By Chuck Crumbo
Published Oct. 18, 2013
Sustaining the confidence of businesses and consumers will be key in growing South Carolina’s economy through the next year.
“South Carolina economic growth has persisted in 2013,” said Joseph Von Nessen, an economist at the University of South Carolina’s Darla Moore School of Business. “Stability is rising overall on the consumer side and the business side.”
Von Nessen offered that assessment at Tuesday’s annual Real Estate Market Forecast hosted by the Central Carolina Realtors Association, a commercial real estate trade group.
A sold-out room at the Columbia Metropolitan Convention Center heard Von Nessen and a panel of executives involved in banking and the commercial real estate industry provide their views of present business conditions and how things bode for the future.
Although the recent federal government shutdown and Congress’s fight over raising the debt ceiling hasn’t helped, it’s likely that the economy will pick up steam toward the end of the fourth quarter and stay on the recovery path.
In a market update issued Thursday, economists for Wells Fargo Bank said the 16-day standoff has the potential to shave as much as a half-point off of fourth-quarter GDP, which will be felt in South Carolina.
“The good news is that, if history is any guide, the reduction in growth associated with such a shutdown often ends up being delayed consumption,” Wells Fargo said. “The legislation included back pay for furloughed workers, so we may see some ‘lost’ growth materialize in following quarters.”
In 2013, South Carolina has seen employment improve, wages increase, and growth in high-tech GDP, Von Nessen said.
Charleston benefits most
And the Charleston region has benefited the most of the state’s metro areas from the rising economy, Von Nessen said. He noted that the Holy City market was ranked the ninth-best top-performing city in the United States since the end of the recession.
One of Charleston’s strengths is its growth in high-tech GDP or the knowledge economy, Von Nessen said. The area’s key drivers are the Medical University of South Carolina, Boeing and SPAWAR, a research and development arm of the U.S. Navy.
“Any region that has industry that recruits high talent, and that talent is required to take complex ideas and apply them commercially, those are regions that are growing,” Von Nessen said.
South Carolina’s economic growth also is hinged on the growth of automotive and aerospace clusters, Von Nessen said.
Both industries, along with the suppliers and other companies that serve them, offer economic stability to a region, Von Nessen said.
Also, clusters are less likely to leave a region than a single factory, Von Nessen said.
Contrary to popular belief, the state’s banks are interested in lending money, said Fred Green, president and CEO of the South Carolina Bankers Association.
“I would say that all banks, even the handful that are struggling, are very aggressively looking for loan growth,” said Green, a member of the panel.
Banks are interested in commercial real estate, particularly multifamily construction, retail, and office buildings, Green said.
Speculative deals such as residential acquisition and development are much more difficult to swing, Green said. “You basically can’t get financing for those types of properties,” he said.
Looking to lend
While looking to lend, Green said banks are adhering to stricter underwriting. The standards are more like they were 25-30 years ago, Green said, adding that customers need to have solid, verifiable and stable income streams and guarantor support.
However, competition and growing confidence in the economy may prompt some banks to “stick their toe in the water and start making loans in residential acquisition and speculative” projects, Green said.
One of the beneficiaries of banks willing to lend at aggressive interest rates is In-Rel Properties, a Lake Worth, Fla.-based owner of commercial property. In September 2011, In-Rel bought the Tower at 1301 Gervais St. in downtown Columbia for $19.5 million.
In-Rel CEO, Mukang Cho, said his company was first attracted to the property and then to the Columbia market. Cho noted that vacancy rates of Class A and Class B office space in the central business district has shrunk below 10%, and demand is rising.
“We’re seeing some good forward progress,” Cho said. “Net absorption is positive and going in the right direction, and rents are going up.”
Overall, the office market has “bottomed out” almost all the way across the segment that In-Rel is involved in.
“We’re trending in the right direction,” Cho said. “That doesn’t mean we’re out of the woods. I think confidence will be a key driver in our business.”
EDENS, a Columbia-based shopping center owner and developer, is still looking for investment opportunities along the East Coast, said Lyle Darnall, managing director.
In-town development has grown in recent years, Darnall said, citing the area in southeast Columbia where the Whole Foods has moved into Crosshill Market at Fort Jackson Boulevard and Devine Street. Across the road, the former Kmart property is scheduled to be redeveloped into a strip center with at least three box retailers like Marshalls and Michael’s.
Rising construction costs and online sales are forcing box retailers to build smaller stores, Darnall said. PetSmart, for example, has shrunk its retail outlet footprint to 12,000 square feet from 25,000 square feet, Darnall said.
Local builder, Richard Cohn, chairman of Cohn Construction Services, said retailers are watching their pennies.
“If retail is going to expand, the cost of interest needs to stay low,” Cohn said. “We are cautiously optimistic.”
Reach Chuck Crumbo at 803-726-7542.