Entering the Period of Inflation with Historically High Rental Rates

Key Takeaways

  • Vacancy rate continues downward trend.
  • Rental rates are at historically high levels and still climbing.
  • Very limited options for large contiguous blocks of space.
  • Future growth depends on speculative office construction.
  • Charleston ranked #21 on the Urban Land Institute’s US Markets to Watch: Overall Real Estate Prospects in 2015.

Market Overview

The Charleston, SC office market ended 2014 with significant gains over the previous year.   Rental rates are at record highs and vacant space is extremely limited.  Charleston has been gaining international attention and ranks high as being a top tourist destination, but this year, it also ranked #21 on the Urban Land Institute’s US Markets to Watch: Overall Real Estate Prospects in 2015.  Charleston ranked well in all commercial real estate property types, including office, while some other southeastern markets did not show optimism towards the office sector.

The fourth quarter of 2014 ended with a total vacancy rate of 10.81% for the overall market, down from the third quarter vacancy rate of 11.17%.  Class A and B direct vacancy rates were 7.32% and 11.44%, respectively, at year-end 2014.  Approximately 110,000 square feet of office space was absorbed during the fourth quarter bringing the total net absorption for the year to approximately 183,000 square feet.  A high demand for space exists throughout the market, but options are becoming increasingly limited, generating a need for new supply.  Although several buildings delivered, new construction has been slow to gain momentum in 2014, especially for speculative office buildings.  With almost no big blocks of contiguous office space available in the market, new speculative construction is crucial to the growth and future health of the office market.

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