Development Activity is Visible with Store Openings and Deliveries in 2016
- The vacancy rate for Columbia, SC’s retail market remains low as retailers continue to show strong interest in the market.
- Asking rental rates for high quality and new shop and junior anchor space is at record-high levels.
- Construction activity is visible throughout the market with several projects recently completed and others remaining under construction.
- Grocers are aggressively expanding their footprints.
- Combined gross retail sales in Lexington and Richland counties is up over recent years, indicating greater consumer spending and a strong demand for retail services.
- Residential development in the suburban and downtown submarkets will continue to drive retail activity through the year.
Rental Rates Inch Upwards as Options for Space Remain Limited
Retailers expressed robust interest in Columbia, South Carolina through 2015, and that momentum has carried into 2016. Grocers and retailers are filling headlines with store openings and new construction. A growing residential population is driving much of Columbia’s retail boom as consumer spending increases and the economy strengthens.
The first quarter of 2016 came to a close with a total vacancy rate of 8.7%, holding steady over year-end 2015. The market’s vacancy rate has been trending down but does not accurately reflect the strong extent of activity occurring throughout the market. Many leases are being executed for space in non-anchored centers or anchored centers that are currently planned or under construction. The vacancy is expected to decline as several anchored shopping centers deliver at near full occupancy.
Additionally, the vacancy rate of 8.7% is misleading as much of the vacant space resides in older, less desirable shopping centers. In reality, tenants are facing limited options for quality, existing space thus encouraging continued ground-up construction and providing an opportunity for the redevelopment of older, vacant centers.
Rental rates for new retail space are significantly higher than historical average rental rates. Rising land prices, increasing construction costs and a shift in favor of landlords are collectively contributing to higher rental rates that tenants are willing to pay. Asking rental rates for shop space in the market averaged $13.83 per square foot triple net (PSF NNN) at the end of the first quarter of 2016, up from $13.05 PSF NNN one year ago. Some tenants in the suburbs are seeing rates between the mid-$20s to mid-$30s PSF NNN for existing, Class A shop space along prime retail corridors.
As landlords and investors take advantage of redevelopment opportunities, the market’s average asking rental rate will increase further.
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