Diminishing Supply of Office Land and Buildings

Fourth Quarter 2013 Recap

Charleston’s office market performed well in the fourth quarter and in 2013. The market absorbed 111,971 SF in the fourth quarter resulting in a total absorption of 190,910 SF for the year. This was the seventh consecutive quarter of positive net absorption. The total vacancy rate dropped to 11.38%, from 11.95% the previous quarter, and 13.42% a year ago. Companies showed willingness to enter into longer-term leases and some plan to expand and build new facilities. Two new buildings delivered in 2013 and two buildings are currently under construction. Despite the additional supply, vacancy rates continued to drop. More projects are being proposed, however, none will be speculative.

As a result of the positive growth and few building deliveries, average asking rental rates increased to $20.41/SF FS for the overall market. An even greater increase was seen in Class A space, with average asking rental rates reaching $27.20/SF FS, up $1.09 from the previous quarter. Robust rental rate increases are likely to continue in 2014 as the market continues to experience healthy demand and with limited land options to build more buildings.

Class A Space Rapidly Shrinking

The improved leasing activity coupled with little new office product entering the market resulted in fewer options for tenants, specifically Class A product which continues to contract at a rapid pace. Over the last two years, the Class A vacancy rate has decreased two percent to its current level of 7.1%. There are currently only eight buildings in the entire Charleston market with blocks of Class A space greater than 10,000 SF, which is indicative of solid employment growth and corporate relocations to the region.

The Class A sector accounted for the majority of the fourth quarter’s positive growth with nearly 87,000 SF of space absorbed. Molina Healthcare leased 45,000 SF at Faber Pointe, bringing the newly delivered building to approximately 95% occupancy. Centene Management Company leased the remaining 6,000 SF at 4969 Centre Pointe Drive. Sabal Homes relocated to Portside Center and leased 4,054 SF. As the majority of existing Class A space became leased, another handful of companies announced plans to develop new buildings due to the limited options of existing and available space.

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