The first quarter of 2016 started off steady after a very active, historic year for the Charleston office market. 2016 continues to record high rental rates, declining vacancies, and the strongest commercial construction activity in recent years, according to the Collier’s International “South Carolina Research and Forecast Report Q1 2016.”
Vacancy Rates Show Steady Decline
Vacancy rates remain steady at 7.8 percent in the local office market, down from 10.5 percent a year ago. Leasing activity has been slow due to the lack of large blocks of quality space, which are in high demand in the Charleston metropolitan area. The slow pace is not a reflection of the market’s health, but the result of strong demand for this type of space by tenants looking to enter or expand within the market.
This demand for quality space has resulted in higher rental rates, with the Charleston office market ranking among the highest in the Southeast. Rental rates are holding steady after a huge spike in 2015, and are averaging $23.30 per square foot, with an overall increase of 9.2 percent in the last two years. Class A space has averaged $27.18 per square foot this first quarter, with the downtown market showing the highest rental rates of $35.51 per square foot. The suburban markets have lower rental rates of $25.17 per square foot.
Construction Activity Grows as Demand for Office Space Continues
The strong interest in the market and lack of quality office space has led to new development throughout the Charleston area. At the end of the first quarter there was more than 300,000 square feet of office space under construction, with more than half of this amount scheduled to be completed by mid-summer. A few examples are listed below:
- 80 Calhoun Street is under construction downtown with 3 story, 17,000 square foot office building. Southern First plans to occupy the first floor, of the building.
- Construction is underway on Courier Square, with an 87,500 square foot office building that is already completely rented.
- 101 Mill Street in Mount Pleasant is a 43,000 square foot Class A office building, and is expected to be completed soon.
- 349 Coleman in Mount Pleasant will have 28,000 square feet of office space available to lease by 2017.
- North Charleston area is under construction with a five story, 125,000 square foot Class A office building at Faber Plaza. Sonepar North America plans to occupy 25,000 feet of this space to establish its North American headquarters.
The ongoing construction activity will add square footage to the existing inventory of office space, but is not enough to meet the demand of the market, and additional construction will be needed for continued growth.
Source: SC Research & Forecast Report Q1 2016, Charleston Office, Colliers International
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