OFFICE MARKET EXPECTED TO REMAIN HOT, NEW PRODUCT ON THE WAY
OFFICE MARKET EXPECTED TO REMAIN HOT,
NEW PRODUCT ON THE WAY
COLUMBIA, SC (July 28, 2015) The second quarter of 2015 continued the streak of positive absorption at eight consecutive quarters, with rental rates reaching unprecedented levels in the Columbia, S.C. office market. Overall, net absorption has also continued, quarter over quarter, for the last four quarters.
The Q1 2015 average direct (exclusive of sublet space) rental rate for the overall Columbia, S.C. off market was $16.08 per rentable square feet (RSF), an increase of $0.29 per over Q1, 2015. The Q2 2015 average direct vacancy market-wide was 10.5%.
Landlords, especially in the Class-A Market, are finally in a position to reverse the blood-letting trend of compressed rental rates, unprecedented leasing concessions, and elevated Tenant Improvement Allowances they experienced during the Great Recession. To this end, most owners of quality product are now in a position to reduce leasing incentives previously available during the deep economic downturn as well as realize rental rates that in some cases, are now nudging all-time highs.
The tightening of the office market has spurred two new office projects downtown. Hughes Development Corporation is under construction with its new 120,000 RSF Fist Base Building located within the 180 acre Bull Street Common mixed-use development. The Class-A building will be located along the first base line, immediately adjacent to the new state-of-the-art Spirit Communications multi-use sports and entertainment venue. Delivery of the First Base Building is projected for April 2016, which is when the “first pitch” will be thrown in the new Major League baseball park. As previously reported, Holder Properties, in conjunction with the USC Development Foundation, is under construction on the Innovation Center, a new Class A 110,000 SF building at the corner of Assembly and Blossom Streets. The building will be anchored by IBM and the University of South Carolina with completion scheduled for Spring 2016.
On an investment note during Q2 2015, local regional and national investors continued to find their way to Columbia for investment opportunities in the office arena. Surplus capital in need of deployment coupled with low interest rates have proved to be a good recipe for several key acquisitions in the Columbia office market; the largest of which was the recent purchase of the 335,000 RSF Class-A Meridian Building by the Hertz Investment Group. The building traded for $196.00 RSF.
CENTRAL BUSINESS DISTRICT
Columbia’s largest submarket is currently realizing an overall vacancy rate slightly below 10% with a Class-A average rental rate of $21.65 RSF. With an overall occupancy of less than 10%, tenants are finding themselves with fewer options available to choose from than in years past. What is conspicuous by its absence, are chunks of contiguous Class-A office product over 20,000 RSF. As of this report, a prospect searching for over 20,000 RSF of contiguous space in the Class-A submarket is going to have only a few options. Class-B opportunities are not much more plentiful.
With the increasing rental rates in the CBD (and several buildings approaching $23.00-$24.00 RSF, exclusive of parking costs) some existing downtown tenants are heading to the suburbs, however, in more cases than not, this isn’t the norm. The trend of escalating rental rates coupled with the scarcity of product, has been the impetus of the repositioning or redevelopment of a few historic downtown properties as well as the development of several new office buildings (more specifically referenced in the Q1 2015 Overview).
ST. ANDREWS SUBMARKET
The St. Andrews submarket is the second largest submarket in Columbia, S.C. The second quarter of 2015 saw a 10th consecutive quarter of positive net absorption at 43,489 RSF. Overall vacancy in this submarket fell to 13.1% down from 14.8% at the end the first quarter 2015. Rental rates continue to trend upward as several new institutional landlords have begun to make significant capital investments in their buildings, renovating common areas and upgrading mechanical infrastructure. This has caused several other existing landlord’s to “keep up with the Joneses,” as a reactive maneuver to remain competitive in the marketplace.
Columbia’s third largest submarket ended the second quarter 2015 with 13,686 RSF of positive net absorption, contributing to a sub-market vacancy of 12.3%, down from 12.8% at the end of Q1, 2015. There are currently several 20,000 of blocks of space available in the Northeast Submarket which are currently experiencing a considerable amount of traffic. With ample free on-site parking and rental rates in the mid-to-upper teens, the Northeast submarket will continue to be an attractive suburban alternative through 2015.
FOREST ACRES SUBMARKET
Forest Acres, Columbia’s fourth largest submarket, ended the second quarter of 2015 with an overall vacancy of 25.9%. Input from broker’s representing several large landlords in the submarket, confirmed that leasing activity has picked up significantly over Q1, 2015. With two of the largest blocks of contiguous space in all of Columbia coupled with an abundance of on-site parking, it is anticipated that the submarket will experience significant leasing activity during the remainder of 2015.
A “rising tide lifts all boats” may as well be the catch-phrase for the remainder of 2015 relative to the overall Columbia office market. It is anticipated that all submarkets will continue to see vacancy rates and tenant leasing concessions decrease while rental rates are expected to continue their upward trend. While it is likely there will be some very attractive Class-A CBD sublease space entering the marketplace during Q3, 2015, it is not expected to have a significant impact on Class-A CBD submarket dynamics. What is likely to impact the CBD office dynamics, to the good I might add, is the infusion of many new retailers pouring into downtown to support the demand generated by the thousands of USC students (likely closely followed by Millennials based on a number of projects’ timelines, i.e. Kline City Center, etc.) that will populate the new apartments that are being delivered this August or are currently under construction.
New office development downtown, (Holder’s new office building and Hughes Development Corporation’s new First Base Building) will be great new additions to Columbia’s office landscape. Rental rates in both of these new buildings will be in the upper $20.00’s, which will clearly eliminate many prospective tenants but smart money says both of these buildings will be close to, if not fully leased before final delivery of the respective finished products.
It should be anticipated that all suburban submarkets are expected to benefit from overall market tightening in general. With interest rates expected to remain low by historical standards for the foreseeable future, Columbia should continue to be an attractive location for pent-up investment dollars as many institutional investors are now looking into secondary and tertiary markets due to the fact that “opportunities” in most major market have been depleted during the past two years.
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Contact: Bruce Harper, President and Broker-In-Charge, Columbia Office, 803-744-9805, or firstname.lastname@example.org