• As the market tightens, tenants will renew their current leases or redevelop unconventional space.
• No new construction has been announced in Columbia, and will not be until rental rates rise considerably.
• Investment sales reached a record high this year, with six major office buildings traded to investors from January 2017 through October 2017.
2017 Market Recap
The overall market vacancy rate in Columbia has fluctuated over the last four quarters but landed at the same vacancy rate as of this time last year. The market average full service rental rate decreased slightly from $16.44 at the end of the fourth quarter last year to $15.71 per square foot for the fourth quarter of this year. The overall market absorption yearover year is – 34,857 square feet, while the Central Business District had a lower rate of absorption of – 7,622 square feet and the suburban market absorbed 16,179 square feet. Throughout this year, several of the buildings in the market traded, including most of the largest in the Central Business District.
Landlords are focused on retaining their current tenants by renewing leases early, upfitting common area spaces and upgrading building amenities. As market availabilities dwindle, the office market rental rates are simultaneously declining due to the lack of quality office space remaining to lease. This lack of quality space will continue to drive tenants to search for redevelopment options within non- traditional buildings and may eventually spur the construction of a new building.
Columbia has already seen a few successful conversions with tenants such as the United Way, which purchased three industrial buildings and repurposed them into an office campus setting at 1818 Blanding Street, and the Boudreaux Group, who now occupies the second floor of the redeveloped Powell Furniture building located at 1519 Sumter Street.
This repurposing of buildings in a market where new construction is not feasible in the near future is a lucrative option for owners and developers looking to maximize the revenue of their investment.
The overall market vacancy rate in Columbia rose slightly from 17.18% at the end of the third quarter to 17.21% during the fourth quarter. The market average full service rental rate decreased slightly again this quarter from $16.02 at the end of the third quarter to $15.71 per square foot for the fourth quarter.
The lack of quality available space left in the market is bringing the overall rent averages down across all sectors despite the fact that a few Class A office towers have raised their rental rates this quarter. There are 100,877 square feet of sublease space available in the market, which leaves tenants a lower-priced leasing option for higher quality space.
Columbia Business District (CBD)
The overall vacancy rate in the Central Business District rose during the fourth quarter to 12.89%, up from 12.27% at the end of the third quarter. This increase is due to 53,068 square feet of sublease space availability in Class A and B buildings. The sublease space also lowers the quarterly absorption rate, which is -29,329 square feet this quarter.
The overall average Central Business District market rental rate is $19.60 per square foot, down from $ 21.06 this time last year. The Class A office space in the Central Business District is also a bit lower from this time last year; it is $22.68 per square foot, compared to $ 23.45 per square foot during the fourth quarter of 2016.
Vacancy in the suburban markets dipped this quarter down 21.37% from 21.91% during the third quarter. The overall asking rental rate dropped from $14.28 per square foot during the third quarter and $14.50 per square foot a year ago to $ 13.53 per square foot during this quarter.
Overall, there were 73,436 square feet absorbed in the suburban market, the majority of space absorbed in Class B buildings. There are also 47,809 square feet of sublease space available in the suburban market this quarter, most of the direct and sublease vacancies are in Class C office buildings.
Sale activity reached a record high this year through October, and during the fourth quarter, CoStar reported 20 sale transactions, most of them less than 10,000 square feet. Leasing activity was strong, and most of the leases beginning this quarter were also under 10,000 square feet. Going forward, more tenants will renew their leases and sublease activity will accelerate as higher quality sublease space is filled before the lower quality space left in the market.
• In November, Dutch Center, a 101,306- square-foot office building located at 810 Dutch Square Boulevard, sold for $3,850,000.
• In November, the South Carolina Department of Juvenile Justice leased 49,550 square feet in Synergy Executive Park, located at 250 Berryhill Road.
• Duck Creek Technologies renewed their 29,979-square-foot lease at 1441 Main Street.
• The South Carolina Retirement System Investment Commission renewed 19,700 square feet of office space in Capitol Center, located at 1201 Main Street.
Columbia’s office tenants have few options to choose from regarding direct vacancy availabilities; however, they have several options if they are interested in subleasing space and may be able to capture these higher quality spaces at a lower-than-market rental rate. This will be attractive to tenants in this tight office market, and the sublease space will fill quickly.
If subleasing is not an option for tenants looking to lease space, they will be forced to redevelop non-traditional space or settle for lesser quality options. To retain tenants, landlords will continue to upgrade amenities and shared areas and attempt to renew tenants several months in advance of their lease expiration dates. There is still no new office construction announced for Columbia, due to the continual rise of construction prices.