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‘Flight to quality,’ record office vacancy rates continue in Q2

Real Estate - Commercial
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In the Upstate and Charleston office market, the “flight to quality” trend has continued during the second quarter, while tenants in the Columbia market are more likely to renew than relocate, according to market reports from Avison Young and Colliers International.

Tenants are still clearing out of offices faster than they can be refilled across the state, with the Greenville-Spartanburg office market seeing the greatest vacancy rate at 16.9%, followed by Charleston’s 15.7% and Columbia’s 11.8% — a record high for the Lowcountry and Upstate, according to Avison Young.

Columbia’s market, Colliers International reports, remains an outlier as the overall market returns to pre-pandemic activity and most Columbia tenants choose to stay put instead of seeking out greener fields.

“While many tenants have explored their relocation and reconfiguration options, the high cost of tenant improvements and construction continues to drive tenants to renew at their current office rather than relocating,” the report said. “The small impact of the pandemic to the office market in Columbia may be the slight rightsizing of some of the larger and more institutional tenants like financial institutions. As a result, the market will likely see a slight decline in occupancy rates in the short term due to tenants shaving off excess space from their overall footprint.”

Over 14 million square feet remain on the Columbia market, with 75,000 square feet currently under construction, underscoring Colliers International’s predictions that vacancy rates will increase in Q3.

The average overall rental price for Class A office space in Columbia is $21.39 per square foot — still lower than the Upstate’s $21.60 per square foot and $25.69 per square foot in Charleston.

The average selling price per square foot is $188.59 in the Upstate and $148.76 in the Charleston market with notable sales including 97,400 square feet at Summerville’s Nexton Office Campus, 117,000 square feet at Greenville’s 7 Research Drive and 65,000 square feet at 391 Serpentine Drive in Spartanburg.

Despite these sales and 422,800 square feet under construction in Charleston and 200,000 square feet in Greenville, Colliers International predicts vacancy rates will drop in both markets by the next quarter. In the Lowcountry, more than 200,000 square feet of new supply hit the market this quarter.

“Charleston tenants are returning to their offices now that the vaccine is widely available,” said the report. “Some are choosing to right size and/or reconfigure their offices because remote and flexible hybrid work schedules are widely acceptable. … If tenants choose to relocate into a Class B or C building, the space will need to be upgraded to provide the desired amenities for hybrid office tenants.”

In the Greenville-Spartanburg area, Avison Young noted that 38% of the population is fully vaccinated — higher than Charleston’s 35.3%.

“Most Greenville-Spartanburg office tenants have either returned to their offices or are using a hybrid work schedule,” said Colliers International’s Upstate report, adding that like in Charleston, employers are seeking higher quality buildings and increased flexibility as an incentive to retain staff in an increasingly competitive labor market.

Reach Molly Hulsey at 864-720-1223.

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