Columbia's Commercial Real Estate: Have we reached the bottom yet?

Martin A. Moore, CCIM, SIOR
Principal, CBRE

The question that prevails in conversations on the economy and commercial real estate is Have we reached the bottom?

The Columbia office market experienced erosion in occupancy and absorption through Year End 2009. The long anticipated relocation of SCANA Corporation’s headquarters to its new Cayce campus, leaving a 456,000-square-foot, leased facility on Main Street (The Palmetto Center), was the primary influence on the market statistics. Businesses continuing to adjust to the current economic climate was a secondary influence. 86% of the change in vacancy was a result of the SCANA departure.

 

At first look, the increase in the overall market vacancy rate that accompanied an increase in the average asking rate seems incongruent. This situation occurred due to the direct impact of The Palmetto Center. The addition of 456,000 square feet, at an asking rate of $17.00 per square foot, increased both market vacancy and the average asking rate.

2009 was another year of Landlords placing a greater priority than ever on Tenant retention. The Extend and Blend transaction, in which a Tenant extends its obligation to the Landlord in exchange for concessions, occurred frequently. This allowed Tenants of credit worthy status to take advantage of a soft market and allowed Landlords to push potential vacancies into the future. Continued strict lending requirements, coupled with a difficult economy, hindered most purchases of office properties. This may be one positive aspect of the current situation that will continue to help Landlords minimize Tenant departures. However, those same strict lending practices have made it more difficult for Landlords to use leverage as they operate existing properties. Watch for Extend and Blend transactions and difficult lending requirements to continue in 2010.

Also, two specific property events will impact their respective submarkets in 2010. The availability of 3400 Forest Drive (a 198,000-square-foot call center being vacated by Verizon Wireless) will increase the vacancy rate in the Forest Acres submarket, but will provide an excellent opportunity for Columbia to land another large employer. BlueCross BlueShield’s late 2009 purchase of 17 Technology Circle (the Palmetto GBA building) may allow the company to consolidate from currently leased facilities, thereby decreasing the occupancy rate in the Northeast.

So, Have we reached the bottom yet?

Asking rates and occupancy may slip a bit more in the first half of 2010, but both are expected to stabilize by the third quarter. Columbia has withstood recessions well, and may do so again. Government budget cuts are key in how the Capital City will fare. Watch for owner financing to return to the market and Tenants to negotiate with Landlords for the purchase of buildings. Real Estate occupancy, a lagging indicator, will only increase after businesses believe that they understand the new economic landscape, make adjustments, and begin to grow again.

 

Martin A. Moore, CCIM, SIOR
Principal, CBRE

Martin has 14 years of Commercial Real Estate experience.  Martin’s expertise is in office property sales, leasing and management as well as Investment Properties.  He has successfully represented user and investor clients in the acquisition and disposition of properties in the Columbia, Charleston, and Greenville, South Carolina as well as Charlotte, North Carolina markets.  Martin leads the Office Team and Investment Team at CBRE Columbia.

PROFESSIONAL AFFILIATIONS/ACCREDITATIONS
• Certified Commercial Investment Member (CCIM)
• Society of Office and Industrial Realtors (SIOR)
• Vice President, SIOR Carolinas Chapter
• Adjunct Professor of Finance/Real Estate-University of South Carolina

EDUCATION
• University of South Carolina-MBA
• Wofford College-BA (Finance)

RECENT TRANSACTIONS
Martin has participated in 139 transactions totaling 1,425,779 square feet with gross consideration of over $107,466,000 in the last 36 months.

 

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