the market.  At year-end 2015, asking rental rates for suburban shop space averaged $19.14 NNN per square foot (PSF), increasing 6.6% in just one year.  Rising construction costs due to an increase in labor and material costs, coupled with strong competition among tenants are pushing rental rates to record-high levels.  Asking rental rates for newly constructed retail space in suburban Charleston range from $30 to $40 NNN PSF, well above the market average.

The vacancy rate in the suburban submarkets was down to 4.7% at year-end 2015 from 5.1% the previous quarter and 5.6% one year ago.  Vacancy has been declining steadily as retailers enter and expand within the market.  Less than 525,000 square feet of junior anchor and shop space remain available in the suburban market as the mid-to-small size range remain in greatest demand.  The tightening market is shifting in favor of landlords who are raising rents as retailers show a strong desire to locate within the market. 

While suburban activity is largely driven by the region’s growing population, downtown continues to strengthen as Charleston remains a top tourist destination.  Travel + Leisure recently ranked Charleston the No. 2 Destination of the Year in 2015.  King Street is especially active and retailers are trying to secure their spot on the upscale retail and entertainment district.  Landlords are taking note of the tight market conditions and raising rental rates on King Street.  Tenants are seeing rates as high as $95.00 NNN PSF.  An influx of national retailers into the King Street district has the potential to support additional rent hikes as the retailers are willing and able to pay higher lease rates.

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