Q2-2014 Columbia Office Market Report: Positive Absorption Continues and Investment Sales Increase

Positive Absorption Continues and Office Investment Sales Increase

COLUMBIA, SC

MARKET OVERVIEW

The first half of 2014 ended on a positive note for the Columbia, South Carolina office market which experienced decreased vacancy, higher rental rates and increased sales activity.  The overall vacancy rate was down from 17.52% at the end of the first quarter of 2014 to 17.28% at mid-year and 19.54% at mid-year 2013.  Asking rental rates averaged $15.79 at the end of the second quarter of 2014 up from $15.44 at the end of the first quarter of 2014 and $14.71 at mid-year 2013.

Columbia’s Central Business District (CBD) outperformed the suburban submarkets with leasing activity through the second quarter of 2014.  The CBD experienced a decline in vacancy to 11.81% at mid-year 2014 from 12.11% during the first quarter of 2014. The overall suburban vacancy rate was down to 22.43% at mid-year 2014, down from the first quarter of 2014 vacancy rate of 22.62%.

Sales activity increased significantly during the second quarter of 2014 with the sale of two suburban office parks and the former AgFirst building in the CBD.

• 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.  The Memphis-based company paid $3.8 million for the property and plans to repurpose the building into apartments.

 

CBD SUBMARKET

Columbia’s Central Business District (CBD) is transforming and improving with numerous announced housing developments, a high occupancy Main Street with a growing tenant mix including several banks and law firms.  Several older office buildings exist in the market which may be repurposed into residential units, having a positive impact on the office market by eliminating functionally obsolete space from the office inventory.

More change is coming to the CBD as a new minor league baseball stadium, hotel and conference center are planned to open along Bull Street by 2016.  The redevelopment, known as Columbia Commons, will be located along 181 acres at the former state mental hospital campus and will be developed by Hughes Development.  The Babcock Building is slated to be converted into a hotel and conference center with more than 200 guest rooms and is projected to cost $50 million.  Residential construction on up to 3,500 units was announced to begin this year and complete as early as August 2015.

The overall CBD office vacancy rate was down to 11.81% at mid-year 2014 from 12.11% at the end of the previous quarter.  Class A and B vacancy rates remained low and ended the second quarter of 2014 at 10.73% and 9.18%, respectively, well below the class C vacancy rate of 19.19%.  The available class C inventory remains undesirable and functionally obsolete providing an opportunity for landlords to renovate their buildings and for developers to purchase and repurpose such office buildings.

AgFirst Farm Credit Bank, which purchased the Bank of America Plaza, recently completed significant improvements to the office building located at 1901 Main Street.  Improvements include a renovated fitness center, outdoor dining and the incorporation of an automated payment system at the garage entrance.  The building attracted the restaurant, Pitas, which will be located on the building’s first floor.

SUBURBAN SUBMARKET

The suburban submarkets received heightened attention from companies looking for office space and investors during the second quarter of 2014.  The suburban submarkets ended the second quarter of 2014 with an overall vacancy rate of 22.43%, down from 22.62% at the end of the previous quarter.  Sales and leasing in class A buildings increased during the quarter resulting in a class A vacancy rate of 18.91%, down from the previous quarter.

The St. Andrews submarket’s vacancy rate declined to 19.65% at mid-year 2014, down from 20.20% at the end of the first quarter and 26.31% at mid-year 2013.  Renovations have proved again that those owners who invest in their properties see enhanced leasing opportunities.

The Northeast and Forest Acres submarkets held the two highest vacancy rates in the market at 31.55% and 21.56%, respectively, at mid-year 2014.  The vacancy rates in the two submarkets have remained consistently higher than others in recent quarters due to government downsizing and the age and quality of space.  As quality office space diminishes throughout Columbia, landlords will feel greater pressure to renovate their buildings in order to be competitive and secure tenants.

IN THE MONTHS AHEAD

Enhanced leasing volume is anticipated for the second half of 2014.  Sales and leasing velocity is likely to continue on an upward trend and older, functionally obsolete properties will be redeveloped and repurposed. Horizon II building, which will be located on the USC Innovista campus, may be the first new office building delivered to the market in 2015.  The building will be a 130,000 square foot office building associated with the research components of the University of South Carolina and will be located at the corner of Blossom and Assembly Streets.  Rental rates are expected to further increase as the vacancy rate continues to decline throughout the market.

 

 

 

AROUND THE STATE

CHARLESTON, SC

The Charleston, SC office market’s consistently low vacancy rate and increasing rental rates are  motivating redevelopment projects throughout Charleston with the majority in the Central Business District (CBD).  Several redevelopments including the Cigar Factory, Courier Square and Midtown, will add office space to the CBD.

• ·         The Cigar Factory, built in 1882 as a cotton mill, was recently acquired by a joint venture between Federal Capital Partners and Roi-Tan Investments LLC.  The 244,000 square foot building at 701 E. Bay Street, will be redeveloped into a mixed-use property with space for offices, retail, events, restaurants and parking.
  • ·         Charleston Midtown, which will feature approximately 37,000 square feet of office and retail space, is under construction and anticipated to deliver early in 2015.

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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