Greenville is undergoing significant growth and capturing the attention of national investors and tenants. Historically high rental rates, increased occupancy and strong construction activity for the first time in recent years collectively indicate a healthy market. Additionally, tight market conditions provide an ideal investment sales environment encouraging landlords to market their office assets for sale, something they couldn’t justify doing a few years ago.
The market’s occupancy rate was up to 85.2 percent at year-end 2015 from 83.7 percent the previous year. As demand grows and space is absorbed, the market is shifting in favor of landlords, who are pushing up rental rates to levels never before seen in the market. Asking rental rates for Class A office space in the market averaged $22.41 per square foot at year-end 2015, increasing 9 percent in a one-year span. Class A space in the central business district (CBD) is even more costly with asking rental rates averaging $25 per square foot. With office users showing a strong desire to locate in the market and willingness to pay higher rental rates for quality space, developers are turning to new construction and adaptive reuse projects to meet the heightened demand for space.
Brantley Anderson, Colliers International
Several projects are currently under construction throughout the market that will add more than 450,000 square feet of Class A office space to Greenville’s existing inventory. Two of the largest downtown developments are Erwin Penland 360, which is currently under construction, and Camperdown, which is set to break ground in early 2016. Erwin Penland 360 is a six-story, 125,000-square-foot, Class A office building set to deliver in early 2017. Camperdown is a planned mixed-use development at the former Greenville News site that will include office, retail, hotel and multifamily components. Plans call for two office buildings totaling 154,000 square feet.
The buildings are the first major developments in the CBD since the delivery of the ONE towers in 2013. The ONE towers, which added approximately 395,000 square feet of Class A office space, delivered at 90 percent occupancy and continue to be highly regarded. A portion of the space vacated by CertusBank in 2015 has been leased by WYNIT Distribution. The company plans to relocate its headquarters from Syracuse, N.Y., to the ONE development. WYNIT was attracted to the region’s low cost to do business, high quality of life, skilled labor force and strong presence of logistics and distribution companies. The company’s announcement is a testament to the area’s attractiveness and potential to attract additional headquarters.
The suburbs are also welcoming construction. One Research Drive at the Clemson University International Center for Automotive Research (CU-ICAR) campus is nearing completion. Upon completion, the approximately 80,000-square-foot, Class A office building will add approximately 27,000 square feet of Class A office space to the market’s available inventory. JTEKT recently announced that it will locate its North American headquarters in the building and plans to be fully operational in early 2016.
Additionally, a build-to-suit is under construction in Greenville County. CH2M, an American engineering company doing business worldwide, is relocating from an existing operation in nearby Spartanburg to the new 70,000-square-foot facility just across I-85 from CU-ICAR.
According to Real Capital Analytics, office investment sales volume in the U.S. was up 16 percent in 2015 over the previous year. Strong competition among investors in primary markets is driving up costs and suppressing cap rates.
As a result, many investors formerly interested in primary markets are turning to secondary and tertiary markets. Strengthening conditions in these markets offer security and higher returns than traditional gateway markets. Cap rates in primary markets average 6 percent, well below cap rates in secondary and tertiary markets, which average 7.2 percent.
Landlords in Greenville’s CBD are taking note of the dynamic sales environment and offering their buildings for sale for the first time in several years. Several Class A and B buildings in the CBD are currently being marketed for sale and professionals expect at least one more office tower to be put on the market. The buildings’ occupancy rates are each above 85 percent, with the exception of one which is 78 percent occupied. In 2013, some of the buildings were less than 70 percent occupied. The buildings, and market as a whole, are currently well-positioned for investment sales as investors look for opportunities of solid returns.
Sales prices have been historically high and future sales prices should be even higher. In 2013, the two, Class A Liberty Square buildings traded for approximately $90 per square foot. The buildings were previously sold for $58 per square foot in 2006.
The market is poised for continued improvement through 2016. Vacancy rates will decline further and rental rates will set new records. Tight conditions will maintain an optimal investment sales environment and attract out-of-market investors.
— By Brantley Anderson, Brokerage Associate, Colliers International. This article originally appeared in the March 2016 issue of Southeast Real Estate Business.