Historically-High Rental Rates Become the New Normal

Research & Forecast Report CHARLESTON, SC RETAIL Q4 2015 Historically-High Rental Rates Become the New Normal Jessica Rahal Research Coordinator South Carolina 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. Market Indicators Relative to prior period Q4 2015 Q1 2016* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE Note: Construction is the change in Under Construction. *Projected 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. Average Asking Rental Rates Suburban Shop Space (NNN) $17.96 $18.07 $18.48 $19.00 $19.14 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. Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

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. Construction Activity is at its Highest Level in Years Construction activity gained momentum through 2015, experiencing the greatest level of construction in recent years. New development slowed down during the recent recession, but began to pick up in 2014. Activity became visible in 2015 as new projects delivered, bringing new retailers to the region. Developers are responding to a robust demand for space with new construction and redevelopment. The developments are providing a gateway for new retailers to enter the market while supporting the expansion of existing retailers. > > Summerville Marketplace delivered during the third quarter of the year. The 65,000-square-foot shopping center is anchored by Earth Fare and Petco. Co-tenants include Orange Theory Fitness, Dunkin Donuts, Mattress Firm, Crust Wood Fired Pizza, Tijuana Flats, and Persimmons Cafe, among other retailers. > > Construction on Midtown completed in 2015. A dual-branded Hyatt Place-Hyatt House hotel is open at the development. Approximately 19,000 square feet of office space and 11,000 square feet of retail space remain available. A 405-space parking garage is also located at the development. Revelator Coffee will be opening Summer 2016 at the development. > > Bowman Place, a redevelopment of the former K-Mart on Johnnie Dodds Boulevard in Mount Pleasant, is complete and continues to attract new retailers. Dick s Sporting Goods, Nordstrom Rack, and DSW were among the first retailers to open in the center. Kitchen & Company opened their first South Carolina store at the center, occupying approximately 20,000 square feet. J. Crew Mercantile Store plans to join the national retailers with the company s first South Carolina location set to open Spring 2016. The retailer plans to occupy approximately 6,000 square feet at the redevelopment. > > The former Millennium Music Building redevelopment has proven successful and is fully leased following two restaurants recently leasing space. MOD Pizza and Panera Bread plan to open new restaurants at the development joining Walgreens, Chipotle, and Carolina Ale House, which are all open within the building. > > Lowe s Home Improvement plans to open a second Mount Pleasant store on a 13-acre site. Aldi plans to join Lowe s and build their second Charleston store at the site. > > Conn s and La-Z-Boy are under construction next to the recently opened Field & Stream location off Centre Point Drive. Conn s is building a 45,800-square-foot store and La-Z-Boy plans to occupy a new adjacent 16,200-square-foot store. Both stores expect to be open in the spring of 2016. Despite strong construction activity, demand for space exceeds existing supply. Additional construction is required to support growth and accommodate more retailers, but developers are facing hurdles in new development. Land costs are high and available land is limited due to existing wetlands. Additionally, retail developers are competing with hotel, multifamily and office developers, pushing land prices higher. Downtown Happenings > > A quality, 40,000-square-foot space recently became available as Morris Sokol closed its doors late in 2015. The space, located on Upper King Street, is likely to receive significant attention. > > A food hall to serve as an incubator for upcoming chefs to test restaurant concepts is planned for the Upper Peninsula s tech corridor. The project, to be called Pacific Box & Crate, is expected to open in 2017. > > Mercantile and Mash, part of The Indigo Road s family of restaurants, is open at the Cigar Factory redevelopment on East Bay Street. > > Savannah Bee relocated to a 2,700-square-foot flagship store at 270 King Street. The store s grand opening is set for January 2016. > > Middle King Street has additional spaces available as Willy J s moved north on King Street and University Books closed their doors. The new vacancies create an opportunity for new, larger format retailers to locate on King Street. > > Cortaditos Cuban Café is open at 616 Meeting Street. > > Wet Willie s closed its bar on E. Bay Street. Local restaurateur Keith Jones plans to open a Southern-themed restaurant in the space. Midtown 2 South Carolina Research & Forecast Report Q4 2015 Charleston Retail Colliers International

Q4 2015 Retail Market Summary Statistics Charleston, SC ANCHOR SPACE (GREATER THAN 25,000 SF) JR. ANCHOR SPACE (10,000-25,000 SF) SHOP SPACE (LESS THAN 10,000 SF) MARKET INVENTORY VACANCY RATE (%) VACANT ASKING RENT (NNN) VACANT ASKING RENT (NNN) VACANT ASKING RENT (NNN) Downtown Charleston 1,005,604 10.4% 0-0 - 104,442 $55.00 Berkeley 1,465,058 5.6% 50,000 $11.50 0-31,414 $11.90 East Cooper 3,731,281 2.1% 0-11,120-65,380 $22.21 North Charleston 4,626,445 7.2% 90,994-57,623 $12.00 185,332 $18.12 South Islands 1,054,395 4.2% 26,680-0 - 17,975 $29.36 Summerville 2,390,304 2.9% 0-23,200 $10.00 46,648 $19.21 West Ashley 2,524,598 5.1% 52,384-10,200 $11.00 66,864 $19.30 Suburban Total 15,792,081 4.7% 220,058 $11.50 102,143 $11.09 413,613 $19.14 Market Total 16,797,685 5.0% 220,058 $11.50 102,143 $11.09 518,055 $26.37 Grocers are Active in the Market Grocers began changing their business plans in 2013 to include mergers and acquisitions, expanding into new markets and growing their footprints within existing markets. Grocer activity has been gaining momentum with Harris Teeter, Walmart Neighborhood Market, Publix, Lowes Foods, and Aldi among the key players. > > Harris Teeter recently opened its doors to customers at its new James Island store. The new store is the site of the former Piggly Wiggly at James Island Center that Harris Teeter acquired in 2013. The 43,000-square-foot store underwent major renovations. > > Aldi opened its first Charleston store this year. The store is located in Summerville at the site of a former bowling alley. The 15,000-square-foot store is located at 10015 Dorchester Road. > > Walmart Neighborhood Market has been expanding at a fast pace. Four stores are currently open in the Charleston area and a fifth store is planned for Dorchester Road and Patriot Boulevard. Current locations are in Goose Creek, Ladson, and Summerville. > > Lowes Foods plans to open its first Charleston store at SC Highway 41 and Wood Park Drive. The 50,000-square-foot store will anchor a new 78,000-square-foot center to be called The Market at Mill Creek. Retailers are Investing in the Market Charleston, SC Retail Submarkets More Retailer News from 2015 1 Downtown > > Diamonds Direct recently opened its first South Carolina showroom. The 6,500-square-foot showroom is located in Mount Pleasant near Mount Pleasant Towne Center. 6 2 2 Berkeley 3 East Cooper > > Boxcar Betty s opened a second location at 114 Holiday Drive in Summerville. The restaurant s first location is at 1922 Savannah Highway. > > Wild Ginger Asian Bistro and Top Shelf Liquors are two of the newest tenants at Sawmill Village in Summerville. Other retailers at the center include Tuesday Morning, Dollar Tree, Rite Aid, and Jake s Wayback Burger. 5 4 7 1 3 4 North Charleston 5 South Islands 6 Summerville 7 West Ashley 3 South Carolina Research & Forecast Report Q4 2015 Charleston Retail Colliers International

> > Tuesday Morning relocated their North Charleston store to a new 12,500-square-foot store at North Point Plaza, which opened earlier this year. > > South Carolina s first Field & Stream store is open in North Charleston near the Tanger Outlets. The 50,300-square-foot store is located at 4956 Centre Point Drive. > > Nadeau Furniture relocated its only Charleston store to 709 Johnnie Dodds Boulevard in Mount Pleasant from their former Coleman Boulevard location earlier in 2015. > > Uncle Maddio s Pizza opened its first of three planned Charleston restaurants at 1795 N. Highway 17 in Mount Pleasant during the first quarter of 2015. > > The first Chicken Salad Chick restaurant in Charleston opened in Summerville early in 2015. The retailer has plans to open four stores in the Charleston area. The second restaurant is expected to open on Houston Northcutt in the spring of 2016. Ideal Conditions for Investment Current market conditions and low interest rates provide an optimal environment for investment. Sales prices are strong and returns on investment are secure. Investors are paying top dollar for high-quality centers with high occupancy. Others are acquiring older, vacant centers and renovating them in an attempt to attract new tenants. Properties downtown, specifically on King Street, are trading at the highest prices. > > The first Walmart Neighborhood Market to open in the area recently traded hands. The 41,117-square-foot store located at 1635 Red Bank Road in Goose Creek was acquired for $12.8 million. Walmart signed a 20-year lease on the property with four five-year options. > > The Bed Bath & Beyond-anchored center at 946 Orleans Road across from the Citadel Mall was acquired for $15.5 million, or $110 per square foot. > > A 6,675-square-foot free-standing retail building located at 258 King Street traded for $2.8 million. > > A parking lot at 145 E. Bay Street, less than half an acre in size, was recently sold for $2.4 million. > > North Pointe Plaza, located at 7400 Rivers Avenue, was acquired in October 2015 for $34.1 million. > > Kimbrell s Plaza, located at 208 St. James Avenue, recently sold for $4.4 million. The 83,100-square-foot center is home to Kimbrell s Furniture and is undergoing renovations for self storage use. > > Ashley Oaks Plaza, a 58,720-square-foot shopping center in West Ashley, traded in December 2015 for $5.5 million. The new owners plan to redevelop the center to accommodate new tenants. Suburban Submarket Vacancy Rate 5.6% 5.6% 5.8% 5.1% Annual Investment Sales Volume (Millions) for Retail Properties $40.7 $113.5 $58.8 $264.6 $197.6 $221.0 2010 2011 2012 2013 2014 2015 Source: Real Capital Analytics, Colliers International 4.7% Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 January - October Gross Retail Sales Charleston-N. Charleston, SC MSA Jan. to Oct. 2015 +11.0% since 2014 +16.2% since 2013 +22.6% since 2012 Gross retail sales from January to October 2015 in the Charleston-N. Charleston MSA totaled $20.7 billion. Source: South Carolina Department of Revenue 4 South Carolina Research & Forecast Report Q4 2015 Charleston Retail Colliers International

Gross Retail Sales Gross retail sales in the Charleston-N. Charleston, SC metropolitan statistical area, were up in 2015 over recent years. According to the South Carolina Department of Revenue, gross retail sales from January to October 2015 totaled $20.7 billion, increasing 11.0% over the same period in 2014 and 16.2% over the same period in 2013. The growth in sales can be attributed to job creation, population growth, solid tourism and a booming economy. 2016 Outlook Commercial Real Estate Growth Cycle: Where the market stands and where it is going. NEW CONSTRUCTION RENTAL RATE EMPLOYMENT OCCUPANCY PHASE 1: RECOVERY Charleston s retail market will remain tight in 2016 with vacancy continuing to decline and rental rates climbing further. The market s outlook is positive beyond 2016 as major companies invest in the region. Recently announced investments include significant job creation, which in turn will generate a need for additional retail services. Mercedes Benz and Volvo are collectively investing $1 billion and creating 5,300 new jobs over the next five years. COMMERCIAL REAL ESTATE GROWTH CYCLE PHASE 2: EXPANSION New retail construction is needed to sustain growth and accommodate the growing demand for space, but developers will be faced with high barriers to entry in each submarket. Land and construction costs are increasing and will push up rental rates to new record-high levels. Land costs are increasing as retail developers compete with multifamily, single family, office, and other developers. Construction costs are rising as material and labor costs increase. Additionally, heightened construction in the region is affecting the availability of labor and material, delaying new projects. Sales activity will be strong in 2016 as interest rates remain low and Charleston s population growth and market conditions continue to be favorable. PHASE 4: RECESSION PHASE 3: HYPERSUPPLY THE CHARLESTON, SC RETAIL MARKET is moving along the expansion phase. Rental rates, occupancy and employment are all strong and increasing. New construction is at its highest level in years and momentum continues to grow as grocery stores and national retailers show significant interest in the market. Around the State Growing populations and a strong economy are motivating significant development and investment throughout South Carolina. Grocery stores and fast-casual restaurants are among the most popular retailers. Columbia, South Carolina > > Kroger Marketplace is under construction at Killian s Crossing in Northeast Columbia. Other tenants joining Kroger at the lifestyle center include Chick-fil-a, Applebee s, McDonald s and Panda Express. The development will offer multifamily and single family residential units, and hotel space, along with retail space and outparcels. > > A growing downtown residential population is driving retail development in the submarket. Downtown Columbia recently welcomed new restaurants Newk s Eatery, Tin Lizzy s Cantina, Grill Marks, Panera Bread, and Kaminsky s Dessert Cafe, among others. Greenville, South Carolina > > Grocery stores have been populating headlines with planned locations throughout the market. > > Harris Teeter is re-entering the market at high velocity. The grocer s first location is under construction at Lewis Plaza on Augusta Street. The grocer is looking forward to a second location and plans to anchor the proposed $60-million NorthPointe mixed-use development. > > Lowes Foods is also aggressively expanding. The grocer plans to open a second Upstate location at the Village of Market-East in Simpsonville. The first location is currently under construction in Greer and is expected to open by mid-year 2016. For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights 5 South Carolina Research & Forecast Report Q4 2015 Charleston Retail Colliers International

502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue 1.7 billion square feet under management FOR MORE INFORMATION: Liz H. McCary Director of Marketing South Carolina +1 803 401 4269 Liz.McCary@colliers.com Jessica D. Rahal, CPRC Research Coordinator South Carolina +1 803 401 4264 Jessica.Rahal@colliers.com CHARLESTON RETAIL PROFESSIONALS: John Orr, CCIM Vice President +1 843 720 7504 John.Orr@colliers.com Elyse Chubb Brokerage Associate +1 843 720 7508 Elyse.Chubb@colliers.com Colliers International Charleston 25 Calhoun Street, Suite 220 Charleston, South Carolina USA +1 843 723 1202 16,300 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.