Retail continues to attract new projects; net absorption rates are up across the board, the industrial market continues to need new product and vacancy in the office market is the lowest in six years, CRE professionals report.
Here are excerpts from the third quarter 2014 market reports from some the area’s leading commercial real estate companies.
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RETAIL
Lee and Associates
Little has changed in the retail market in the third quarter of 2014. However, with strong net absorptions, solid rental rates, and continued decreases in vacancy, what needs changing?
Third quarter net absorption was moderate, with a positive 164,125 square feet absorbed in the Greenville/Spartanburg retail market. This compares to a positive 53,541 square feet at second quarter 2014 and 234,395 square feet at the beginning of the year. Vacancy rates ended the quarter at 7.0 percent. This represents a 1.4 percent decrease from mid-year 2014 when rates were reported at 7.1 percent. Average quoted rental rates ended the third quarter of 2014 at $9.23/SF per year, compared to $9.27 at the end of second quarter.
During the third quarter 2014, nine buildings totaling 85,552 square feet were completed in the retail market. Over the past four quarters, 270,515 square feet has been built in Greenville/Spartanburg. In addition to these deliveries, 240,233 square feet of retail space is still under construction at the end of the third quarter. Total retail inventory in the Greenville/Spartanburg market amounted to 83,597,029 square feet in 10,544 buildings and spaces at the end of third quarter 2014.
NAI Earle Furman
2014 continues to be a growing year for the Upstate retail community. Developers are beginning to look more closely at new projects, primarily in established retail markets like Haywood Road and Augusta Road in Greenville, Clemson Blvd. and Highway 81 in Anderson, Highway 153 and 123 in Powdersville and Easley, and W.O Ezell and Highway 9 in Spartanburg. This is supported by the low vacancy rates in these and other submarkets.
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INDUSTRIAL
CBRE
For the 14th consecutive quarter, absorption was positive, though barely. At the beginning of the year, CBRE forecast that lack of available product would begin to curtail the furious levels of market activity experienced in 2012 and 2013. That downshift is now underway with a lower-than-typical absorption of 210,000 square feet. Vacancy remained at a record low of 7.3 percent.
Developers have recognized the opportunity created by this shortage of supply and are beginning to respond with speculative construction, as well as continued build-to-suit activity.
Colliers
Companies continued to announce plans to invest and expand throughout the Greenville/ Spartanburg industrial market, which ended the third quarter of 2014 with an overall vacancy rate of 8.1 percent, holding steady over the previous quarter. Overall asking rental rates were up slightly to $3.06 from $3.02 at mid-year 2014.
Leasing and sales velocity was limited as quality industrial space remains in short supply throughout the market. The private and public sectors are answering the demand for new industrial space and developing speculative industrial buildings, most of which are pre-leasing successfully. Speculative developments will generate future growth and benefit the overall economy as companies invest in the market and generate jobs.
Cushman & Wakefield | Thalhimer
Thanks to the BMW ripple effect, more suppliers have to react and adjust their facilities accordingly, whether via expansions or complete relocations. The I-85 corridor in Spartanburg County remains the premiere location for the bulk of transactions and site visits.
It’s exciting to finally see Class A deliverables to the market. Despite some recent development activity, the lack of Class A product in the market continues to be an area of opportunity to attract new business to the region. It’s hard to attract new business prospects to the area without having available existing product to show them. To maintain our growth moving forward, we expect more activity surfacing in Class A speculative construction. When the market is good, there’s a correlation between activity and available product. The more product you have, the more activity you’ll see.
Lee and Associates
According to CoStar, the Greenville/Spartanburg industrial market experienced a positive net absorption of 191,253 square feet in the third quarter of 2014. This compares to a positive 395,944 square feet in the second quarter of this year. Due to the positive net absorption rates the market has experienced so far this year, vacancy rates have yet to experience any increases.
One building totaling 206,000 square feet was completed in the Greenville/Spartanburg market at the end of the third quarter. In addition to this delivery, 1,633,967 square feet of industrial space is still under construction as we move into the last quarter of the year. Total inventory in the market now amounts to 190,729,320 square feet in 4,681 buildings.
NAI Earle Furman
Positive trends continue through the 3rd quarter, with respect to lower vacancy and rising rental rates. This positions us well for growth in the industrial sector.
The vacancy rate for the Greenville/Spartanburg market ended the third quarter at 7.9 percent, down from 8.3 percent at the end of the second quarter. The net absorption totaled a positive 181,968 square feet in the third quarter.
Rental rates have steadily increased throughout 2014. The average asking rental rate this past quarter was $2.92 NNN per square foot. Although rental rates are not as high as we would like, the rise continues to be encouraging news to landlords and investors. This upward trend in rental rates positions the Upstate market well for future development of quality industrial product.
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OFFICE
CBRE
High activity levels are driving activity in the market bringing vacancy to 13.9 percent, its lowest point in six years. Three primary story lines emerged during the quarter: record-setting activity levels, potential redevelopment and the spread of rising asking rates beyond Class A product.
For the first time in the 13 years have been tracking the local office market, we have witnessed five consecutive quarters of absorption and declining vacancy. In a small market like Greenville-Spartanburg, a single large vacancy can swing the needle, even during high velocity.
Colliers
The Greenville office market is gaining momentum and will experience increased leasing velocity in upcoming quarters. The third quarter of 2014 ended with decreased vacancy rates and higher rental rates. The vacancy rate was down to 16.68 percent from 17.58 percent at mid-year 2014. Rental rates averaged $17.73 per square foot for the entire market, up from $17.52 per square foot at mid-year 2014.
Office-using employment is on the rise in Greenville, and as of August 2014, 158.8 percent of office-using jobs lost during the recession had been regained. As of August 2014, the Greenville-Mauldin-Easley MSA was the largest employer of the office sector with 83,100 jobs, a gain of 11,400 jobs since the recession. With the presence of Clemson University’s MBA program and other undergraduate and graduate level programs throughout the region, office-using employment is likely to continue to grow yielding a higher demand for office space and lower vacancy rates.
Cushman & Wakefield | Thalhimer
The Upstate office market continues to see activity from notable tenants and growing interest from outside investors due in large part to the growth of the automotive and healthcare industries. Year-to-date, vacancy and asking rents have improved over the same period one year ago. While overall absorption for the year remains negative we did see positive absorption in the third quarter.
Landlords continue to increase asking rates and hold on to large blocks of space in both the CBD and suburbs. Landlords are maintaining large blocks of space in pursuit of tenants with large floor requirements. Unfortunately, large-block users are not in excess and will ultimately lead to the division of large spaces, which will be helpful for smaller tenants that have struggled to secure space.
Lee and Associates
Compared to the beginning of 2014, the latter portion of 2014 has really eliminated the negative. While the first portion of 2014 office reports appeared to be inundated with declines, the latter portion of the year has eliminated “Mister In-Between.” Net absorption for the overall office market was positive 239,536 SF. This is the first positive net absorption that 2014 has seen in this discipline. Mid-year stats reflected a negative absorption of 87,794 SF. This strong net absorption had a positive impact on the vacancy rates for all classes. Overall rates decreased to 8.7 percent at the end of the third quarter. This compares to a rate of 9.4 percent at the end of the second quarter and 9.1 percent at the end of the first quarter 2014.
NAI Earle Furman
The Greenville office market is seeing an interesting divergence of activity between large tenants and small tenants. The small tenant market continues to be active and quality Class A spaces are absorbing well. However, we are seeing a few large vacancies drag down the occupancy rate for both the Suburban and CBD markets. Currently, the Greenville Suburban submarket vacancy rate is approximately 18.1 percent with average full-service gross rental rates close to $16.00 per square foot. On average, the vacancy rates in the CBD Class A and B are 16 percent and rental rates are $20.13 per square foot.
The large blocks of vacancy in the suburban market skew the vacancy rates upward. These large vacancies are mostly due to the contraction and relocation of Fluor back to the company headquarters and the loss of Athene (formerly Liberty Life Corporation) who relocated to the Midwest due to an acquisition.
The very healthy market in the small to midsized vacancies under 10,000 square feet continues to be a bright spot with projects like Bonaventure Office Park and Independence Corporate Park, which have single digit vacancy rates. New speculative construction continues to be held back with the fluctuations in vacancy in the market.
