Rotating spokes commonly occur in partially magnetized plasma devices. This work explores the evolution from the gradient drift instability into an m = 1 rotating spoke mode in a magnetically enhanced hollow cathode discharge (with emissive cathode) by means of 2D radial-azimuthal particle-in-cell/Monte Carlo collision simulations. It is shown that the formation of the spoke potential hump region can be explained as a result of the local collapse of the anode sheath due to the gradient drift instability, which is triggered within the anode sheath. The sheath non-neutrality effect on the instability is considered and incorporated in the two-fluid linear theory of gradient drift instability. The unstable modes predicted by the theory are in good agreement with the fluctuation modes developed in the particle simulations.