Greenville Office Market Kicks Off 2015 with Growing Occupancy and Development Plans

Colliers International, South Carolina Research & Forecast Report

Growing Occupancy and Development Plans Kick-Off 2015

Key Takeaways

• 2015 is off to a great start with positive absorption and record high rental rates throughout the Greenville, South Carolina office market.
• All eyes are on the Central Business District as plans for new office, residential and mixed-use developments continue to make headlines.
• The market is embracing the growing tech industry.
• Construction continues on One Research Drive at the Clemson University International Center for Automotive Research (CUICAR) campus.

To download the complete report: Q1 2015 Greenville Office Market Report.

 

Current Conditions

The beginning of 2015 brought declining vacancy rates and top rental rates to the Greenville, SC office market. A tightening office market is driving rental rates up as landlords take advantage of competitiveness among tenants seeking quality office space. Asking rental rates for the overall market averaged $18.24 per square foot per year, up from $18.11 at year-end 2014 and $17.69 a year ago, increasing 3.1% in just 12 months. Class A asking rental rates averaged $20.78 per square foot per year, almost $1.00 more than the average a year ago.

The first quarter ended with a total vacancy rate of 17.2%, down from 17.5% at year-end 2014 and 19.1% a year ago. Approximately 26,000 square feet of office space was absorbed by the market throughout the quarter. The greatest activity was experienced by Class A office space with approximately 20,000 square feet absorbed and a subsequent vacancy rate of 14.2%, down from 14.6% at year-end 2014.Stoneridge.

 

Central Business District

The Central Business District (CBD) remains the focal point of the market. Rental rates continue to rise and averaged $20.72 per square foot per year at the end of the first quarter, increasing 3.8% over the past 12 months. Class A rental rates averaged $22.68 per square foot per year, up 8.4% in just 12 months. With less than 350,000 square feet of Class A office space remaining vacant in the market, Class A rental rates are expected to climb further.

Approximately 14,000 square feet was absorbed in the CBD during the first quarter resulting in a total vacancy rate of 16.3%, well below the first quarter 2014 vacancy rate of 17.6%. Class A and B vacancy rates were 16.6% and 15.7%, respectively, down from 17.1% and 18.9% one year ago.

 

Suburban Submarket

Rental rates for suburban office space, while increasing, are still lower than those of CBD office space. Asking rental rates for suburban office space averaged $16.89 per square foot per year, up from $16.66 a year ago. Class A rental rates averaged $19.09 per square foot per year, holding steady over the year.

The suburban submarket absorbed approximately 12,000 square feet of office space over the quarter bringing the total vacancy rate down to 17.8% from 18.1% at year-end 2014. Less than 300,000 square feet of Class A suburban office space remain vacant, a vacancy rate of 12.1%, down from 14.5% one year ago.

 

A Growing Tech Hub

A growth in science, technology, engineering and mathematics (STEM) education is fueling the development of a tech hub in Greenville. NEXT Innovation Center is a home for start-up companies and entrepreneurs, providing support in their early stages. The 60,000 square foot center on Church Street has proven successful and motivated the creation of a second center to be located at the Bank of America building on Main Street in the CBD. The NEXT Tech Hub will occupy the 20,000 square foot third floor of the building and will be home to Foxfire Software, Chartspan and Openworks. Additionally, The Iron Yard recently moved out of the NEXT Innovation Center and relocated its headquarters into the fourth floor of the Bank of America Building, which is likely to become a new tech hub.

Condry Group, a NEXT company, recently purchased a building on Laurens Street near the Bank of America building with plans to use the site as its corporate headquarters, further contributing to the growing downtown tech community.

The South Carolina Department of Commerce recently awarded $2.6 million in Innovation Challenge Grants, funding 19 organizations in 11 counties, some with a statewide impact. $250,000 were awarded to the NEXT Ecosystem Acceleration project, which supports  the growth of Greenville’s innovation ecosystem with new infrastructure and new entrepreneur-targeted facilities and services that will be an extension to the NEXT Innovation Center.

 

New Development

Greenville, SC is in the midst of a significant growth period, which began with the ground-breaking of ONE Greenville, a 370,000 square-foot Class A, LEED certified building, late in 2011. Since its delivery, Greenville has attracted major tenants and spurred investment from local and out-of-state developers  with a focus on office, residential and mixed-use developments.

 

Downtown Projects

Declining vacancy rates in the CBD and a limited availability of quality office space is motivating the redevelopment of existing sites and office buildings into new office space and residential developments. A significant redevelopment is planned for the Greenville News site. Greenville’s vibrant, growing downtown has earned the attention of Dallas-based Trammell Crow Corporation, who is teaming up with local Centennial American Properties on the redevelopment to be called Camperdown. Plans include an upscale hotel, a six-story office tower offering approximately 130,000 square feet of Class A office space, a four-story office building with approximately 24,000 square feet of office space and ground-level retail, a dine-in theatre, fitness center and an underground 800-space parking deck. Construction on the project is expected to begin in 2015 and complete in 2017.

In addition to new office space, the CBD is welcoming several new residential developments, which are expected to add more than 1,500 apartment units by late 2017. In just two years, the market will see more than three times the activity experienced from 2010 to date. The growing downtown residential population reflects Gen-Y’s preference for a live, work and play environment.

Most recently, Faison proposed new plans for the former Memorial Auditorium Site, which, if approved, will include 176 apartments and an underground parking garage.

Additionally, the second phase at The Lofts of Greenville recently received conditional approval. The complex will be a four-story development with 215 units, common areas and resident amenities. Construction is expected to begin in late spring of 2015 and be complete by year-end 2016.

Several other developments are planned or under construction in the CBD.

 

 

One Research Drive

Construction continues on One Research Drive, a four-story, multi-tenant, Class A building, which broke ground in November 2014. The building, expected to be complete by December 2015, will offer approximately 80,000 square feet and will be constructed to LEED Silver standard. One Research Drive will be the sixth and final building in Technology Neighborhood 1 on the Clemson University International Center for Automotive Research (CU-ICAR) campus. Colliers International will handle the leasing of the building.

CU-ICAR is an award-winning and nationally recognized campus strategically focused on automotive and motorsports research. CU-ICAR is home to many international automotive companies, as well as the nation’s only graduate program in Automotive Engineering through Clemson University.

 

Improving Economy

The economy, at both the national and local level, regained strength and momentum over the past year, adding the most jobs in over 10 years. Over 11,000 non-agricultural jobs were added since January 2014 in the Greenville-Mauldin-Easley, SC MSA. Job growth was seen among various sectors, specifically the office-using employment sector, which has surpassed pre-recession employment by 9,600 jobs. The unemployment rate remains low and was 6.0% in January 2015, down from 7.3% two years ago. The South Carolina unemployment rate was 6.6% in January 2015.

 

In the Months Ahead

Improving conditions are likely to continue, bringing record-high rental rates, specifically for Class A and B space, led by increasing occupancy rates and new construction. The growing tech industry will attract a younger demographic, motivating further multifamily and mixed-use development, while benefiting office market occupancy. Redevelopment and repositioning of older office-buildings will continue, adding Class A space to the existing inventory.

 

Around the State

A growing demand for office space throughout South Carolina is attributing to tightening markets and soaring rental rates, creating a need for new office construction. Major markets around the state, such as Charleston and Columbia, are beginning to see build-to-suit and speculative office construction. Building I at Nexton in Summerville was among the early completed developments. Several other projects have since broken ground in the markets.

 

Charleston, South Carolina

Activity in Charleston has been on the rise in recent years, a trend that is expected to last for a while. A growing population and increasing office occupancy is creating a demand for new office space.

• SCRA at the Nexton Office Campus, a 75,000 square-foot Class A office building, delivered late in 2015.  The building currently offers up to 15,000 square feet of office space in the growing Summerville suburban submarket.
• Downtown developments include Midtown, the cornerstone of upper King Street, which will offer approximately 20,000 square feet of office space and 17,000 square feet of retail space.  The project is anticipated to complete in May of 2015.

 

Columbia, South Carolina

High occupancy and increasing rental rates in Columbia make new construction a feasible option for tenants looking for space but at significantly higher rental rates. As a result, the market is welcoming its first wave of new construction, which has thus far been largely concentrated in the CBD.

• Holder Properties recently broke ground on the University of South Carolina’s Innovation Center located in the CBD. IBM, Fluor Corporation and the University are teaming up to create a research facility that will be a fully operational IBM delivery center and will also serve as a working laboratory for students.
• Construction continues on an approximately 30,000 square-foot building undergoing renovations at the corner of Huger and Lady Streets in the CBD. The building will be home to McCrory Construction and Landtech.

 

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

 

To download the complete report: Q1 2015 Greenville Office Market Report.