Positive Absorption Across the Market.
The third quarter of 2010 marked the first time since the beginning of the economic recovery that both the CBD and Suburban office markets in Columbia, South Carolina, posted positive absorption. Although year-to-date absorption for the total market remains negative, positive absorption during the third quarter further substantiates previous claims that the Columbia office market is on the road to recovery. Absorption during the third quarter totaled 87,056 square feet in the CBD and 10,225 square feet in the suburban market.
Total market vacancy declined by 0.9% during the third quarter, resulting in a 20.6% overall vacancy rate as of September 30, 2010. While vacancy remains historically high for the Columbia office market, approximately 20% of the space available to the market is attributed to the Palmetto Center, the former corporate headquarters of SCANA Corporation. While this large availability of space appears to be problematic, to date, the vacancy at Palmetto Center has had no impact on the commercial office market as it is not in direct competition with other multi-tenant office properties in the Columbia market.
The Central Business District experienced expansion during the third quarter of 2010 as several new tenants moved to the urban core. The addition of new tenants to the market bodes well for the recovery of the local market and may speak to the improving health of the national economy as well. The CBD will continue to grow into 2011 as firms relocate and expand. Potential budget cuts by the State of South Carolina pose as a possible threat as the State is currently the largest multi-tenant office user in the Columbia market.
The positive absorption experienced in the suburban market during the third quarter may be attributed to pent-up demand from existing tenants. There was little activity stemming from new tenants and it will likely be the first quarter of 2011 before the Columbia market experiences substantial growth in the office sector.
Average asking rental rates remained stable during the third quarter as concessions from landlords slowly diminish. Demand-driven increases in rental rates will probably not occur until mid-2011, but continued increases in operating expense may cause landlords to seek higher rates sooner than the market will allow. Landlords that are able to offer quality space without increasing rental rates will likely see greater activity as the market recovery continues.
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