As we closed out 2022, many of us were reflecting on the year behind us and anticipating the next. With market indicators ever present in the news cycle — yield curve, GDP, the omnipresent “R” word — one would think we’re headed for impending doom. In South Carolina, I believe the sky is bluer and we have much more to be grateful for.
A representative for the Federal Reserve Bank of Richmond, Matt Martin agrees. In a recent market forecast for the Commercial Investment Division of the Charleston Trident Association of Realtors, he noted that while the economy is expected to slow, the impacts to Charleston and South Carolina will be lessened by our “natural advantages.”
Indeed, as a move-to market, we have many features to soften the blow of an economic downturn; and those who can’t live here want to visit. SC Ports are thriving, with this October ringing in as SCPA’s third busiest month in history, and many businesses are expanding or choosing our region to relocate to.
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All these factors have led to a stable commercial real estate market through 2022. While we saw vacancy rates increase from Q2 to Q3 this year in Charleston, the market experienced a similar increase from Q2 to Q3 in 2021. Currently, Charleston office market vacancy sits at 13.8% and we did have our first negative absorption in three quarters in Q3. While rents in the market slightly declined in Q3, they have still seen steady growth year-over-year. The average asking rent in Q3 2022 was 14% greater than the prior year, overall indications of a locally secure market.
The greater economic picture has started to impact investment sales, due to the rising interest rate environment. Both sale volumes and prices per square foot declined in 22Q3. However, investment sales still outpace 2021 YTD by over $20MM in the Charleston market and owner occupants can still secure relatively attractive financing to acquire real estate for their businesses.
For those starting a new business or testing a different region, there’s also the option of flexible office solutions. Think coworking or private executive offices, like the spaces offered by operators in our region: Serendipity Labs and THRIVE Coworking. These spaces saw a boom in mid-2020 due to the work-from-home crisis. Yes, I’m calling it crisis. Barking dogs, crying kids, faulty internet connections, “you’re on mute,” we were all there. We survived but even the introverted among us didn’t flourish!
These spaces aren’t just for the solopreneur. Enterprise solutions allow large firms to test a market with a temporary commitment, and without a large capital outlay for FFE or upfit. They also offer memberships for employees working remotely around the globe.
Which brings us to talent attraction. As we continue the conversation about what the “post-pandemic” workplace looks like, it’s clear that it’s not the same as pre-COVID-19. Employees crave services and amenities worth coming to the office for, if they come in at all. Trophy buildings and those with walkable restaurants, coffee shops, gyms and bars will continue to outperform their competitors for these reasons, as employers entice personnel to return to the office.
Living where we work — and play — is also a focus of many employees. With housing affordability decreasing and the ever-increasing complexity of the development environment, South Carolina should be mindful of the impact of housing availability on our ability to continue to recruit business.
We have our challenges like any other successful area. I’ll certainly take these challenges over shrinking population, increasing deficits and taxes, and job losses. However, without focus on infrastructure to support our growth, attainable housing so that employees can afford to live where they work, and stakeholder cooperation to build vibrant communities, our successes will be hampered. These focuses are certainly on my wish list for progress in 2023 and beyond. As an attractive region and state, we have much to be thankful for as we look ahead.
Ashley Jackrel is vice president, Office & Investment Services, at Avison Young.