Exclusive: Demand for Office, Distribution Space Helping to Drive South Carolina Commercial Real Estate Market
Monday, May 20th, 2019
Office markets across South Carolina are tightening and industrial real estate developers continue to confidently pump out speculative product. Those are two of the takeaways from a recent group of first quarter reports from CBRE Group Inc.
The real estate firm analyzed the office and industrial markets in Charleston, Columbia and Greenville-Spartanburg. It took note of rising construction costs and the potential for price shocks due to the ongoing trade dispute between the United States and China.
A spike in the cost of building materials could throw off already agreed-to construction budgets, according to Brian Reed, CBRE research operations manager. Or it could cause some decision-makers to delay starting a project.
“Because the construction timeline can take a while, it just adds some element of uncertainty,” he said.
Construction costs could already be impacting the Columbia office market, where rental rates are reaching record highs while vacancy hit a record low of 13.9%.
“There is a relation between construction costs and rental rates,” Reed said.
The most recently built office buildings in downtown Columbia were completed in 2016, according to CBRE. To see new projects, Reed said, “you need to hit a certain rent figure that, so far, Columbia hasn’t supported.”
Columbia office rents have risen to $17.05 per square foot, but that is still considered affordable.
“In Greenville it’s over 20 bucks a square foot and Charleston is even higher than that,” Reed said.
In the Greenville-Spartanburg office market, vacancy is down to 14.2% from 14.8% in the previous quarter. That’s despite engineering firm consolidation putting large chunks of space back into the market and new office development.
The mixed-use Camperdown project is expected to deliver 160,000 square feet of office space to downtown Greenville later this year, but it is already 85% preleased.
In downtown Charleston, some tenants are struggling to find suitable space, according to CBRE, but relief is on the way. The 22 WestEdge development should add 150,000 square feet of office space early next year, while Charleston Tech Center and The Jasper mixed-use developments will add another 170,000 square feet in 2020.
Coworking has become a popular option in Greenville and Charleston, with multiple small business sharing space and amenities.
“That’s really a national trend,” Reed said.
For landlords, coworking can showcase a building to tenants who may lease more space later. Some employers are seeking coworking space with upgraded amenities as a way to lure workers in a tight labor market.
“Every company is looking for some kind of edge to attract talent,” Reed said.
On the industrial side, vacancy in Greenville-Spartanburg – by far the state’s largest industrial market – remained at 7.1% in the first quarter. More than 5.3 million square feet, including 3.1 million square feet of speculative product, is under construction, but recent trends show that large spec buildings are being quickly absorbed.
“The growth of online retail and e-commerce has increased the demand for larger distribution product,” Reed said. “Every logistics market in the entire region is seeing larger speculative developments.”
Colliers International announced that Clayco Realty Group has already landed a tenant for a 500,280-square-foot speculative warehouse underway in Duncan – and is now planning to expand it to 1.32 million square feet.
Speculative development increased vacancy in the Charleston industrial market to 7.8%, up from 6.5% in the previous quarter. Another 300,000 square feet of spec space is expected to be delivered by the end of the year.
How long will it take for Charleston to absorb the new space?
“I think the expectation is it would have been leased by now,” Reed said. “But every project is different.”
Meanwhile, more Lowcountry industrial product could be on the way. The new Interstate 26 interchange being built for the Volvo plant is expected to facilitate development of adjacent properties.
Vacancy is 7.6% in the Columbia industrial market. Speculative development of warehouse properties has been successful recently.
“Every market that has population is going to need modern distribution space,” Reed said.
CBRE expects the Midlands industrial market to continue to grow. There’s 315,000 square feet of spec logistics space in the pipeline, more than a million square feet of manufacturing space was delivered recently and Trane Inc. will occupy another 700,000 square feet as part of its expansion.