Summer Slowdown Affects the Upstate.

Tenant activity in the Greenville, South Carolina, office market slowed during the second quarter of 2011 due to the traditional summer slowdown experienced in the Upstate. This downturn in activity resulted in a net decline in occupancy by 19,968 square feet, which resulted in an 18.4% vacancy rate at mid-year 2011. This negative absorption was due to the downsizing of several existing firms that predominately operate in the engineering sector.  

Although the market experienced negative absorption during the second quarter, there were several economic development-related announcements that occurred in the market that will bring momentum in the coming months. A new project at Washington and Main Streets in the Central Business District called “One” will be comprised of a mixture of office and retail tenants. Haynsworth Sinkler Boyd, Certus Bank and Anthropologie were among the first tenants to execute leases for this development. Construction for this project will begin in the third quarter of 2011 and it is rumored that a second phase may follow shortly thereafter.

Additionally, an in-fill mixed-use project was under construction at Riverplace at mid-year 2011. The project, which is being developed by Hughes Investments, Inc., will be a mixture of apartments, office and retail. The commercial space was designed as speculative and had no tenant commitments as of mid-year.   

Average asking rental rates increased across the market from $15.37 per square foot at the end of the first quarter to $16.48 per square foot at mid-year 2011. Increases in Class A space were the predominant cause of this market rate increase and were brought on by the tightening of the Class A market that occurred during the last half of 2010 and beginning of 2011. Twelve months ago Class A space was priced much more competitively and perceived by tenants to be the best value in the market. As this market tightened, landlords started to increase asking rates to pre-recessionary levels. Therefore, the Class B and Class C markets experienced absorption during the second quarter as tenants continued to look for perceived value in the market.  

Although the Class A market experienced negative absorption during the second quarter, the Class A market in the CBD remained extremely healthy, posting a vacancy rate of 9.1% at mid-year 2011. It has become increasingly difficult for tenants to find large blocks of quality, Class A space in downtown Greenville, which further resulted in Class B absorption. Class B landlords that can creatively structure deals and tenant improvement packages may be able to attract activity from traditional, downtown Class A tenants.

The suburban market experienced a downturn during the second quarter due to downsizing among tenants. At mid-year 2011 there was an abundance of space options ranging from 1,000 square feet to 75,000 square feet. Future absorption of large blocks of Class A space in the suburbs will be largely dependent upon new businesses locating to the region, rather than the traditional expansion of existing businesses experienced in Greenville.

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