Mike Ferrer, Lincoln Harris
What Renters Want
Low vacancy citywide — in the Central Business District (CBD), the vacancy rate is under 5 percent — is driving an uptick in rents, with current rents ranging from $17 to $28 per square foot, depending on the age and location of the space. Landlord concessions are also falling off as space becomes tighter.
The shift toward more open workspaces continues as technology advances, meaning a decrease in the number of private offices and an increase in community/collaborative spaces. With smaller computers, storage in the cloud instead of filing cabinets and the use of off-site printers, most offices in the city are down to less than 200 square feet per employee.
Since Charleston has one of the highest overhead rates in the Southeast, cutting down on square footage is a priority for most companies.
Development Underway
More than $1 billion of projects across all property types are currently under construction on the Charleston peninsula alone, and for an MSA of its size, that’s a very significant achievement. Multifamily, student housing and hotels remain the darlings of commercial real estate for many developers in the city. However, more developers are shifting and starting to look at more office deals as rental rates continue to tighten.
Downtown development is not without its challenges as the CBD has high barriers to entry. Developers must abide by height and setback restrictions, undergo design approval from the Board of Architectural Review and find somewhere to develop amid limited building sites, not to mention ensure adequate parking for the project to succeed.
One project making a big splash in the CBD is Evening Post Industries’ redevelopment of 12 acres around The Post and Courier’s downtown building. The development — named Courier Square — is scheduled to break ground in early 2015 and will include 86,000 square feet of commercial and retail space, as well as 225 apartments. The development is scheduled for completion within 18 months.
Another project that’s been a hot topic of conversation is Horizon District, a proposed mixed-use development that would repurpose a former city dump. The project likely won’t break ground for another two to three years, though, as the developer, the Horizon Project Foundation Inc., has to be cautious with environmental issues surrounding the project.
The only recent major office delivery was 174 Meeting St., a 52,000-square-foot Class A building in downtown. CertusBank is the anchor tenant, and the building is currently 82 percent leased, with leases out for the balance of the space. Holder Properties, the developer, is confident it will have the building 100 percent leased in short order.
Looking Ahead
In 2015, Charleston should see more development coming down the pike. The lack of new office supply is inhibiting the city’s business sector because companies literally don’t have room to grow. New projects would provide breathing room and allow the local economy to continue to expand.
Furthermore, development will likely continue to shift away from the traditional CBD to the area north of Calhoun Street. Ten years ago, this section was blighted but it has now become the core of the city, with high-end restaurants, hotels, business headquarters and condos dotting the neighborhood. Office tenants will likely follow their lead and begin looking for space in and around this area.
During the last couple of years, Charleston has also started to emerge as a hub for technology start-ups. These companies have a smaller footprint and are clustering around Morrison Drive and repurposing older product, which offers lower rents. Companies like PeopleMatter and Blue Acorn are leading the charge. Technology tenants are going to be a big driver for growth for the city in the years to come.
— By Mike Ferrer, CCIM, Vice President, Lincoln Harris’ Charleston Office. This article originally appeared in the December 2014 issue of Southeast Real Estate Business.