Market Strengthens as Demand for Space Grows

Key Takeaways

• Activity is on the rise throughout the Greenville, South Carolina office market, which ended the third quarter of 2015 with greater occupancy and higher rental rates.
• Tenants are showing interest in larger spaces, benefiting the suburban submarkets.
• Office-using employment is on the rise, positively correlating with increasing demand for space and declining vacancy.
• The remainder of 2015 is poised for continued improvement.

 

To download the complete report: Q3 2015 Greenville Office Market Report.

Market Conditions

The Greenville, SC office market is strengthening as a growing number of tenants show interest in larger blocks of space.  As the economy continues its recovery, businesses are implementing their strategic plans for 2016 and preparing for solid growth.  The result is a growing demand for large blocks of space, many in excess of 25,000 square feet.  Additionally, tenants are choosing to upgrade their space by either renovating or moving up into Class A facilities.  The market will continue to tighten as large blocks get absorbed.  Smaller Class A and B spaces will also become increasingly difficult to find, leaving less desirable Class B and C space vacant.

The third quarter of 2015 ended with an overall vacancy rate of 15.9%, down from 16.3% the previous quarter and 19.1% two years ago.  Leasing activity was evenly distributed among the Central Business District (CBD) and suburban submarkets throughout the quarter, collectively absorbing approximately 35,500 square feet of office space.  Class A and B vacancy rates for the market were down to 12.1% and 21.8%, respectively, at the end of the third quarter.

Asking rental rates are on the rise, averaging $18.37 per square foot for the market at the end of the third quarter, increasing 9.2% since the third quarter of 2013.  Class A and B asking rental rates averaged $21.05 and $17.00 per square foot, respectively.  Rental rates at office parks Independence Corporate Park, Patewood and Brookfield jumped to $20.50 per square foot.

The market is beginning to see build-to-suit construction and may see speculative construction in the next 12 to 18 months.  One build-to-suit currently underway is being developed for CH2M, a global, Fortune 500 engineering firm, which will occupy the new 70,000 square-foot facility on Verdae Boulevard in Greenville County.  CH2M is relocating from its existing operations in Spartanburg.  Holder Properties is performing the development on behalf of Verdae.

Downtown construction projects include Erwin Penland 360, RiverPlace Phase 3 and Falls Park Place.  Construction is underway on Erwin Penland 360, a new, 6-story, 125,000 square-foot, Class A office building in the CBD.  Erwin Penland plans to occupy 48,000 square feet, and several leases have been signed for additional space in the building including Cherry Bekaert.  Construction continues at One Research Drive at the Clemson University International Center for Automotive Research (CU-ICAR) with only 40,000 square feet remaining to be leased.

 

Central Business District Submarket

The Central Business District (CBD) remains the focal point for many investors and tenants looking to locate in the market.  However, given the limited options for space and rising rental rates, the submarket is only feasible for some.  Parking costs, increasing construction costs and premium rental rates result in high occupancy costs, but the area’s amenities and exposure make the costs justifiable for some tenants.

The CBD continues to strengthen, ending the third quarter of 2015 with a total vacancy rate of 14.5%, down from 15.9% one year ago.  Contiguous vacant space over 20,000 square feet is limited in the submarket, and thus activity in the CBD is lighter given the few options available.  Asking rental rates are on the rise, reaching historical levels as the market continues to support the need for new construction.  Asking rental rates averaged $20.75 per square foot at the end of the third quarter, up from $20.23 one year ago.  Class A asking rental rates averaged $22.53 per square foot, increasing 10.3% over the last two years.  Class B and C asking rental rates averaged $18.81 and $15.31 per square foot, respectively.  Rental rates for new construction average $28.00 per square foot full service with a $40.00 tenant improvement allowance.

 

Suburban Submarket

Greater options for space and lower occupancy costs in the suburbs attract many tenants looking to locate in Greenville.  The submarket offers free parking, attractive amenities, and a shorter commute for employees.  The vacancy rate was 17.0% at the end of the third quarter, down from 19.1% two years ago.  Less than 240,000 square feet of Class A space remains vacant, contributing to a low vacancy rate of 9.5%.  Asking rental rates for suburban office space are increasing and averaged $17.32 at the end of the third quarter of 2015, up from $15.31 two years ago.  Asking rental rates for Class A and B space averaged $19.82 and $16.55 per square foot, respectively, at the end of the quarter.

 

Office-Using Employment

Office-using employment in the Greenville-Anderson-Mauldin, SC MSA is at its highest level in over 25 years.  In August 2015, 92,400 individuals were employed in the office-using sector.  Approximately 1,800 office-using jobs were added to the MSA from August 2014 to August 2015, a 2.0% increase over the year.  The increase in employment positively correlates to a growing demand for office space and declining vacancy rates.

 

Market Outlook

The remainder of 2015 will be accompanied by declining vacancy rates and increasing rental rates as the market continues to favor landlords.  Climbing rental rates will further diminish the gap between asking rental rates for existing and new space, making construction a feasible option for many landlords and developers.  Until new space is added to the inventory, tenants will continue to compete for space in the tightening market as the few large blocks of vacant space are absorbed.  The suburban submarkets will continue to benefit from the tight conditions in the CBD.  Overall, the market is poised for success and further improvements.

 

Around the State

A growing demand for office space throughout South Carolina is contributing to tightening markets and soaring rental rates.  Tenants are competing for quality space as large blocks of contiguous space over 20,000 square feet remain in low supply, creating a need for new office construction in major markets throughout the state.

 

 

Charleston, South Carolina

Companies are showing significant interest in the Charleston, SC office market, which continues to welcome a declining vacancy rate and some of the highest rental rates in the Southeast.  As a result, occupancy costs are on the rise, making the market ideal for investment opportunities.  Investment sales are receiving top dollar, developers are investing in new construction and some occupiers are choosing ownership.

Construction is up over recent quarters throughout the market.  Holder Properties recently completed construction on 1 Central Island Plaza, a 75,000 square-foot, Class A office building in the Daniel Island submarket.  Construction is underway on Faber Plaza in North Charleston.  The 5-story, 125,000 square-foot, Class A building is being developed by Durlach Associates and Trinity Capital Investors.  Several mixed-use developments are also under construction as the property type continues to gain popularity.  Midtown, the cornerstone of Upper King Street, recently delivered and offers 19,600 square feet of office space.  The Nexton development in Summerville is home two of the market’s newest Class A office buildings, Nexton Building I and the South Carolina Research Authority (SCRA) building.

 

Columbia, South Carolina

Market conditions are tighter than ever in the Columbia, SC office market as vacancy continues to decline and rental rates increase.  Landlords have the upper hand as interest grows throughout the market.  Concessions are on the decline and tenants are incurring higher occupancy costs as rental rates, parking rates and construction costs increase.  Options for quality space are limited as much of the vacant space is located in functionally obsolete Class C buildings, which are not leasable.

Construction is in demand, but remains limited to two projects in the CBD, Innovation Center and Bull Street, which will collectively add 253,000 square feet of Class A office space to the market’s existing inventory upon completion in 2016.

 

For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights

 

To download the complete report: Q3 2015 Greenville Office Market Report.