Sales of Charlotte-area retail properties continued to strengthen in 2012 and are approaching record highs seen during the boom days of real estate.
And while retail property owners face challenges, such as a still-wobbly economy, brokers and analysts say the sales show investors are bullish on the Charlotte area.
Last year, 433 retail properties sold for about $600 million in the Charlotte-Gastonia-Rock Hill metropolitan area, according to CoStar Group, a real estate analytics firm.
Many of the sellers were large investors that sold entire portfolios of properties. Local brokers say Charlotte saw some significant property deals starting in 2011. Both 2011 and 2012 were the strongest years since 2007, the CoStar data shows.
“Like the rest of the country, retail is on sale in Charlotte,” said CoStar real estate economist Becky Regan.
“Charlotte’s bright demographic outlook, both in terms of job growth and household formation, help explain investors’ increased interest in the metro,” Regan said. “Obviously investors want to own assets in areas that will be on retailers’ expansion plans, and retailers want to be in areas with strong demographics -- Charlotte certainly fits that bill.”
At Charlotte’s Berkeley Capital Advisors, for example, brokers sold $566 million worth of retail property in the Carolinas last year, nearly double the $299 million worth of deals the group did in 2011. In some cases, buyers paid nearly as much as investors did in the mid-2000s at the height of the commercial real estate market, said Rob Carter, who specializes in shopping center sales.
“There’s no question that there was a lot of capital chasing high-quality deals,” said Carter, a founder and partner with the firm, one of the dominant retail brokerages in the area. “If you have a high-quality deal, there is going to be a long line of suitors.”
Grocery-anchored strip malls, particularly those in good locations that have well-performing grocery stores, are selling well. Anything that has a Harris Teeter or Publix as an anchor is particularly hot, Carter said.
Berkeley sold 37 shopping centers and 33 single-tenant properties, such as stand-alone drugstores, in 2012. In 2005, the company’s best year, it sold 40 shopping centers and did $584 million in deals.
While some parts of commercial real estate are seeing a rebound, some retail properties are struggling. While the economy has been recovering, consumers are still hesitant to spend, as illustrated by the recent holiday-shopping season, which proved disappointing to some store owners.
Vacancy rates remain higher than years ago. In Charlotte, the retail vacancy rate was 8.8 percent as of the third quarter last year, according to real estate research group Karnes. That’s lower than the 9.81 percent reported in 2010 but up from the 6.8 percent seen in 2008. Higher vacancy rates means landlords generally earn less in rent.
Also, as more consumers shop online, retailers are adapting and are expected to lease less square footage in the future, said Davidson-based commercial real estate analyst Kathleen Rose.
In a recent forecast about emerging trends in real estate, PwC economists said the retail industry is lagging the rest of commercial real estate in a recovery. But analysts said some retail properties could offer investors good returns.
Less worry about bank layoffs
National investors have long liked the Charlotte-area’s demographics, including its relatively affluent population and influx of newcomers, brokers say.
Some investors had grown wary in light of the financial crisis, worried about potential massive bank layoffs. Carter with Berkeley Capital said investors aren’t worrying as much about that now.
Carter also said that properties, and their ability to generate income, are seen as more stable than years ago. Rents had risen so quickly that tenants weren’t able to keep pace, he said. Now, rents have fallen to more sustainable levels that tenants can afford, he said.
“Everything got reset,” he said.
Rose said more property owners likely were willing to sell last year in anticipation of this year’s higher taxes on capital gains. Combine that with large institutions needing to invest money, she said, and it is no surprise sales are improving.
“Grocery-anchored neighborhood shopping centers are seen as somewhat recession resistant as everyone needs to eat,” she said.
Mike Burkard, senior vice president with commercial real estate firm CBRE, described 2012 as an improvement from a few years ago but still off the highs seen in the mid-2000s.
But, he said, some landmark deals have occurred that could signal better times ahead.
In 2011, two of Charlotte’s oldest and well-known shopping centers sold for premium prices. Park Road Shopping Center sold for $82 million to Edens, a national real estate development firm, and Cotswold Village sold for $74 million.
“To have both trade in one year was noteworthy,” said Burkard, who was involved in the Cotswold sale. “It definitely gave other investors confidence from a retail standpoint to invest in Charlotte. Those marked a period where investors were really starting to come back in the market.”
Burkard said the industry has made “great strides” during the past four years. He also said more private investors are joining the public real estate investment trusts and pension funds in buying properties.
“I think 2012 was a year of stabilization,” he said.
Could growing sales signal more new development is on the horizon?
The area has seen relatively little new retail space under construction during the past two years.
Rose said developers need to remain cautious. The area must first create more jobs, she said. With 9 percent unemployment in November, Mecklenburg County’s jobless rate was higher than the nation’s.
Carter, meanwhile, said he is hearing about possible new retail development, especially projects involving grocery stores.
Florida-based Publix Super Markets last year opened two stores in South Carolina near the N.C. state line and is building one in Ballantyne. It also announced plans for a store in South End and has said it is considering more locations.
“I think new development is back. Things are starting to happen,” Carter said. “Developers have stuff in the hopper now.”