Rising numbers of people who live and work in the Lowcountry have bolstered demand for offices among legal and financial companies, based on a national commercial real estate tracker's new report.
Headquarters and business centers are anxious to rent space as a result of employment and population gains in the Charleston area, says Marcus & Millichap, a Calabasas, California-based commercial real estate, brokerage and research company.
"Vacancy in Charleston is the tightest among the major South Carolina metros as companies move to and expand here. Population growth will also create a need for additional office space as businesses such as law, real estate and insurance firms grow," the firm says.
Newly completed office totals will rise to a cyclical high in 2018, softening the market as multiple centers search for tenants, Marcus & Millichap says.
The researcher recently released its second quarter report for South Carolina's largest cities. Elsewhere, "downtown redevelopment brightens Greenville office outlook," the firm says, citing Greenville County officials signing an agreement to redevelop up to 37 acres of county-owned land on University Ridge in Greenville. The County Square development include replacing the present county office building while adding office space, residences units, retail space, a hotel and public areas. "Temporary offices for county workers during construction as well as improved neighboring property values should benefit existing office buildings nearby," Marcus & Millichap says.
Meanwhile, "smaller markets are getting noticed (including) less populated South Carolina metros such as Columbia," the company says. Rents aren't high enough to reach the point of new construction, which keeps competition low, and buyers can see higher investment yields, Marcus & Millichap says.
In a more detailed look at greater Charleston, the company finds the office vacancy rate of 9.5 percent bests Columbia and Greenville, while the $25.16 asking rent is $7-$9 higher than the two similarly sized cities and is up 4.2 percent from a year ago.
Investment trends include a "strong demand for office space" drawing buyers to Charleston, who nonetheless should be ready to pay a premium especially near downtown.
Less-than-premium medical office buildings trade at an average of $219 per square foot in the past 12-month period.
Charleston shows a 1.5 percent rise in total employment from last year. At the same time, just 5,200 jobs were formed in the past 12 months, down from 9,800 a year earlier. "The unemployment rate has sat below 4 percent for 19 consecutive months, making it harder for employers to fill open positions," according to Marcus & Millichap.
Contractors have completed 584,600 square feet of office space in the past year, more than four times the finished rate a year before. Further, more than 600,000 square feet of office space is underway and set to wrap up this year and next. The largest project due this year is a 172,000-square foot building for software firm Blackbaud on Daniel Island, the researcher says.
Rental prices increased 3.6 percent in the first quarter compared with last year, setting a record high at $24.63 a square foot. Rising vacancies, however, pushed down the average asking rent for top-notch "class A" properties by 5.5 percent to $30.52 per square foot in March.
The commercial broker says the Lowcountry's healthy population increases will continue to draw investors into medical office projects in Charleston, but where "smaller single-tenant buildings will get local buyer attention."
Based on local markets, downtown Charleston proves the most expensive at $33.28 a square foot, up 10.6 percent, while it has the second lowest vacancy rate at 7 percent. North Charleston marks the lowest empty rate at 6.7 percent, while Dorchester County stands at 8.6 percent, East Islands - Mount Pleasant at 9.1 percent, greater Charleston at 14.5 percent and outlying Berkeley County with 17 percent.
The metro average is 9.1 percent. Other prices include $27.91 a square foot in East Islands-Mount Pleasant, down 10.5 percent; $26.20 in greater Charleston, up 12 percent; $19.25 in North Charleston, up 1.3 percent; $18.91 in Dorchester County, up an area leading 35.1 percent and $13.50 in outlying Berkeley County, down 21.2 percent. The metro average was $25.16 a square foot, up 3.6 percent.
Marcus & Millichap concludes, "Slim availability in Charleston keeps competition heightened."