Time certainly flies and it is hard to believe that 2015 is more than half over! As we head into the rest of the year, it is a good idea to recap so that we are better able to outline the upcoming trends. This year, the Charleston market has continued to see substantial growth, both in the industrial and office sectors.
Listed below are just some of the highlights as of the end of June, 2015 —
CHARLESTON OFFICE MARKET
- Charleston is now the 12th-fastest growing metro area in the nation. What drives such growth? It’s simple – jobs, jobs, jobs. One recent report stated that an average of 43 people are moving to the Charleston tri-county area everyday! Year to date, over 4,200 office jobs were added from May 2014! As a result of this increase in jobs, the demand for office space is very strong in both Class A and B spaces. While new construction is on the horizon, experts predict that it will not be sufficient to meet the increasing needs. Today, few options remain for large Class A and/or B office spaces.
- The Charleston office market continues to have some of the highest rental rates/lowest vacancy rates in the Southeast. Current asking rates have climbed significantly in the past year with the average direct asking rate rising to $22.49 from last year’s $20.78. Further tightening the market, the overall vacancy rate in the tri-county area hovers around 8.5%, down from 10.9% a year ago. In just the past two years, the asking rate for Class B office space has increased 14.5%. Rental rates are expected to increase while vacancy rates will continue to decline, albeit at a slower rate due to limited availability.
- The impact of companies moving to Charleston along with the expansion of existing companies cannot be understated. Volvo’s recent announcement of their $500 million investment, Daimler’s doubling of their plant size, and the “Boeing effect” are the primary drivers of this growth. More speculative construction is expected but analysts predict it will be some time before it catches up to expected demand.
- Charleston is considered a “landlord’s market” as free rent and other concessions are rare incentives in attracting today’s tenants. Office developers are competing for expensive land space with hotel, retail and multi-family developers due to the popularity of Charleston. The greatest recent activity is seen in Charleston’s suburban market due to the proximity to employees, ample parking, and lower rental rates.
- Recent office development projects include:
a) Cigar Factory on East Bay St. downtown (244,000 sf, primarily office space with a mix of retail and restaurants.)
b) Courier Square on Meeting St. (approximately 90,000 sf of office/retail)
c) WestEdge Development (8 story, 150,000 sf office building)
d) 1 Central Island Plaza on Daniel Island (4 story, 75,000 office building)
e) Faber Plaza in North Charleston (5 story, 125,000 office building)
f) SCRA building at Nexton (75,000 sf office building)
And current available 50,000 sf+ buildings for lease include:
a) 1 Southpark Circle in West Ashley (5 story office building, recently renovated to Class A status – 50,320 sf @ $24/sf full service rate)
b) 2155 Eagle Drive in North Charleston (2 story 81,600 sf office building. Current status is shell condition @ $15.50/sf)
CHARLESTON INDUSTRIAL MARKET
- Not unlike office space, demand for industrial space is also tightening as rental rates continue to escalate and vacancy rates drop. Boeing, Volvo, and Daimler and their subsequent supply chain are especially responsible for the demand of new Class A industrial space. Manufacturing is improving throughout the region and has recovered completely from the recent recession and employment is at a historic high. In one year (Feb. ’14 to Feb. ’15) over 1,000 new manufacturing jobs were created.
- The Port of Charleston had an increase of TEUs of almost 18% from Feb. 2014 to 2015, making it the 5th consecutive record year of growth. With the upcoming expansion of the port and the deepening of the shipping channel to allow for post-Panamax ships, these numbers are expected to reach even higher. The Inland Port in Greer is on pace to exceed previous container counts and South Carolina is ranked 1st in export of tires and completed motor vehicles.
- Most vacant industrial space is located in older, less functional space with investors currently looking at repurposing these properties to meet the increasing demand. Build to suit and speculative construction activity is on the rise in the Charleston metro region, particularly in the North Charleston area near the Boeing complex.
- Much like the office sector, expectations going forward into 2016 are that the industrial sector will continue its quick ascension in rental rates with accompanying low vacancy rates. Overall vacancy rate is nearing a record low at 6.2% vs. 8% a year ago with an average rental rate of $4.71 sf. The aviation and automotive industries are currently driving demand for new building construction aided by a state government constantly striving to attract new companies to the area.
- Recent industrial development projects include:
a) North Pointe Building C in North Charleston off Rhett Ave. (350,760 sf cross dock building)
b) Crosspoint at Palmetto Commerce Park, Bldg 4 in North Charleston (273,000 sf rear-loaded, multi-tenant building)
c) Charleston Regional Business Center in Clements Ferry submarket (278,720 front loaded, speculative building)
d) Patillo Industrial Real Estate at Palmetto Commerce Park (142,000 sf spec building with expansion to 400,000 sf)
And current warehouse/office complexes available for sale in area include:
a) 6331 Fain Blvd. in North Charleston (48,038sf warehouse/4,189sf office) $2,600,000
b) 620 Dobbins Rd. in West Ashley off Rt. 17 (53,550 sf warehouse/15,861 office) $2,990,000
c) 2819 Industrial Ave. in North Charleston (107,200 sf warehouse/4,800 sf office) $4,900.000
d) 4450+4500 Goer Dr. in North Charleston (total 255,500 sf warehouse/19,300 sf office) $10,900,000
The 3rd and 4th quarters of 2015 are going to be interesting to watch as they will foretell 2016 and beyond.
We are excited about the future of Charleston and are happy to answer any questions you may have.