Due to completion of new Class A office space not expected until later in 2018, office market researchers expect the Upstate office market to see lower vacancy rates across most of the market.
In the fourth quarter of 2016, the absorption in the Greenville downtown office market was over 200,000 square feet, marking the second time during the year the absorption hit that mark, according to a report prepared by CBRE. Additionally, vacancy in the market is close to a record low.
Combine that with cap rates getting tighter in larger markets and researchers suggest a future where investors actively enter the Upstate market in search of inventory.
“Small markets like Greenville-Spartanburg have largely been off the radar of firms looking for stable investment-grade product,” the CBRE report said. “The rising rates coupled with increasing activity and a lack of new product are attracting some of these investors to the market.”
The report cited over 2.1 million square feet of office inventory trading hands over the third and fourth quarters of 2016 and investment groups from New York, Atlanta and Richmond, Va. spurring the investment in the market.
Bryana Mistretta, research coordinator for Colliers International in South Carolina, said as development availability in downtown Greenville continues to grow scarce, the push to the West End and east of Main Street will prevail in the immediate future.
She said market competition will likely force landlords to “update entryways and amenities within their buildings” Because of the growth around the I-385/I-85 corridor, the office development eye may turn north of Greenville.
“Spartanburg will be the area to watch over the next two years as several new developments are moving through the pipeline and employers and residents start taking notice,” Mistretta said, in her recent market report.
Presently, only one office project is under construction in the Greenville downtown office market and one in Spartanburg, according to CBRE, NAI Earle Furman and Colliers International:
- Construction of the new, 28,000 square-foot, Greenville News office building at the Camperdown redevelopment site has begun. The mixed-use development will include 150,000 square feet of office space, a 140-room, Marriott-branded AC Hotel, 170 market-rate apartment units and 80,000 square feet of retail space.
- Drayton Mills is a 32,006-square-foot mixed use project in Spartanburg.
On top of the projects in the works, there were four large building transactions in the downtown market, according to Colliers International:
- The 196,000-square-foot Bank of America building at 101 N. Main St. sold in November to RealOp Investments for $22.4 million, or $114.32 per square foot. The last time the building sold was in January of 2013 for $9.8 million, or $49.96 per square foot.
- The Wells Fargo Center, a mixed-use property located at 15 S. Main St., sold in December to Caprocq Greenville LLC for $33.3 million. The property includes 156,000 square feet of office space, 20,000 square feet of retail space and 22 market rate apartment units.
- The Park East and Park Central office parks in the I-385/I-85 submarket sold in December to the Atlanta-based Two Capital Partners LLC for $39.7 million. Two Capital Partners plans to make significant upgrades and add several amenities to Park East, totaling 409,300 square feet and Park Central, totaling 160,500 square feet.
- The two Class A Liberty Square buildings, located at 55 and 75 Beattie Place in Greenville’s central business district, sold to Lingerfelt Commonwealth Partners in December. The One Liberty Square and Two Liberty Square buildings are 258,000 square feet and 187,600 square feet, respectively.
Asking rates for office space has continued to rise. Class B central business district rates hit a high of $20 per square foot, according to CBRE while Class A space averaged nearly $26 per square foot in downtown Greenville, $21.95 per square foot in suburban Greenville and $22.60 in Spartanburg.
Delivering new product may be difficult in the market due to construction labor costs rising to keep pace with demand for new space, according to CBRE’s report.
“Locally, there are more than 3,000 multi-family units under construction,” the CBRE report said. “Given that many local multi-family contractors are also involved in office developments, it is reasonable to expect construction costs to remain elevated until the multi-family development pipeline slows.”