Demand for office space in the suburbs of Charleston is growing due to the lack of available space in downtown Charleston, according to the latest report by CBRE Research. The vacancy rate for the third quarter of 2016 shows a 9.7 percent drop for available office space. The vacancy rate for industrial space also fell to 6.3 percent during this time period.
Speculative development of office space in the suburbs grew to meet the demand for office space with asking rates jumping to more than $25.24 per square foot in the region, and up to $36 per square foot for Class A offerings on the peninsula as vacancies become scarce. The peninsula vacancy rate remains at 4.2 percent on the Charleston peninsula, less than half of the rate for the surrounding suburbs. Developers are focusing on the development of multifamily and hospitality in downtown Charleston, since it brings a greater return on investment in these properties. The report states that “even though vacancy on the Peninsula currently stands at 4.2 percent, the lack of product is not likely to be addressed anytime soon, which means record high asking rates—can be expected to move higher.”
Office space is in high demand because Charleston has one of the most attractive downtowns in the country, complete with rich cultural history and a constant stream of tourists in the area. The vibrant downtown enables owners of office properties to charge top dollar for its office space. Tenants are willing to pay the ever-increasing rates for new office space in a dynamic downtown like Charleston, since it helps tenants keep and retain talent. Manufacturing and port-related growth will also continue to attract new businesses to Charleston for the foreseeable future.
More affordable Class B offerings are almost completely occupied and hard to come by. The lack of Class B space and new development has led to the redevelopment of existing space. The success of the Cigar Factory, a conversion of 240,000 square feet of industrial space into office space is a good example of this redevelopment on the Peninsula.
There is a growing demand for co-working space to meet the demand for smaller tenants looking for short term leases, such as those in the tech industry and local start-ups. There is a cluster of these tenants on the northern end of the peninsula, especially on North Morrison Drive, and includes the tenants Local Works, Holy City Collective, and Launchpad.
Source: CBRE, Charleston Office, Q3 2016, “Developers responding to demand by building speculative space in suburbs”
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