Concessions Decrease As Rental Rates Rise
Leasing activity and job creation remained strong during the first quarter of 2012, but overall office market occupancy experienced a net decline while direct vacancy rates rose slightly from 24.09% at year-end 2011 to 24.97% during the first quarter of 2012 due to Class B and C vacancy. The market saw an increase of 87,810 square feet in unoccupied space, a result of downsizing by the State of South Carolina and right-sizing by many tenants who relocated. Additionally, as leases with shadow space mature, the shadow space vacancy becomes a direct vacancy to the market.
The trend of public and private sector downsizing has persisted throughout the first quarter of 2012, continuing the movement seen in 2011. In 2011, the State of South Carolina vacated approximately 90,000 square feet at Synergy Business Park, resulting in 164,064 square feet of Class B vacant space that remained untouched in the first quarter of 2012.
Although the market has experienced a decline in occupancy, the majority of the space vacated has been in obsolete Class C buildings and Class B properties that have seen little in terms of upgrades or capital improvements. New uses are being considered for these obsolete buildings that greatly impact the market vacancy rates. For example, there is speculation that the Palmetto Center, a Class C building located at 1426 Main Street, will be converted to residential or student housing in the near future. The Palmetto Center offered 420,000 square feet in vacant space at the end of first quarter 2012, largely unchanged since SCANA vacated four years ago.
As seen in 2011, overall rental rates remained steady at $15.14 in the first quarter of 2012; however, Class A rates saw an increase from $18.60 to $18.90 per square foot. Landlords continued to address rental rates on a case by case basis depending on the quality of the tenant. Most notably, concessions are beginning to weaken in the Class A market; a sign the recovery is now in progress.
As in 2011, the first quarter of 2012 brought relatively no new construction to the Columbia office market. While job growth continues, employers looked to add to their workforce while they sought ways to increase efficiencies, resulting in higher employment densities and a decreased need for square footage.
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