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Charleston office market glides upward in new year

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A locally healthy run of steady profits -- albeit with a few hiccups -- has prompted developers to build new places for business people to set up shop, according to a Southeastern commercial real estate firm.

"The Charleston office market is thriving, as the region continues on a path of economic prosperity," says Scott Peevy, Certified Commercial Investment Member and a broker with NAI Avant in the Lowcountry.

It hasn't all been good news. Peevy notes that the overall vacancy rate in metro Charleston nudged up to 8.1 percent, and there's been "a few larger tenant shifts," in particular the departure of ITT Technical Institute from its 20,000-square-foot office at Aviation Business Park. Meanwhile, overall rental rates "shifted slightly down" to $21.30 per square foot.

But he also points to figures that counterbalance the conception of a mild slide in area office development. Rental rates, after jumping from the beginning to the middle of the year, seem to be leveling off at year-end 2016, he says. "Despite these slight changes, the market remains robust, with a healthy supply of new construction projects on the horizon," Peevy points out.

Downtown Charleston sticks out as a region with a continued office space shortage, "generating the highest rents and lowest vacancy rates within the Charleston MSA (Metropolitan Statistical Area)," he says. Average rents for space within top-of-the-line "class A" peninsula properties in 10,000 square foot or larger office buildings closed 2016 priced at $38.26 a square foot for rent, and a vacancy total at 5.1 percent. "Favorable conditions have caused unprecedented redevelopment activity from developers in recent years," Peevy says. The renewal boom shows up specifically in areas north of Calhoun Street, notably upper Meeting Street, Morrison Drive and the West Side neighborhood. The office sector isn't the only sought after fieldt. There's equal or more activity in the multifamily and retail sectors, which offer "a balanced surge of projects for the area," he says.

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In suburban markets, top-notch offices saw average rents of $25.90 per square feet, while the vacancy rate at the end of 2016 stood at 8.3 percent. Still, locales outside the urban downtown witnessed the opening of Faber Plaza in North Charleston earlier this year and see office projects "in the pipeline" at Nexton in Summerville, the Daniel Island Square building and the new, nearby Blackbaud complex. The market, Peevy says, is welcoming "a significant amount of well-positioned, contiguous (high end) office space to the fold."

The third and fourth quarters of last year closed with a number of investment moves, which could spur "modest improvements" to slightly lesser scale Class B type properties. "Investors are seeking better returns with projections of higher occupancy and rental rates," he says. As in past years, buyers are showing solid demand for improved second-tier office space from tenants "not quite willing and ready to spend top dollar" for the most pricey space, Peevy notes. Second tier office space vacancy rates average 10.5 percent in suburban markets, with average rental rates of $17.07 per square foot. But tenants can expect to pay $21 a square foot for newly renovated second-tier properties "in desirable office corridors" like Faber Place Office Park, he says.

Peevy says he referenced NAI Avant's fourth quarter office market report for insight into local and national trends and statistics.

Founded in 1966 and headquartered in Columbia, NAI Avant stands as one of the larger commercial real estate companies in the Carolinas. The brokerage, a member of the NAI Global Network, is affiliated with more than 375 offices strategically located throughout North America, Latin America, Europe and Asia Pacific, it says.

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