Research & Forecast Report
Q2-2020 GREENVILLE-SPARTANBURG | OFFICE
- Due to hesitancy surrounding the Coronavirus, office market absorption was positive, but minimal. The overall office market absorbed 35,232 square feet.
- No new construction was delivered to the Greenville-Spartanburg submarkets during the second quarter of 2020.
- In the next few quarters rental rates are expected to continue to rise, pushed by an overall increase in building operating expenses and construction costs. With rates continuing to rise, rental concessions are expected to rise as landlords fight to maintain occupancy through changing workplace dynamics.
Office activity hits pause during the second quarter of 2020
Commercial real estate absorption within the Greenville-Spartanburg submarkets was minimal during the second quarter of 2020. The highest positive absorption within one building was 8,808 square feet and the building losing the largest tenant only posted negative 10,295 square feet. There were only 18 buildings that posted any positive absorption in Greenville-Spartanburg market; while only 10 buildings posted negative absorption. The hesitancy resulting in marginal activity was caused by uncertainty surrounding the pandemic. While tenants navigated through the challenges of working remotely and updating safety precautions in anticipation of returning to their offices, leasing activity was put on hold. However, office leasing activity is expected to resume at a positive rate during the third and fourth quarters and quarantine restrictions are relaxed or lifted and tenants reassess their office leasing needs post-Coronavirus.
Overall Greenville-Spartanburg Market
The Greenville-Spartanburg office market consists of 17.54 million square feet and absorbed 35,232 square feet during the second quarter of 2020. The I-385/85 office submarket was the most active posting an absorption of 10,366 square feet this quarter. Positive absorption coupled with no new construction forced the overall market vacancy rate to decrease from 9.95% last quarter to 9.08% during the second quarter of 2020. There are two projects totaling 160,531 square feet under construction, with another 286,720 square feet of offices proposed to be built. The overall average weighted rental rate was $21.35 per square foot this quarter, ranging from $7.00 per square foot in Spartanburg County to $30.00 per square foot in the Greenville central business district. Average weighted rental rates in Class A office space averaged $24.38 per square foot during the second quarter of 2020.
Greenville Central Business District (CBD)
The Greenville central business district is comprised of 4.49 million square feet. Overall, downtown offices absorbed 8,812 square feet with only Class A posting positive absorption numbers. No new buildings delivered to the downtown submarket. However, there are two office projects totaling 160,531 square feet currently under construction, and 177,000 square feet of redevelopment within the Greenville central business district. Positive leasing activity lowered the downtown market vacancy rate from 12.83% during the first quarter of 2020 to 12.63% this quarter. Downtown Class A vacancy rates continue to decline and are now 7.06%. The average weighted rental rate within the CBD decreased to $23.46 per square foot; likewise, Class A office property weighted rental rates dropped to $26.16 per square foot.
The Greenville-Spartanburg suburban office submarkets consists of 13.05 million square feet and absorbed 26,420 square feet during the second quarter of 2020. The Spartanburg County submarket led the others, absorbing 14,404 square feet. Due to positive, but minimal activity, the suburban vacancy rate dropped from 8.06% last quarter to 7.85% during the second quarter of this year. No buildings were under construction, nor were there new construction deliveries this quarter. However, there are currently four proposed offices to be built which will add 274,720 square feet to the suburbs. The overall average rental rate for the remaining suburban office space was $18.98 per square foot, the averages ranged from $21.58 per square foot in Class A suburban office space down to $17.60 per square foot in Class C offices.
During the second quarter of 2020, there were 31 office sale transactions-including three portfolio sales. Many of the sales were of medical office buildings during the second quarter of 2020. Also, according to CoStar, and 43 leases were signed within the Greenville-Spartanburg submarkets, all under 10,000 square feet.
Office-using employment are those jobs related to the professional and business services, financial activities and information sectors, within the combined Greenville-Spartanburg-Anderson Combined Statistical Area (CSA). According to the most recent April 2020 data from the Bureau of Labor Statistics, there are a total of 112,100 office-using jobs in the Greenville-Spartanburg-Anderson CSA. Due to the Coronavirus restrictions and temporary closures it was necessary for many employees to file for unemployment; however, it is likely several of those employees will be able to return to work when the restrictions are lifted. Consequently, there were 60,500 less office-using jobs during April of this year than there were twelve months ago. According to the Bureau of Labor Statistics, as of April of 2020, the unemployment rate in the Spartanburg MSA was 14.9% and the Greenville-Mauldin-Easley MSA was 12.3%.The unemployment rates are expected to normalize following the period of mandatory quarantine.
Office tenants within the Greenville-Spartanburg market will likely post positive leasing activity during the second half of 2020 as they evaluate their post-Coronavirus office needs. While some tenants may continue to work remotely for an extended time period, many are ready to return to their offices while taking the necessary COVID-19 precautions.
In order for building owners to balance the cost of additional janitorial services and enhanced social distancing safeguards, office operating expenses will force rental rates upward in the next few quarters. In addition, Greenville-Spartanburg offices may find increased activity from tenants within larger markets looking to relocate to a smaller market with less population density.
A Note Regarding COVID-19
As we publish this report, the U.S. and the world at large are facing a tremendous challenge, the scale of which is unprecedented in recent history. The spread of the novel Coronavirus (COVID-19) is significantly altering day-to-day life, impacting society, the economy and, by extension, commercial real estate.
The extent, length and severity of this pandemic is unknown and continues to evolve at a rapid pace. The scale of the impact and its timing varies between locations. To better understand trends and emerging adjustments, please subscribe to Colliers’ COVID-19 Knowledge Leader page for resources and recent updates.
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