First Quarter Office Market – Columbia, SC

COLUMBIA, SC – April 13, 2009 – During the first three months of 2009, the Columbia, South Carolina, office market remained relatively stable amidst the continued economic downturn in the US economy. Although it is reported that the United States has been in a recession for the past twelve months, it is positive news that the Columbia office market only began to show signs of decreased growth in the first quarter of 2009.  It has long been known that Columbia is fairly insulated from national recessions due to the stability of Fort Jackson, USC, state government and other economic drivers. Yet in the current recession, many weaknesses can be  felt even in the areas which normally stabilize the market.

Local employment and housing markets began to show signs of improvement in the first quarter, which could be an indicator of the early stages of a recovery and a shortening of the recessionary cycle in Columbia.  Total employment for the Columbia MSA increased by 900 jobs (0.25%) from January 2009 to February 2009, while home sales for the Columbia region increased 29.5% during this same one-month period.  Both statistics were welcome news for those in the real estate market in Columbia.

Office occupancy levels remained stable during the first three months of the year, hovering at 85.0% occupancy for the total market, but the availability of sublease space increased substantially in the Central Business District (CBD).  As of March 31, 2009 approximately 2.0% of the CBD market was available for sublease.   Although these lease commitments are not expected to expire for several years, the sublease space does offer competitive space in the market. 

Certain sectors of the economy have also shown signs of downturn and therefore could have future impact on the office market.  Law firms demonstrated signs of decline due to economic pressures during the first quarter of 2009, and while staff reductions were not common, many law firms were looking for ways to save on operating costs.  Accordingly, reductions in office space may occur as law firms downsize through relocation or lease renewal.  Additionally, the State of South Carolina continued to undergo significant budget cuts during the first quarter of 2009, which will likely result in decreased space needs as various agencies downsize.  Without a swift economic turnaround, these trends will result in decreased occupancy in remainder of 2009.

While rental rates increased in the fourth quarter of 2008, landlords began to see some reluctance on lease renewals and new leases as the amount of available sublease space increased during the first quarter of the year.  Landlords have begun to renew leases and renegotiate rental rates at much more aggressive levels than previously experienced.  Buildings that have been marketed as having more aggressive lease rates have experienced considerably greater activity than those where landlords are seeking quoted rental rates.  This holds particularly true in the suburban markets, which have experienced weaker demand than in the CBD. 

The new 180,000 square foot CBD office tower called Main and Gervais is the only large office project under construction in the market.  The project will be approaching full occupancy by three anchor/owners upon completion in early 2010.  As building occupants move in during 2010, they will leave behind nearly 150,000 square feet of vacant space in the CBD market.

The remainder of 2009 will be met by landlords with extreme caution as the vitality of the national and local economies remain in question for another quarter.  Signs of recovery appear to be on the horizon, but many office users will continue to be concerned about one of their largest expenditures the payment of rent.   The market will likely experience a slight decline during the second quarter of 2009, but it is unlikely that any large blocks of direct vacant space will come available until late this year or early 2010 due to existing lease commitments.  One pending vacancy that will significantly impact the CBD office market is the 456,000-square-foot Palmetto Center, which is currently leased by SCANA Corporation.  This building will be vacant by year-end 2009.