Tightening Market Leads to Shopping Center Repositioning
- With the market almost at full occupancy, centers are upgrading tenant mixes with better credit and concepts.
- Specialty fitness boutiques are expanding rapidly.
Shopping Centers are Repositioned
Landlords are repositioning their shopping centers to take advantage of Charleston’s historically robust retail market. Strong residential growth, a difficult regulatory environment and increasing land and construction costs make purchasing and repositioning shopping centers a more attractive option than building new centers. Landlords are capitalizing on this by remodeling and renovating well positioned properties, upgrading their tenant mix and raising the rental rates and net operating incomes.
The rapid expansion of the population and tourism are the primary drivers of the retail market in Charleston. Charleston’s population is expected to grow at a rate of 39 people per day over the next five years to more than 810,000 people, making it one of the fastest growing in the nation. Tourism has grown substantially over the past 30 years, with 556 new hotel rooms added in the past two years and 1,300 more hotel rooms in the pipeline. Arrivals at the Charleston Airport are growing, too, reaching 1.9 million people, twice the number of arrivals ten years ago. Together, this growth demands increasing amounts of retail. Increased demand for retail space has brought the market vacancy to 6.2% and the average asking rental rate for shop space to $23.24 per square foot per year (PSF/YR). These market fundamentals are attractive to those looking to reposition shopping centers.
Construction is booming across all property types in the market, creating a constrained labor market and higher labor costs. According to the Bureau of Labor Statistics, in South Carolina, average hourly wages in the construction sector have increased 28.5% to $23.00 per hour since November of 2007. Engineering News-Record (ENR) magazine analyzed the average cost of several specialized laborers in regions across the United States. In 2011, the hourly rate for labor in the Southeast ranged from $13.97 for general laborers to $23.77 for heavy equipment operators, and in 2016, the hourly rates increased to a range of $15.42 for general laborers to $28.00 for heavy equipment operators.
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