Landlords Getting Aggressive
- Landlords aggressively courting large tenants.
- Small tenants struggling to find space.
Big and Small Tenants Getting Different Treatment
Greenville has become a bifurcated tenant market, with those seeking 20,000 square feet or more in a strong negotiating position while smaller tenants are struggling to find adequate space. This has occurred for several reasons. First, many of the largest tenants have already either moved or renewed their leases in the past five years, leaving a small universe of available tenants who need 20,000 square feet or more. Second, the bulk of the vacant space is in a handful of buildings – many of which will require significant capital upgrades to become competitive. The national economy is in the 96th month of economic expansion, the third longest since World War II, motivating landlords to secure income and lease renewals before the inevitable downturn. Another factor is the prospect of new construction, combined with the narrowing delta between rental rates of new construction and upgraded space in older buildings. Interest rates are beginning to rise, making capital improvements to both common areas and tenant upfits financially more expensive than they were one year ago. Combined, these factors will give large tenants in Greenville the upper hand for the next several years. Conversely, it also makes it difficult for smaller tenants who want affordable, quality space because their individual lease will not typically provide sufficient income to rationalize the economic investment necessary to finance the necessary building upgrades.
While the Greenville market has reached historically high levels of occupancy, there are very few tenants 20,000 square foot or larger who haven’t secured a long-term lease in the last few years, according to CoStar and Colliers International’s research. According to CoStar, in July of this year, there were approximately 55 non-medical office tenants in the Greenville market occupying more than 20,000 square feet. This creates a conundrum for landlords. If they divide a large contiguous space for a smaller tenant, they potentially eliminate the possibility of leasing to a large tenant that would want their space on as few floors as possible.
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