Fourth quarter 2014 commercial market reports are out, and there aren’t really any big surprises. The Upstate market continues to see strong numbers in the office, industrial and retail sectors, with only minor fluctuations.
But don’t take our word for it. Here are excerpts from the fourth quarter 2014 market reports from some of the area’s leading commercial real estate companies. [break]
OFFICE
NAI Earle Furman
The company is still seeing a few large sublease spaces drag down the occupancy rate for the Greenville central business district (CBD), pushing the effective Class A vacancy up significantly. It appears likely that these sublease spaces will be slowly absorbed in 2015 with no new construction coming online until at least the fourth quarter of 2015. // View report.
Lee & Associates
There were some strong gains in the market as rental rates steadily climbed throughout the year and the market experienced strong absorption rates for two of the four quarters in 2014.
Tenants moving into large blocks of space in 2014 include Esurance moving into 64,503 square feet at 1200 Brookfield Blvd., Greenville Hospital System moving into 45,325 square feet at the SunTrust building, and UPS moving into 47,513 square feet at the Dillion building.
Rental rates averaged $15 per square foot for all classes. This represents almost a 5 percent increase from quoted rental rates at the end of the third quarter 2014, when rents were reported at $14.33. // View Report.
CBRE
With over 200,000 square feet of space absorbed during this year, the unpleasant quarter of declining absorption and increasing vacancy did not prevent 2014 from being the strongest year of growth since 2008.
Presently, there is only one property under construction, the conversion of the old Claussen Bakery into 44,000 square feet of Class A office space. Additional projects expected to start soon include a new 130,000-square-foot office building with advertising firm Erwin Penland as the anchor tenant, and a new 80,000 square foot Class A office building at the Clemson University International Center for Automotive Research (CU-ICAR). // View Report.
Colliers
The suburban submarkets showed greater activity than the CBD throughout the year despite a slight uptick in vacancy at year-end 2014. This increase in suburban vacancy was anticipated due to the consolidation of Fluor’s offices, which vacated space at Patewood Office Park. As a result, the vacancy rate was up to 17.59 percent at year-end 2014 from 16.79 percent at the end of the third quarter of 2014, but remains lower than the year-end 2013 vacancy rate of 19.31 percent.
Given the tight office market and limited availability, the space vacated by Fluor will likely backfill quickly. Asking rental rates are trending upwards and averaged $16.58 at year-end 2014, up from $16.17 per square foot a year ago. // View Report.
Cushman & Wakefield | Thalhimer
The market has also seen large blocks of space become available. CertusBank announced this summer it would place 120,000 square feet for sublease in its newly acquired corporate headquarters at 1 S. Main St. in Greenville. Fluor vacated 86,000 square feet at Patewood to consolidate on their main campus, adding large blocks of space in the suburban office market.
The capital markets remain strong as investors continue to seek multi-tenant and single-tenant buildings in the Greenville/Spartanburg suburbs like Brookfield and Patewood Office Parks. In the Greenville CBD, local investors acquired several smaller buildings that represent value-add opportunities. The company sees this as indicative of continued rent growth in the Greenville market at large. // View Report.
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RETAIL
Lee and Associates
Rental rates are up over previous quarter levels and up from their levels four quarters ago. Quoted rents ended the fourth quarter of 2014 at $9.60 per square foot per year. That compares to $9.28 per square foot in the third quarter as well as the end of the first quarter. This represents a 3.4 percent increase in rental rates in the current quarters and a 3.33 percent increase from fourth quarter 2013.
During the fourth quarter 2014, 11 buildings totaling 165,225 square feet were completed in the Greenville/Spartanburg retail market. In addition to the fourth quarter 2014, seven buildings with 37,374 square feet were completed in the third quarter, four buildings totaling 36,100 square feet were completed in the second quarter and 147,880 square feet in six buildings were delivered in the first quarter. This equates to a total of 386,579 square feet of retail space that has been built in the market over the past four quarters alone. // View Report.
NAI Earle Furman
This could be the start of a market shift that, in the past several years, has seen lease negotiations driven by the tenant. Now, landlords are seeing the ability to drive those negotiations, especially in the areas of higher demand like Woodruff Road and Haywood Road in Greenville, Clemson Boulevard in Anderson and W.O. Ezell Boulevard in Spartanburg.
The company expects to see more new retail development because supply, especially in established retail submarkets, is low and the cost of new development can be absorbed by the higher asking rents. Tenants should expect to sign longer initial terms and more competition for quality spaces for expansion. More landlords will be scrutinizing financials, use and any exclusives requested. // View Report.
Colliers
High retail occupancy and low interest rates motivated investors to acquire shopping centers. Big Shopping Centers USA purchased 85 percent interest in Crosspointe Plaza for $18.96 million as part of a venture with Realty Link LLC. The center is home to TJ Maxx, DSW, Joann Fabrics and Crafts, Burke’s Outlet, Jason’s Deli and Chipotle, among others.
The market is seeing considerable interest from regional and national retailers. Both downtown and suburban submarkets are experiencing activity as new restaurants and stores enter or expand throughout the market. Retailers looking for space in downtown Greenville have options in several mixed-use developments, while retailers seeking space in suburban submarkets are finding space in redeveloped centers.
As occupancy increases and quality retail space becomes difficult to find, retailers are finding themselves recycling and occupying recently vacated space. Retailers are redeveloping old restaurants and strip centers into new retail. Additionally, the retailer shift from Haywood Road to Woodruff Road that began in 2013 left big-box space vacant along Haywood Road as retailers chose to locate in Magnolia Park. Much of the vacated space has since been occupied by new retailers. // View Report.
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INDUSTRIAL
CBRE
Restraint for continued recovery and market growth has been a lack of product, especially Class A properties featuring modern, functionally efficient space with high clear heights (greater than 28 feet is preferable.) Regional and national developers, who have been tracking opportunities in the Upstate, have responded with a flurry of development. Currently, there is over 2.3 million square feet of space under construction in the market, 740,000 square feet of which is classified as “speculative,” when construction begins before a tenant is secured. The largest speculative building under construction is a 304,000-square-foot building at White Horse Industrial Park by Exeter Properties.
Build-to-suit activity is increasing as well, led by the start of construction of a major manufacturing facility for Tokyo-based Toray Industries, which will be 750,000 square feet in the Spartanburg West submarket. // View Report.
Colliers
The overall vacancy rate for industrial space in the Greenville/Spartanburg market was down to 7.0 percent at the end of 2014 from 7.5 percent at the end of the third quarter of 2014 and 7.6 percent at year-end 2013. The Anderson, Greenville and Spartanburg industrial vacancy rates were 4.5 percent, 7.4 percent and 6.4 percent, respectively.
Asking rates averaged $3.05 triple-net (NNN) for the market, up from the third quarter of 2014, and year-end 2013 average rates of $2.91 NNN and $2.83 NNN, respectively. The highest rental rates were found in Greenville County, where rents averaged $3.19 NNN at year-end 2014, up from $3 the previous year.
Limited supply, coupled with the delivery of new industrial buildings, is driving rental rates upwards, a trend which is anticipated to continue into 2015. // View Report.
Cushman & Wakefield | Thalhimer
The company expects to see demand and growth in 2015 given the amount of velocity that has been in the market. The new speculative space will create some opportunities for companies that were struggling to identify quality space for their use. The company also expects to see additional demand from BMW suppliers as they ramp up production for 2016 increasing their capacity by 50 percent.
The proliferation of manufacturing demand will likely generate new demands for supporting warehouse space leading to more third-party logistics (3PL) business and additional leasing heading into 2016. The company plans to monitor the labor market, which remains tight, as well as projected rises in construction costs leading to more upward pressure on rental rates.
Interest rates, which have been flat for a number of years and have encouraged some of the lower cap rates, should remain stable in 2015. // View Report.
Lee and Associates
Sales activity is down compared to the previous year. In the first nine months of 2014, the market saw 37 industrial sales transactions with a total volume of $56,227,500. The price per square foot has averaged $21.74 this year. In the first nine months of 2013, the market posted 32 transactions with a total volume of $65,509,579 with an average price per square foot of $22.83.
New space is continually being delivered to the market in an effort to keep up with the demand of new buyers and tenants that are attracted to the Upstate. During the fourth quarter of 2014, four buildings totaling 557,967 square feet were completed in the Greenville/Spartanburg market area.
At the end of the fourth quarter of 2014, there were still over 1.3 million square feet under construction. One of the biggest projects announced in the state is the new Giti Tire Plant in Chester, a proposed 1.8 million-square-foot manufacturing facility with the first phase scheduled to break ground in January 2015. // View Report.
NAI Earle Furman
Buildings totaling 557,967 square feet were delivered in the fourth quarter with approximately 1,357,000 square feet of new construction underway and several new projects announced. Notable deliveries for 2014 included a 414,000-square-foot expansion of BMW in Greer as well as a 272,000-square-foot Class A logistics facility developed for Kimura Inc.
The speculative market, nonexistent in the recent past, has heated up. Liberty Property Trust is finishing their project at Caliber Ridge with 156,000 square feet, Pattillo Industrial Real Estate is currently underway with their second project in the Upstate with an initial delivery of 200,738 square feet, and Exeter Property Group is also nearing completion of their first of two buildings at 306,000 square feet. // View Report.
