During the last two quarters, vacancy rates for Class A and Class B office properties in Columbia have declined. So far in 2012, overall Class A vacancy rates have fallen from 12.2 percent to 11.4 percent, while Class B vacancy rates have fallen from 27.3 percent to 27.1 percent. However, as tenants have been taking advantage of the opportunity to upgrade their spaces, the overall vacancy rate has remained unchanged at 22.2 percent, as Class C vacancy rates have increased from 23.7 percent to 26 percent.
The Cayce/West Columbia submarket saw the biggest statistical declines in vacancy during the last year. Class A vacancy declined from 27.6 percent to 17.3 percent. Class B vacancy rates declined from 25.7 percent to 13.8 percent. While the change demonstrates increased activity in the submarket, the submarket saw only 13,603 square feet of positive absorption for the year.
Activity in the Central Business District has been muted. In 2012, vacancy rates have declined by 40 basis points. Tenants are upgrading to Class A spaces from Class B and C buildings. Vacancy rates for Class A buildings downtown declined 70 basis points to 11.8 percent. However, vacancies have increased in Class B spaces rising 40 basis points to 30.2 percent and over 240 basis points to 37.4 percent in Class C spaces.
The City of Columbia passed legislation this year that will allow student housing to be constructed in buildings zoned OI with a special exception. The legislation removes the cap on units per acre for these properties, which should allow for some Class C properties downtown to be converted to student housing. This will take those buildings out of the existing office inventory, which should cause vacancy rates to fall.
Another major development in the market is that a building with speculative office space is under construction. The 35,000-square-foot building, located at 1074 Pinnacle Point Drive in Northeast Columbia, broke ground in the second quarter of 2012. The building is more than 50 percent pre-leased, and has 16,000 square feet of space available. The Main and Gervais building, which opened in December 2011, was the last major office property completed in the Columbia market. The last building under development to contain some speculative space was the Southern First building in Cayce, which was completed in 2009. The property still has 4,770 square feet available.
Demand for space this year has mostly been by smaller tenants wanting between 2,000 and 5,000 square feet. While there are low-priced sublease spaces and other opportunities for larger tenants, they have failed to attract much attention. This has left owners with the difficult decision of whether or not to divide large spaces. Uncertainty related to national politics and the overall direction of the economy may have many larger firms waiting until the beginning of 2013 to fund expansion plans or make significant changes.
Pricing has remained relatively flat across the market with no consistent trend. The asking rate for Class A space is $18.63 per square foot, $14.84 per square foot for Class B space and $12.06 per square foot for Class C space. Changes have varied in each submarket, however rates remain highest in the Central Business District at $19.70 per square foot for Class A space and $16.55 per square foot for Class B space. Cayce/West Columbia has the highest suburban Class A asking rates at $19.50 per square foot, while Forest Acres has the highest Class B asking rates at $14.69 per square foot. This demonstrates that demand for space is still clustered around the core of the downtown market and prices decline the further one looks in the suburban markets.
— Ben Johnson is the research/client services manager for Columbia-based Grubb & Ellis/Wilson Kibler