Q2 2012 Charleston, South Carolina Office Market Trends

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Q2 2012 Charleston, South Carolina Office Market Trends

While “somewhat flat,” in the words of Cushman & Wakefield, the market continues to make gradual progress. With no new supply delivered, Reis put net absorption for the first half of 2012 in this small 7.6-million-square-foot market at 12,000 square feet (the total for the second quarter was 13,000). July-August followed with 21,000 more. Vacancy ended the latest quarter at 17.4%, down 10 basis points for the quarter and year-over-year (but down 80 since the third quarter of last year). By the end of August the rate had slipped to 17.1%. Rent growth has been running at about 1.0% per year since 2011 with little change expected for 2012. At $21.19 psf and $17.12 psf, asking and effective averages for the latest quarter were up 0.1% each from the quarter before and were up 0.3% and 0.4% since year-end 2011. Gains of a penny followed for each rate over the next two months.

Construction of competitive general purpose, multi-tenant office space remains limited. The 263,000 square feet that completed all told in 2011 were dominated by the 200,000-square-foot second phase of Remount Business Park in the North Charleston submarket. Two leases signed in May brought total occupancy in the park’s first two buildings to 90%, Venture One Real Estate LLC reported at the time. Plans for build-out call for 400,000 square feet. The 77,000-square-foot Building 3 is expected to break ground by year-end this source reports. “The park is designed to satisfy the office and flex space requirements of military customers, North Charleston Port Terminal service providers, high-tech vendors, and general office tenants—all of which are attracted to single-story space close to the interstate highway system.”

Reis expects 95,000 square feet to complete market-wide all told in 2012. The 15,000-square-foot Carolina One office building delivered in North Charleston in July; a December completion is scheduled for the 80,000- square-foot Faber Pointe building in the same town. Two projects, both in the Peninsula submarket, are under construction for post-2012 delivery. An October 2013 finish is anticipated for 25,000 square feet of office space at the Cigar Factory mixed-use development at 701 E. Bay Street; Holder Properties’ speculative 45,000-square-foot 174 Meeting Street project broke ground in July in the Peninsula submarket. Including tenant improvement allowances, the developer reports a rental rate of $29.00 psf triple net.

Reis expects the year’s portion of new supply to result in a small increase in the vacancy rate by year-end. Gains of 0.9% and 1.1% are projected for the asking and effective average rents for the year. Marked improvements in demand, occupancy, and rent growth are expected for 2013. Development should be active but prudent.