Office construction booms
In January 2018, Colliers International benchmarked its office data set for South Carolina. The new standard includes: all office buildings 10,000 square feet or larger, except medical office and govern-ment-owned buildings; all single tenant office buildings; buildings in an expanded geography; data for all quarters beginning in Q4 2008; and excluding office condominiums. In addition, the submarkets are sepa-rated by class levels A, B and C (A being the highest quality space and C being of lesser quality), and are also divided into 2 divisions: Central Business District (CBD) and Suburban. The Central Business District submarket consists of a highly-populated business area with infrastructure and an office building/high-rise environment, which is often accompanied by heavy daytime foot traffic. A Suburban submarket is an area or town existing as a mixed-use community within commuting distance of a larger city. Due to the adjustments of the building inventory, comparison of data included in previously published market reports should be avoided.
- Approximately 424,703 square feet of office product is currently under construction within the suburban markets of Charleston.
- As the Central Business District continues to absorb space and rental rates rise, tenants may move to the suburban markets.
Construction is intensifying
The Charleston market saw record low vacancy rates during 2017, prompting the market to move into an expansion cycle. All submarkets had an increase of new construction projects and proposed development of new office buildings. There were 614,989 square feet of new office buildings delivered in six submarkets during 2017, and there are currently 435,728 square feet under construction expected to deliver in 2018. In addition to the 1.05 million square feet being added to the Charleston office market from 2017 through 2018, another 1.34 million square feet of office projects are currently proposed across six submarkets! Previously, the high demand for office product within the Charleston market forced landlords to become creative with their buildings and repurpose storefront and retail space to be used for offices in order to satisfy the demand; now, due to the current construction boom, the Charleston office market may be heading toward an office supply surplus.
The Charleston office market vacancy rate was 12.03% during the first quarter of 2018, which is considerably higher than 8.86% from the first quarter of 2017. This increase is due, in part, to the new buildings being delivered to the market with vacant space in the buildings. Charleston posted an annual absorption of -9,067 square feet despite 614,989 square feet of new product being added to the market; in addition, the office buildings within the Central Business District, Upper and Lower North Charleston, and Summerville/Goose Creek absorbed a total of 203,626 square feet over the past year. The overall average full-service market rental rates are $23.77 per square foot, which is lower than the first quarter 2017 rate of $24.54 per square foot; however, Class A rental rates are on the rise. Overall, average full-service Class A rents reached $27.83 per square foot this quarter, which is a slight increase over the rent of $27.74 per square foot from this time last year.
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