The Charleston, South Carolina, office market experienced declines in occupancy during 2008 as a result of downturns in both the national and local economy. From year-end 2007 to year-end 2008, total market vacancy increased from 13.77% to 18.19%, representing an increase in vacant space of 536,299 square feet. Although this is a significant increase in vacant square footage, total market size grew by 698,579 square feet during the same period due to new office projects that were delivered in the early part of the year. The net difference between these numbers represents a total negative absorption of 162,280 square feet for the year.
There were no deliveries of new office space in the second half of 2008, and very little is expected in 2009. Although the market is much softer than that experienced at year-end 2007, average rental rates continued to increase year-over-year due to the cost associated with new space coming online. At year-end 2007, average rental rates across the market were $19.69 per square foot. This number increased to $19.72 per square foot at year-end 2008. Even with limited new construction projected for the market over the next twelve months, rental rates will likely decline as tenants shop for the most cost-effective space available.
Overall employment in the Charleston Metropolitan Statistical Area (MSA) declined during 2008, with the greatest declines being experienced in the tourism- and trade-related sectors as opposed to those sectors impacting the office market. During the year, total employment declined by 5,200 jobs (1.7%); employment sectors that most impact the office market experienced a total decline of 500 jobs, with professional and administrative services declining by 700 jobs and the governmental sector declining by 100 jobs, while information services grew by 100 jobs and the financial sector increased by 200 jobs.
Downtown Office Market
Although the Charleston market did experience a downturn during 2008, the downtown office market remained stable, a notable accomplishment given the occurrences in the national economy during the second half of 2008. Average rental rates increased slightly in the downtown market from $23.55 per square foot at year-end 2007 to $23.87 per square foot at year-end 2008. The amount of sublease space in the downtown market increased by 17,629 square feet in 2008.
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