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Growth fuels Carolinas' retail evolution

By Jon Springer

One of the oldest centers in North Carolina's Piedmont Triad -- Koury Corp.'s Four Seasons Town Centre in Greensboro -- is responding to heightened competition with a major renovation.

Just as the Carolinas have gradually shifted their economic focus from farming to finance and from textiles to high-tech, retail in North and South Carolina has evolved as well.

Today, retailers and developers are competing to meet the needs of more diverse economies, which has helped spark growth in communities in both states. Markets such as North Carolina's Piedmont Triad (Greensboro, Winston-Salem and High Point); Raleigh-Durham, N.C.; and Columbia, S.C.; all of which have re-engineered their economies over the last decade or so, are especially hot.

"The market is incredibly active," said Randal Johnson, a partner in Virginia Beach, Va.-based Divaris Real Estate's Charlotte, N.C., office and the ICSC state director for North and South Carolina. "Both Carolinas have seen tremendous growth in the last five to seven years."

Experts attribute the Carolinas' growth to a diversified economy, one no longer dominated by agriculture and textiles. Today, Raleigh-Durham-Chapel Hill -- dubbed the "Research Triangle" -- is best known as a headquarters for high-tech industries. Charlotte is now the banking capital of the Southeast. And manufacturing firms such as BMW, which located a major automobile facility in Greenville, are changing South Carolina's economy for the better.

"With the kind of infrastructure being built in the Raleigh and Charlotte markets, and with wages being as low as they are, industry will continue to take a hard look at the South and the Carolinas in particular," said Mr. Johnson. "And with new industry, you're going to see more people and more of a demand for shopping. It's a shinbone-connected-to-the-kneebone thing."

According to a November, 1997 report by Paine Webber, New York, the Piedmont Triad and Columbia, S.C., markets ranked ninth and 11th, respectively, of 80 metropolitan statistical areas nationally in terms of market "tightness," with retail vacancies significantly below the average expected vacancy rate under current conditions. Raleigh-Durham, N.C., and Greenville-Spartanburg, S.C., were also mentioned in the report as pockets of strength.

Overall, experts expect the majority of new projects in the Carolinas to be drug and grocery-anchored centers, sparked not only by new housing but by fierce competition between food retailers. However, plans also call for new regional malls in the Charlotte and Raleigh markets in the coming years, along with the Concord Mills value-oriented megamall, set for a 1999 opening in Concord, N.C.

The market is tight in the Triad, despite a number of new discount-anchored projects that have come on-line in recent years. One of the oldest shopping centers in the area, the 1.1 million-square-foot superregional Four Seasons Towne Center in Greensboro, is responding to the changes with a major renovation -- the center's first since 1987.

A lot of shelf space has come on line in this market, and I'd say it's probably overbuilt now," said Ron Mack, executive vice president-general counsel for Koury Corp., the Greensboro-based owner/operator of Four Seasons. "You've had a lot of big-box and discount operations, probably close to 2 million square feet in the last two years. The market continues to grow, but probably not as fast as we've added shelf space. That makes it a very competitive market."

The Richard E. Jacobs Group, Cleveland, has preliminary plans for a 1.1 million-square-foot regional mall in the north Raleigh area. Though it isn't expected to open until 2003, other developers are already assembling and developing nearby sites.

Atlanta-based Buckley-Shuler Property Co. is one such firm. Commerce Center, an 80,000-square-foot center anchored by Michael's, is under construction, said Pete Harper, a leasing agent with the Atlanta firm.

Raleigh-Durham, with a population of around 1 million, is likely to experience another boom, said Camm Morton, president and CEO of FAC Realty Trust, a Cary, N.C.-based developer that owns and manages around 4.5 million square feet in North and South Carolina.

"Raleigh-Durham is similar to Columbus, Ohio," Mr. Morton said. "When Columbus hit 1 million people, it took off like a rocket to 1.3, 1.4 million. It took forever to get there, but all of a sudden, there was a lot more interest from developers and retailers."

Charlotte

Though some experts have suggested that Charlotte is overbuilt, the largest city in the Carolinas is still looking attractive to some developers. Faison Associates, Atlanta, has proposed a new regional mall in the Lake Norman area north of the city, and two outlet center developers are busy creating large-scale projects in the neighboring town of Concord, about 15 miles northeast of downtown Charlotte (SCT, March 1998).

Industry professionals will be watching Concord Mills closely. The 1.4-million-square-foot project, a joint venture between The Mills Corp., Arlington, Va., and Simon DeBartolo Group, Indianapolis, may be located in "the sticks," but developers believe the project can attract shoppers from a 100-mile radius that includes a staggering 5.9 million people.

"I was one of those guys who looked at that project and said, 'Wow, that's a little green,'" said Mr. Johnson. "But then I saw what Sawgrass [Fla.] looked like before [Mills] put the [Sawgrass Mills] mall up there, and there was nothing there either. I think this project will do very, very well."

Jensie Teague, a regional partner in Faison's Charlotte office, said opportunities around the city exist for the right project in the right place.

"Charlotte's seen steady growth for the last seven or eight years, yet there are still pockets that are underserved," said Mr. Teague, whose company also owns and manages the 1.2-million-square-foot Eastland Mall near downtown Charlotte. "There's been a lot of new jobs and an influx of people here."

Village-type centers, appealing to upscale shoppers, have been successful in Charlotte, said Divaris' Mr. Johnson.

Charlotte-based developer Crosland Retail is at work on Stone Crest at Piper Glen, a 400,000-square-foot community center anchored by Hannaford Bros., Target and Regal Cinemas. That project serves a new master-planned community called Ballantine which Mr. Johnson described as "something right out of south Orange County, Calif.," featuring golf courses, underground utilities, and local retail and business parks.

Rapid growth in metropolitan areas of North Carolina has put some strains on roads and infrastructure, and as a result some communities are carefully scrutinizing proposed new projects.

"In Charlotte, the road network is behind the recent growth, so you have to be sensitive to traffic concerns," said Mr. Teague. "And the market is trying to grow responsibly, so developers have to be patient and aware of that."

"The politics, zoning and other governmental requirements have gotten very, very strict," agreed Mr. Morton of FAC, who mentioned one project in Cary, N.C., where the developer was required to cover no more than 30% of its land area with an impervious surface. "That's about as strict as any place I've ever been, and that includes Connecticut, New York and Massachusetts."

However, restrictions that make new projects difficult can help existing retail properties in the area by reducing competition, he added.

"Hopefully, the Carolinas won't wind up with a situation like they have in parts of Texas, where's there a development at every corner, just because somebody can get the money," Mr. Morton said. "The Southeast is taking a look at itself and asking, 'How do we manage the process of growth?' It requires more local knowledge by the developer and a longer process of development."

Elsewhere in North Carolina, the climate is healthy for developers of grocery-anchored centers. Wilmington, on the coast of North Carolina, is growing as a result of the unlikely but thriving motion-picture business. Numerous movies and television programs are now filmed there, including the recent Patrick Swayze movie, "Black Dog."

"There's a lot of niche opportunities for retail in some of the smaller markets, especially for bread-and-butter grocery centers," said Mr. Teague, pointing to Columbia and Charleston, S.C., and Jacksonville, Wilmington and Asheville, N.C.

South Carolina

South Carolina towns such as Charleston and Greenville, boosted by an influx of new manufacturing jobs, are beginning to grow the way North Carolina cities have in the past few years. Booming port concerns and tourism on the coast are also driving the economy, experts say, though western parts of the state remain mostly rural with little development activity.

"I think South Carolina has become more aggressive than North Carolina in attracting new businesses," Mr. Morton said. "I think in the next five years you'll see a huge shift over there."

FAC is building Mt. Pleasant Towne Centre a 425,000-square-foot upscale community center in Charleston, S.C., featuring Belk's; a 17-screen Consolidated Theaters; Bed Bath & Beyond; Barnes & Noble; and Morgan Stewart Galleries, a retail store from the highly regarded North Carolina furniture manufacturer.

Elsewhere in Charleston, Buckley-Shuler is developing Northwoods Marketplace, a 220,000-square-foot power center with a phase one opening set for this December. That project will be anchored by Barnes & Noble, Michael's, Best Buy and Rooms to Go.

"Charleston was a great town to work with. They were enthusiastic about us coming in, and they made things easy for us in terms of plans and approval," said Mr. Harper of Buckley Shuler.

The combination of job growth and food retailers hungry for market share has made this a good time to be a grocery center developer, said Joe Edens, chairman of Edens & Avant, Columbia, S.C., the largest owner of retail properties in South Carolina.

"In Greenville-Spartanburg, you've had tremendous industrial growth," Mr. Edens said. "BMW [which opened in 1996] now employs more than 2,000, and the ripple effect has brought in maybe 50 more companies.

"The state is very receptive not only to developers but to businesses," Mr. Edens added, noting that Honda is constructing a new plant in Florence County. "We're going into our 12th year of consecutive gubernatorial administrations whose primary focus is job creation.

"That's been very good for us. We're getting better and higher-paying jobs here now than ever before."

Residential growth in South Carolina is fastest in Lexington County, just west of the capital city of Columbia, Mr. Edens said. Grocery retailers such as Publix and Harris Teeter have become more aggressive in their quest for market share, while existing grocery stores are anxiously shedding their 20,000-square-foot shells for roomier superstores.

Developers believe growth will continue in the Carolinas. "When you go into upcycles, your concern is that the upcycle will be abused by over-zealousness in new development," Mr. Edens said. "But I haven't seen that yet. Speculative development is almost nonexistent in the Carolinas."

Mr. Johnson agreed. "When the South kicked in 1991 or '92, a lot of people thought it would last maybe two years," he said. "But it hasn't stopped yet."