Colliers Report: Construction complete, more on the horizon

Research & Forecast Report: Q4-2017 CHARLESTON | OFFICE

Key Takeaways

• Two new buildings totaling 150,000 square feet are added to the suburban markets.
• Overall market rents are higher across all sectors than one year ago.

To download the complete report: Q4 2017 Charleston Office Market Report

2017 Market Recap

The Charleston market is vibrant and continues to strengthen due to new construction, increasing employment, tightening vacancy and increasing rental rates. The overall market vacancy rate has steadily decreased throughout the past year from 8.96% during the fourth quarter of 2016 down to as low as 7.41% during the third quarter of this year. Now it is 8.79% after the delivery of new construction to the market this quarter. The market average full service rental rate has increased to $25.68 per square foot, up from $24.64 per square foot one year ago. From this time last year, the Charleston market has absorbed 277,177 square feet, the majority of which was in the Central Business District and Lower North Charleston submarkets.

Market Conditions

The Charleston market vacancy rate rose to 8.79% from 7.41% during the third quarter of this year; likewise, the market absorption was -81,852 square feet this quarter. This rise in vacancy and drop in absorption was largely attributable to the 150,000 square feet of new construction which was delivered to the market this quarter. The overall market full service weighted rent also dropped slightly, from $26.92 per square foot to $25.68 per square foot. These declines are seen as temporary.

Central Business District

The Central Business District vacancy rate at the end of the fourth quarter  is 6.50%, which is only slightly higher than last quarter. However, the Class A market vacancy tightened from 7.50% last quarter down to 6.47% this quarter.  While the Class A buildings saw a positive absorption of 11,230 square feet, the Class B market added both directly vacant and sublease space and the Class C market doubled their vacant sublease space from last quarter. The overall Central Business District absorption was -12,070 square feet. The full service Central Business District average weighted rent dipped slightly from $34.81 per square foot last quarter to $34.55 per square foot, while Class A rents rose a bit this quarter to $37.70 per square foot up from $36.85 per square foot during the third quarter of this year.

Suburban Conditions

The suburban vacancy rate rose to 9.36%, which is 20.62% higher than last quarter; however, 150,000 square feet of new construction was also added to the suburban markets. Daniel Island Square, which has 44,000 square feet of Class A office space, was delivered to the Daniel Island submarket, while the River Oaks Center, a 106,000-square-foot Class A office building, is new to the Upper North Charleston submarket. Despite the new construction within the suburban market, the negative absorption rate only dropped to -69,782 square feet this quarter. The suburban full service weighted rental rate is $24.68 per square foot, which is marginally higher than the third quarter rent of $24.27 per square foot, and Class A suburban rent is currently $27.04 per square foot.

Significant Transactions

Leasing activity was significant in Charleston during the fourth quarter.  According to CoStar, 111 office leases were completed, the majority of which were under 5,500 square feet. Sales were also strong this quarter, and the sale price per square foot continues to increase.

Sales     

• 600 Seacoast Parkway, a 10,364-square-foot office building located in Mount Pleasant, was sold for $2.3 million or $224 per square foot.
• 838 Morrison Drive, a 8,439-square-foot Class B office building, was sold for approximately $9.1 million.
• 3600 Rivers Avenue, a 450,608-square-foot office building in North Charleston, was sold for $33 million or $73 per square foot.
• 284 King Street was sold for $5 million and is expected to be redeveloped to include street retail, with office and residential space above.

Leases

• NCO Group renewed their 50,254-square-foot lease at 4275 Bridge View Drive.
• KSH Solutions leased 22,626 square feet at 5965 Core Drive in North Charleston and is expected to move in next month.

Construction Pipeline       

Construction activity remains extremely high in the Charleston market, with 573,965 square feet under construction.

Under Construction 

• Courier Square, a 215,000-square-foot mixed-use project on King Street in the Downtown submarket, should be complete in 2018.
• On Daniel Island, construction continues on Blackbaud’s 172,000-square-foot building.

Market Forecast

The Charleston market is tight despite the delivery of new construction within the suburban markets. There is currently 573,965 square feet of office space currently under construction; 226,302 square feet is under construction in the Central Business District and 347,663 square feet of construction is underway in the suburban market. Tenants preleasing space in these new buildings will continue to further tighten the market leasing conditions and drive up market rental rates through 2018. As the market continues to draw many types of businesses to the area, vacancy will drop further, rents will rise and investors will be increasingly interested in the Charleston market and the market conditions will be positive through 2018.

Office-Using Employment

Office-using employment, those jobs related to the professional and business services, financial activities and information sectors, is growing within the combined Charleston Metro Statistical Area (MSA). According to the most recent October 2017 data from the Bureau of Labor Statistics, there has been an increase of 3,000 office-using jobs over the last 12 months. Non-farm employment in the Charleston market has increased by 8,100 jobs over the last year.

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

To download the complete report: Q4 2017 Charleston Office Market Report

 

About Colliers International

Colliers International | South Carolina has over 150 staff members, including 64 real estate professionals. Total brokerage volume for the firm in 2016 was approximately $634 million involving over 659 sales and leasing transactions. Colliers International is the largest manager of commercial property in South Carolina and is an Accredited Management Organization (AMO) through the Institute of Real Estate Management (IREM), with a portfolio at year-end 2016 of approximately 14 million square feet of office, industrial, retail and healthcare properties. Colliers International’s staff holds 53 professional designations, the most of any firm in South Carolina.

Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry-leading global real estate services company with 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting. 

Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 12 consecutive years, more than any other real estate services firm.