by Blaine Hart
Throughout 2019 and heading into the first quarter of 2020, the Upstate office market was trekking along at a record-setting pace. The market total, from a vacancy perspective, was nearing single digits, while Class A figures were already there. As Upstate office brokers, we were rather bullish on the trajectory of 2020 and optimistic that the continued demand and absorption would ultimately fuel several conceptual development projects.
The first quarter posted over 118,000 square feet of positive net absorption, which was officially the eighth consecutive quarter of occupancy growth in our market. Coupled with the positive absorption was over 322,000 square feet of new office leasing. Since the beginning of 2016, the Upstate office market recorded over 1 million square feet of positive net absorption.
On the economic side, market average rates increased, quarter over quarter, to $21.15 per square foot per annum on a full-service basis. With the decrease in vacancy, landlords were able to demand higher strike rates for vacant spaces. The overall quality of an asset, the specific space available and location have significant impact on cost factors as well. With construction costs at all-time highs, landlords were having to invest more upfront capital to create these quality spaces, in turn pushing rates to justify the spend and capital outlay.
Then COVID-19 reared its very ugly head, and, as expected given the circumstances, demand and market fundamentals shifted drastically and quickly. We continue to see shifts.
CBRE Research has noted that this global pandemic ended the longest economic expansion in U.S. history and has already caused widespread disruption to the global economy, which includes commercial real estate markets. Health care, education, retail and hospitality industries have also felt severe effects caused by the pandemic. The magnitude of the crisis prompted the passing of the largest ever fiscal stimulus – the CARES Act – which will inject $2.1 trillion, (9% of U.S. GDP), if not more, directly into the U.S. economy.
At the Upstate level, demand has slowed, as expected, but like a lot of aspects, we are hopeful the proverbial “pause” button will shift back to “play” in the not-so-distant future. At the end of the day, Greenville’s fundamentals are strong and could be poised for a faster recovery. The reality is that we just do not yet understand what the long-term impacts and ramifications will be. While a little cloudier today, for obvious reasons, the optimism and spirit of our community will undoubtedly carry forward, if not shine brighter.
As office brokers, we recognize that the workplace may look different when we come out of this. Like many of you, I have also read different articles with diverse opinions and predictions on “what comes next” for the workplace. While I will spare you my personal opinions, we know there will be both positive and negative changes to how we work going forward. The marketplace will learn from this, adapt and better itself.
As previously noted, the Upstate’s fundamentals are strong and built on a stable, yet diverse, platform. Our region remains one of the nation’s leaders in automotive technology and manufacturing. We have a diverse workforce, great quality of life and lower cost of living. We are strong in the engineering and construction science sectors, and we have great talent and an educated workforce in all industries. A federal infrastructure bill, for example, would have a direct impact on firms presently in the market, or ones considering a presence. Most importantly, this type of investment would get a significant number of jobs back out in the field.
In sticking with what I know, the Upstate’s office market will sustain and hopefully quickly return to the historical trends and patterns that were present only recently. More importantly, the Upstate will also return to resurgence and growth in the future, and it will be great to witness as a community.