A report from Colliers International said that office rental rates have reached historic levels in downtown Greenville.
The higher rates are due in large part to the larger demand for downtown office space, even as available space is dwindling. According to the report, the downtown area of Greenville has just 14.7% vacancy, compared with an average of around 18% in areas surrounding downtown. The Colliers report said there is only 526,853 square feet available for rent in the central business district.
“Greenville’s central business district has shown great improvement and has strengthened over recent years,” the report said.
The amount of space available has decreased by almost 1 percentage point over the first quarter of 2016. Vacancy rates for class A office space was 16.1%, while class B vacancy was just 10.8% in the downtown area at the end of the first quarter.
The asking rates for downtown office space increased significantly over the first quarter, according to Colliers. In 2015, the average rental price for class A office space downtown increased nearly 25% to $24.46 per square foot at the end of the first quarter of 2016. Class A office space rent averaged over $25 per square foot, while class B space was just over $22 per square foot downtown. A CBRE report noted that TD Bank has opened up 80,000 square feet of office downtown, but downtown office space will continue to be at a premium in both price and availability.
According to the CBRE report, co-working spaces like Joe Erwin’s Endeavor, a 20,000 square-foot space that can be used by multiple clients for offices, are gaining in popularity. Its report suggested there is more than 200,000 square feet of office space in downtown Greenville that can be classified as co-working space.
“It is possible that rise in co-working space can be partially attributed to tightening market conditions,” said Brian Reed, CBRE research manager. “With vacancy at a record low and no speculative deliveries under construction, occupiers are finding few options.”
Rents continued to increase as vacancy also decreased in the areas surrounding downtown Greenville. Rental rates in the Greenville submarket, areas surrounding downtown in the city of Greenville, increased to $17.24 per square foot at the end of the first quarter. Along the interstates 385 and 85 corridor, rents were up to an average of $17.45 per square foot, while in Spartanburg, vacancy was at 23% with the average rent at $15.51 per square foot.
Rents are somewhat lower, while vacancy rates are higher in suburban areas of Greenville and Spartanburg, according to CBRE. In both Greenville and Spartanburg, suburban class B office space vacancy rates are more than 14%, while rents are nearly $7 per square foot lower than suburban class A space.
However, one challenge for some suburban landlords, according to CBRE’s report, is the interchange construction of I-85, I-385 and Woodruff Road. Traffic is expected to be improved but not until construction is completed sometime in 2017 or 2018.
In addition to higher rates and lower vacancies, the Colliers report said that tenants are experiencing higher occupancy costs due to the higher rental rates and the increase in construction costs.
“Tenant improvement costs are rising, while landlords’ tenant improvement allowance often remains unchanged,” the report said. “Consequently, construction costs are being passed on to the tenants, who are paying the difference out of pocket.”
The Colliers report said that tenants of downtown Greenville are being hit harder due to higher rates for parking, which places additional costs on the tenant.
“Concessions have also diminished downtown as landlords are able to secure deals without offering tenant incentives,” the report said.
The ongoing construction of downtown office space includes:
- Erwin Penland 360, a six-story, 125,000-square-foot, class A office building.
- Camperdown, a downtown mixed-use development that will include speculative office space, a Marriott-branded AC Hotel, apartments and a parking deck.
- Falls Park Place, a mixed-used development at Falls Park Drive and South Main Street that includes 12,000 square feet of class A office space.
- 504 Rhett, an adaptive-reuse project located a block from South Main Street and Fluor Field that will offer approximately 6,000 square feet of office space for lease.
Colliers’ report suggested that the office market in the region will continue to improve throughout the year. The report said some office properties may trade ownership “given the market’s tight conditions, favorable cap rates and low interest rates.”
“Sales prices will be higher than those of the past, mirroring the national trend,” the report said. “The vacancy rate will continue to trend downward, as demand for space remains strong throughout the market.”
The report also speculated that rental rates for office space in the region will continue to increase because of the tighter market and continued increase in construction costs. Colliers said new construction underway will help ease some of the demand for downtown office space, but more construction is likely.