Lee & Associates-Greenville Presents Mid-Year 2015 Market Reports
Industrial Market Summary
Greenville, SC has turned into one of the "it" places to be, especially in the Southeast. This area is not only experiencing positive absorption rates and decreases in vacancy comparable to the early 2000s, but is also attracting household names like Dollar General, Rite Aid, Volvo, GITI, Cott Beverages and TTI (Ryobi). These multi-million dollar announcements, which were all made in the last year alone, are likely to attract second-and third-tier suppliers, as well as comparable companies that want in on the appealing labor force, port availability & other attractive resources that make the Upstate one of a kind.
Net absorption was a positive 581,727 square feet for the second quarter of 2015 in the Greenville/Spartanburg industrial market. This positive absorption aligns with the slight decrease the market experience in vacancy rate from 8.1% at the beginning of 2015 to 8.0% at the end of second quarter. Rental rates averaged at $3.56 per square foot. This represents a 0.3% decrease in quoted rental rates from the end of the first quarter, when rents were reported at $3.57 per square foot. One of the largest transactions that has occurred within the last four quarters in the market is the sale of FedEx Ground in Spartanburg. This 254,000 square foot industrial building sold for $27,561,700 or $108.51 per square foot on February 27, 2015.
Flex Market Summary
Similar to dropping a pebble in a pond, “true” industrial space is causing a ripple effect in the commercial real estate market for flex properties. While we are seeing positive changes in vacancy rates & rental rates, the flex market is still experiencing sporadic changes in net absorption. It is likely this is a result of the increased demand for pure warehouse style space, with little to no office. However, ripples affect everyone and it is likely that flex space will become a hot commodity as the year progresses.
The flex building market recorded net absorption of -4,420 square feet in the second quarter 2015, compared to a positive 9,128 square feet in the first quarter 2015. It is out of the ordinary to see a negative net absorption for the flex market, especially when we have seen such high net absorptions since third quarter 2014. However, it is likely that the positive effects of the industrial market and distribution centers are edging the flex market out of the limelight. On a positive note, vacancy continues to decline when compared to the vacancy rate four quarters ago (10.4%) Flex projects reported a vacancy rate of 9.3% at the end of the second quarter. The rental rate for flex projects averaged at $7.49 per square foot at the end of the second quarter 2015. At the end of the first quarter, flex rates were reported at $7.47 per square foot. This is a substantial jump from the rates we saw in 2014. The flex market ended the year at $7.10 per square foot, meaning over the course of two quarters, the rate jumped almost $0.40 per square foot.
Office Market Summary
The office market has had a reputation for being sporadic, at best. Over the past three years, vacancy rates and net absorption numbers constantly fluctuated and left us wondering what things would look like when the next quarter rolled around. However, comparing figures at the mid-year mark of 2015 to the same time in 2014, it appears that the office market is stabilizing in a similar way to the industrial discipline and retail discipline. With continued decreases in vacancy rate and consistent positive net absorptions over the last year, the office market can certainly be depended on to produce strong activity for the rest of 2015.
Net absorption for the overall Greenville/Spartanburg office market was positive 80,672 square feet in the second quarter of 2015. This compares to positive 272,073 square feet in the first quarter 2015. Specifically, in the Class-A office market, 19,098 square feet of space was absorbed. The Class B market recorded a net absorption of positive 33,123 square feet. Net absorption for the central business district was positive 25,539 square feet. Vacancy rates were reported at 9.5% at the mid-year mark 2014. Since then, rates decreased to 9.2% at the end of 2014, then 8.7% at the end of the first quarter 2015, and ended the second quarter at 8.4%. Rental rate, for all classes, averaged at $14.56 per square foot. This represents a 2.2% decrease in quoted rental rates from the end of first quarter 2015, when rents were reported at $14.89 per square foot. The average quoted rate within the Class A sector was $19.85 at the end of the second quarter 2015. Class B rates stood at $14.05 per square foot. Rates in the CBD (central business district) ended the second quarter at $19.05.
Retail Market Summary
Over the course of the last two years, the volume of announcements for new businesses, companies, and industries coming to the Upstate has increased exponentially. Boutiques, locally owned businesses, and niche market companies have been finding homes in modern spaces, like those found in Downtown Greenville, which suits this user demographic. However, it is interesting to see the largest transactions this year coming from “big box” retailers, especially one in particular. This influx of announcements from this type of market has had a positive impact on retail market conditions overall.
The vacancy rate in the Greenville/Spartanburg retail market has not seen many drastic changes over the course of the last four years. For the majority of 2014, the vacancy rate fluctuated slightly, but remained at the mid-6% mark. At mid-year 2015, vacancy was reported as 6.5%. This is a slight decrease from first quarter 2015, when rates were 6.7%. From this data, it is apparent that vacancy is continuing a trend of consistent decline. Retail net absorption was slightly positive in Greenville/Spartanburg second quarter 2015 with positive 116,171 square feet absorbed this quarter. In first quarter 2015, net absorption was positive 116,106 square feet. Rental rates are down over previous quarter levels but are up from levels four quarters ago. Mid-year 2015 ended with a rate of $9.85 per square foot. That compares to $9.87 per square foot in the first quarter 2015 and $9.60 at year end 2014. Some of the largest lease signing that occurred in our market in 2015 included the 35,000 square foot leased signed by Roses at 2100 Wade Hampton Boulevard and the 18,000 square foot deal signed by Crossway Christian Supply at 2402 East North Street.
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