The Greenville-Spartanburg office market includes more than 10 million square feet of leasable office space located along Interstate 85 between Charlotte, North Carolina, and Atlanta. The market is expected to enjoy increasing absorption levels with a modest drop in vacancy, which currently stands at just over 16 percent.
The biggest news on the construction front is Hughes Development’s ONE building in the Greenville CBD. The property will deliver 370,000 square feet of Class A office space to the market in its two phases. Phase I is expected to be completed by the end of 2012. Phase II is expected to be completed by third quarter 2013. Anchor tenants for the property include CertusBank, Haynesworth Sinkler Boyd and Clemson University, which is relocating its Master’s of Business Administration program to the project.
Banking is one sector that stands to be a high-growth industry in the local market through the end of 2013. In addition to rapidly growing CertusBank in the new ONE building, TD Bank recently announced its intention to permanently occupy the Interstate 85 campus the company acquired with the purchase of a regional bank, The South Financial Group. This removed 150,000 square feet of vacant Class A space from the market in 2011.
Another trend that has been ongoing for several years is tenants’ flight to quality. While landlords have been offering aggressive rent concessions for more than four quarters, tenants have been too uncertain about long-term prospects to take advantage. That is beginning to change and tenants are seizing the opportunity to upgrade their spaces. The end result of this flight to quality is that the gap between Class A and Class B vacancy and asking rates will widen in 2012. Owners with the capital to upgrade spaces will be better positioned to attract tenants. While this applies primarily to owners of Class B product, even existing Class A owners can expect to see their tenants kick the tires on property that is newer and/or better situated.
The departure of Extended Stay America serves as a fly in the ointment of the office market. The company was under-utilizing its 100,000-square-foot, Class A office building in Spartanburg and was recruited to relocate to Charlotte. The move leaves behind a large vacancy. The silver lining is that large Class A vacancies are in short supply and the property may serve as a good tool for corporate recruitment.
Overall, office market fundamentals are finally starting to improve. This is true both nationally and locally. Nationally, vacancy is expected to decline, but it is more of a function of the lack of development in the pipeline than robust market growth. Locally, 2012 is expected to be strong from an absorption standpoint with modest declines in vacancy. However, the Upstate is a small market, so several large transactions can swing the market wildly one way or another.
— Brian Reed is AICP and vice president of client services for Greenville-based CBRE/The Furman Co.