Recovery Slow & Steady
The Charleston office market finished the year on a positive note, with positive absorption occurring throughout 2010. The fourth quarter demonstrated signs of ongoing stabilization, with vacancy rates declining from 18.70% at the end of the third quarter to 17.42% at year-end. Overall, average rental rates remained down from 2009 levels, and increases are unlikely to occur until local businesses are better positioned for growth and expansion.
Significant announcements in 2010 included the arrival of discount carrier, Southwest Airlines, which will begin operations in March 2011. Boeing commenced construction on their 250,000-square-foot facility in North Charleston, which will be complete in 2011. These significant economic developments will have an immediate and positive economic impact on the Charleston area.
Charleston’s CBD experienced a decline in vacancy from 10.10% at the end of the third quarter to 9.98% at year-end 2010. Average rental rates increased slightly from $24.10 in the third quarter to $24.33 in the fourth quarter. The Class A market experienced a net absorption of 32,611 square feet in the fourth quarter and a 12-month net absorption of 18,057 square feet. Most of the activity in the downtown market can be attributed to law firms and technology-based firms, which absorbed most of the smaller spaces downtown; these industries will continue to have a positive impact on downtown in 2011.
The groundbreaking of 25 Calhoun, a Holder Properties development, during the fourth quarter of 2010 signals the first office construction project in several years. This project is registered under the LEED® building certification program and adds 63,000 square feet to the total inventory, 35,000 square feet of which has been pre-leased to Young Clement Rivers. Even with the addition of this new building, the supply of large contiguous space remaining is limited in downtown at year-end which means that as corporations have a need to expand they may be forced to relocate to suburban markets.
A growing trend for incubator spaces has emerged in downtown Charleston. Flagship 2, located on East Bay Street, is downtown’s second incubator space. The addition of incubator space in downtown Charleston allows knowledge-based start-ups and entrepreneurs to afford professional office space in an environment that provides networking opportunities and in some instances on-site technical support. As the demand for this type of space increases we will likely see the conversion of existing buildings to incubator spaces. Although the downtown market experienced some movement in the fourth quarter, it surpassed the suburban market in terms of leasing and sales activity for the year.
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