While many have returned to offices either full time or on a hybrid basis, employers and employees are seeing value in higher quality office space, according to a market report by the Colliers Charleston office.
While employees enjoy working in a better place, employers like what it does for worker retention, the report said.
“Companies will look for ways to make the office more of a destination for employees as they bring them back from work-from-home life,” Colliers brokerage associate William Ederle said in an email. “This, coupled with the jobs market (i.e., employee recruitment and retention), means the demand for high-quality space in amenity rich areas will continue to be high. Cost, specifically build-out costs, will be the main deterrent to this flight to quality. Still, companies find the benefits of this Class A space outweigh the small step up in rent. Others have taken this opportunity to reimagine their layout given a more hybrid work schedule with the potential to shrink their square footage (and offset any additional costs) while still accommodating for future growth.”
Seven office buildings in the market were delivered over the last 18 months, adding 381,779 square feet of Class A space to the overall office inventory, the report said. “Due to preference for quality, these new Class A spaces are already 70% leased,” the report said.
The overall Class A vacancy rate is down, year-over-year, with 206,883 square feet of Class A space absorbed. The overall vacancy rate in the second quarter of 2021 was 21.05%, compared to 20% for the same period of 2022. In that same time, the lease rate for Class A space rose from $29.17 per square foot to $31.64, the report said.
“One of the options unique to Charleston is the availability of 267,135 square feet of Class A sublease space within three buildings located on Daniel Island,” the report said. “Because the building is an owner-user building they have more flexibility to negotiate a customized deal for an interested sublessee. As quality office space becomes scarce in Charleston, Class B offices will be forced to compete for tenants who prefer Class A space, despite having lower rental rates. To align Class B office buildings with tenant’s preference for Class A space, owners will likely explore options to maximize capital improvements like adding building amenities or upgrading existing ones.”