Downtown Charleston Sets Record Level Rents; Suburban Markets Make a Come-Back
The Greater Charleston Office Market is going through resurgence and is about to position varying parts of the market for new speculative development of pre-leased buildings. Economic drivers including SPAWAR, Boeing, and technology-based companies are continuing to ramp up in size and velocity and putting more pressure on the quality product in the marketplace. Class A vacancy has decreased to 12 percent; a 1 percent decrease from the previous quarter and a significant decrease from the high of 17 percent we saw twenty-four months ago. Rental rates in the Class A and Suburban markets bottomed out in the first quarter and have increased at the close of the second quarter across the market for Class A product.
Charleston’s CBD is setting new highs in asking prices at $35 per square foot for some of the newest and best office space developed in this submarket. 25 Calhoun, a joint venture office development by Holder Properties and Durlach Associates, is scheduled to be delivered in the third quarter and upon completion is expected to be 85 percent pre-leased with quality tenants and long-term leases. The vacancy rate for all office product in the downtown submarket is 9.4 percent. This is a decrease from the fourth quarter 2010, where the vacancy rate was 9.9 percent. Class A vacancy rates decreased to just under 7 percent from 9 percent at fourth quarter 2010. Driving this submarket is the volume of deals getting done from technology and law firms mainly taking up smaller spaces. Notable transactions include Baird pre-leasing 8,200 square feet at 25 Calhoun and Carlock Copeland law firm taking 18,000 square feet at 40 Calhoun Street.
The City of Charleston opened their second incubator space, Flagship2, offering affordable and modern office space to startups. The property was formerly a news station and is now an expansion from the success of the first Flagship. The collaborative environment enables these entrepreneurs to succeed and thus grow quickly requiring them to seek a more corporate setting in downtown or suburban Charleston; a win-win scenario. The demand for Class A space will increase rental rates significantly especially if no new product breaks ground.
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