Q2-2014 Charleston Office Market Report: High Demand for Office Space Spurs Speculative Development

High Demand for Office Space Spurs Speculative Development

 

KEY TAKEAWAYS

• Vacancy rates declined to 10.45% at the end of the second quarter of 2014 from the first quarter vacancy rate of 11.12% and will continue to decrease throughout 2014.
• Class A asking rental rates averaged $27.20 per square foot full service for the market.
• Average asking rental rates increased to $20.33 per square foot full service for the market.
• With vacancy rates trending downward, speculative development is necessary for future growth.

 

MARKET OVERVIEW

The Charleston, South Carolina office market ended the second quarter of 2014 with positive absorption, lower vacancy rates and higher asking rental rates.  The market absorbed over 97,000 square feet of office space ending the second quarter with a vacancy rate of 10.45%.  Average asking rental rates were up to $20.33 per square foot full service for the market with Class A and B rental rates averaging $27.20 and $19.67 per square foot, respectively.

 

DOWNTOWN SUBMARKET

Downtown Charleston continued to attract tenants and receive heightened attention resulting in a vacancy rate of 7.49% at mid-year 2014, down from 9.41% at the end of the first quarter of 2014.  The high demand for Downtown office space resulted in vacancy rates below 10% for all classes of office space with Class A and B vacancy rates at 6.28% and 7.94%, respectively.  With quality available office space becoming increasingly difficult to find, the overall average asking rental rate was $29.05 per square foot full service at the end of the second quarter.  Asking rental rates for Class A and B office space averaged $34.51 and $26.89 per square foot full service, respectively.

 

Without new speculative office developments, the existing available inventory in the Downtown submarket will not be able to support further growth and new tenants.  The Cigar Factory, a 244,000 square foot mixed-use redevelopment to include office, retail and restaurant space, has already attracted Garden & Gun which will relocate to approximately 19,700 square feet at the complex.  Midtown, which will offer approximately 20,000 square feet of office space, is under construction. Other speculative construction is necessary to attract new tenants and allow expansion of existing companies.

 

SUBURBAN SUBMARKET

The suburban submarkets ended the first half of 2014 with a vacancy rate of 11.13%, down from the first quarter 2014 vacancy rate of 11.51%.  As the Downtown submarket tightens, tenants turned to the suburban submarkets.  The decline of available space contributed to the need for speculative development.  Asking rental rates averaged $18.91 per square foot full service for the suburban submarkets.  Class A and B asking rental rates averaged $25.06 and $18.59 per square foot, respectively.

 

IN THE MONTHS AHEAD

With the current lack of existing space in the marketplace and limited space under development, developers, both locally and nationally, are looking aggressively at Charleston as a solid opportunity for office development.  The markets under consideration for development range from the historic Downtown area to Mount Pleasant and the emerging submarket of Summerville, with the extensive and highly anticipated master planned community of NEXTON, South Carolina’s first gigabit community.

 

 

AROUND THE STATE

COLUMBIA, SC

Sales activity dominated the Columbia, SC office market throughout the second quarter of 2014.

• Hudson Advisors of Dallas, Texas acquired a portfolio of 5 office buildings, in excess of 440,000 square feet, in the St. Andrews submarket. Four of the buildings, Converse, Winthrop, Santee and Congaree are located in Synergy Business Park. The Stephenson Center was also acquired by Hudson Advisors.
• Three office buildings in Stoneridge Business Park located at 220, 240 and 246 Stoneridge Drive, in the St. Andrews submarket, were acquired by Stoneridge Holdings, LLC. This marks a significant expansion for this investor that acquired Center Point I & II and the Atrium at Stoneridge, all located in the St. Andrews submarket, in 2013.
• FLB Apartments LLC purchased the approximate 118,000 square foot former AgFirst Farm Credit Bank office building at the corner of Bull and Taylor Streets in Columbia’s Central Business District. The Memphis-based company paid $3.8 million for the property and plans to repurpose the building into apartments.

 

GREENVILLE, SC

The Greenville, SC office market remained steady through the second quarter of 2014 with focus spread across the Central Business District (CBD) and suburban submarkets. Construction was still centered on multi-family developments in the CBD.

• Charlotte-based Proffitt Dixon Partners recently submitted plans for a new luxury multifamily complex at Church and Broad Streets. The development will likely consist of a five-story building containing approximately 200 units.
• Flournoy Development recently submitted plans for a new apartment complex at Westfield and West Broad Streets.  Plans involve a new four-story, 322-unit apartment complex.

 

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