Office Market Report. Charleston Market PREPARED BY. Lori Crowley

Transcription

1 Office Market Report Charleston Market PREPARED BY Lori Crowley

2 OFFICE MARKET REPORT Market Key Statistics 2 Leasing 3 Rent 5 Construction Overview 7 Under Construction Properties 8 Sales Overview 1 Sales Past 12 Months 11 Economy 13 Market Submarkets 15 Supply & Demand Trends 17 Rent & Vacancy 19 Sale Trends

3 Overview 12 Mo Deliveries in SF 372 K 12 Mo Net Absorption in SF 367 K Vacancy Rate 6.2% 12 Mo Rent Growth.4% Charleston continues to experience dramatic population and job growth, fueled by the Port of Charleston and proximity to a several large manufacturers. Techrelated firms continue to find interest in Charleston, displaying the versatility of the metro. Net absorption continues to exceed new supply, and vacancies continue to fall. For perspective, Charleston s current vacancy rate is just over half that of the nation. Rents in Charleston are currently the highest in the state and have climbed steadily, though 217 marked a break from the trend with near zero rent growth. However, assets continue to change hands, and 217 signaled a cyclical high of over $25 Million in volume. KEY INDICATORS Current Quarter RBA Vacancy Rate Gross Asking Rent Availability Rate Net Absorption SF Deliveries SF Under Construction 4 & 5 Star 4,371, % $ % (39,662) 618,25 3 Star 11,47,884 1.% $ % (45,699) 126,956 1 & 2 Star 13,217, % $ % (632) Market 29,6, % $ % (85,993) 744,981 Historical Forecast Annual Trends 12 Month Peak When Trough When Average Average Vacancy Change (YOY).1% 8.4% 6.8% 11.2% 21 Q1 5.3% 217 Q2 Net Absorption SF 367 K 42, , , Q2 (39,38) 21 Q1 Deliveries SF 372 K 351, ,952 67,75 28 Q3 151, Q2 Rent Growth.4% 1.%.1% 5.9% 216 Q1 5.8% 21 Q2 Sales Volume $257 M $133.3 N/A $ Q4 $ Q Page 2

4 Leasing Charleston has successfully embraced globalization and economic diversification to develop an innovative and thriving economy that is among the nation s top performers. Companies including Boeing, Benefitfocus, Daimler, and PeopleMatter brought thousands of jobs to the region recently, which contributed to the metro s dramatic population increase of 15, newcomers per year in Current job growth is around 9 basis points above the national average, with particularly strong growth across several mid to highincome sectors. Net absorption significantly outpaced net deliveries across most of the cycle, with only a handful of quarters outpaced by new space. This has resulted in particularly low vacancy rates, especially in James Island, Dorchester County, and Downtown Charleston. Professional and businesses services, primary officeusing sectors, are the thirdlargest employer by industry after government and trade. This category employs more than 5, people in the metro. The largest office tenant in the metro is the Medical University of South Carolina (MUSC) which occupies the entire 1.4 million SF MUSC Rutledge Tower in Downtown Charleston. MUSC is among the largest employers in the market, providing jobs for around 13, clinicians, facility, staff, and students. Benefitfocus, with an employment base exceeding 1,2, is another leading office tenant in the area, occupying more than 34, SF in three buildings on Daniel Island. Most lease deals in recent quarters occurred on the east side of the market toward Charleston Harbor, where gross asking rents average $24.5/SF. In March 216, Clemson University School of Architecture leased 31, SF in the Cigar Factory, a 244, SF office building in Downtown that was renovated in 216. At the end of 16Q3, Hall Booth leased 1, SF, followed by Tabula Rasa Healthcare, which leased 1, SF in October at 111 Coleman Blvd. This 4, SF building delivered in mid217, and is currently fully leased, with spaces previously listed at $26 per square foot. NET ABSORPTION, NET DELIVERIES & VACANCY Page 3

5 Leasing VACANCY RATE AVAILABILITY RATE Page 4

6 Rent Rent growth has slowed in recent quarters to near zero, similar other metros in the region. Despite low vacancies and modest positive absorption, rents have ultimately stagnated. Average office rents are around $23 per square foot substantially higher than neighbors Greenville and Columbia which are well below $2. The metro s highest rents are found in Downtown Charleston, which averages nearly $29 per square foot more than a 25% premium compared all metro inventories. In terms of rent growth, the best performing submarkets have been Greater Charleston, Outlying Berkeley, and East Islands/ Mount Pleasant. ASKING RENT GROWTH (YOY) Page 5

7 Rent GROSS ASKING RENT PER SQUARE FOOT Page 6

8 Construction Overview Office development has ramped up in Charleston in recent quarters. Although most deliveries so far this cycle were buildtosuit projects, the metro has seen its fair share of spec construction, as well. Faber Plaza, a 125, SF office building developed by Trinity Capital Advisors, opened in North Charleston in June 216. The 4 Star building located along I526 and I26 has floortoceiling glass and no columns. In October 215, Sonepar North America preleased the entire top floor (25, SF) at $27/SF triple net for an 11year term. Additional tenants in the building include T.Y. Lin International (1, SF) and HDR Inc (9, SF). Daniel Island has also witnessed a surge of new development over the past few years including the Daniel Island Executive Center and the Blackbaud Campus. The Daniel Island Executive Center, a 145, SF facility developed by Holland Properties to house Benefitfocus s Customer Success Center, opened in February 215. This building is the third addition to its headquarters and is part of a multiphase expansion expected to add close to 1,2 new jobs. Holder Properties is developing Blackbaud s new campus, part of a $15 million investment that will add 3 jobs to the local economy. Construction began in October 216 on the 172, SF Phase I and is set to be completed by the beginning of 218. The $25 million Pacific Box & Crate Project, a 13, SF development by Raven Cliff Co. on Upper King Street, opened in early 217. This project called for the conversion of the 8, SF warehouse building, construction of a 1, SF retail building that will consist of a yoga studio and food hall, and an additional two new office developments totaling 4, SF. Raven Cliff purchased the warehouse building for $5.2 million after the renovations started in July 215. In October 215, Boomtown signed a fiveyear lease to occupy the building, relocating from its 24, SF space at 635 Rutledge Ave. to 25, SF at the new location once it completed. DELIVERIES & DEMOLITIONS Page 7

9 Under Construction Properties Properties 13 Square Feet 744,981 Percent of Inventory 2.6% Preleased 61.4% UNDER CONSTRUCTION PROPERTIES UNDER CONSTRUCTION Property Name/Address Rating Bldg SF Stories Start Complete Developer/Owner 1 Blackbaud Campus Central Island St 172, Oct216 Mar218 Holder Properties Rivers Avenue 8571 Rivers Ave 168, 2 Feb217 Feb218 3 River Oaks Center 441 Leeds Pl W 15, 4 Jan217 Feb218 4 Nexton Medical Office B 55 Front St 1, 4 Apr217 Apr218 5 GATEWAY MOUNT PLE 235 Magrath Darby Blvd 65, 3 Dec217 Oct218 Landmark Enterprises, Inc. Landmark Enterprises, Inc University Blvd 47, 3 Mar217 Feb218 The Keith Corporation The Keith Corporation 7 Carnes Crossroads 215 2nd Ave 27,832 2 May217 Jun Page 8

10 Under Construction Properties UNDER CONSTRUCTION Property Name/Address Rating Bldg SF Stories Start Complete Developer/Owner 8 Summerville CPW 27 N Cedar St 15, 2 Sep216 Feb218 Summerville CPW Lansing Dr 14,871 2 Nov217 May218 Lat Purser & Associates, Inc. 1 Wando Business Park 363 Wando Place Dr 12, 2 Apr217 Feb Huger St 11,25 3 Jul217 Apr Folly Rd 3,8 1 Jul217 Feb Palmetto Commerce 3,453 1 May217 Feb Page 9

11 Sales Overview Charleston s healthy economy and rent growth continue to attract investors, with around $15 million trading per year since 21 and prices averaging $13/SF. The market performed particularly well in 217, when more than $25 million traded hands, at an average price of about $154/SF. Cap rates have gradually declined in Charleston over the past couple of years and currently average around 7.5%. One of the highestpriced deals in the metro s recent history took place when the Comcast Center for Excellence in North Charleston sold in January 217. KDC Real Estate Development, which finished building the 4 Star 8, SF building for Comcast in summer 216, sold the property to Capri EGM for $21.1 million ($264/SF). The buyer acquired the property as a longterm investment, as Comcast is locked into a longterm lease and also has the option to expand the current property by approximately 2, SF. In August 216, the Turtle Factory Building Corporation based out of Chicago purchased a 31, SF office building at 288 Meeting St. in Downtown Charleston for $11.8 million ($375/SF). This property was 1% occupied at the time of sale with tenants including Carolina Financial Corporation and Barnwell Whaley Patterson & Helms. The buyer acquired the property in a 131 exchange and the inplace cap rate was 6.2%, which equates to an NOI of $725,. SALES VOLUME & PRICE PER SF INDEX Page 1

12 Sales Past 12 Months Sale Comparables 21 SALE COMPARABLE LOCATIONS Avg. Cap Rate 7.5% Avg. Price/SF $155 Avg. Vacancy At Sale 21.% SALE COMPARABLES SUMMARY STATISTICS Sales Attributes Low Average Median High Sale Price $34, $2,313,539 $66, $33,, Price Per SF $6.8 $155 $18 $1,78 Cap Rate 5.% 7.5% 7.4% 1.% Time Since Sale in Months Property Attributes Low Average Median High Building SF 55 14,393 3,996 45,68 Stories Typical Floor SF 55 7,737 2, ,583 Vacancy Rate At Sale % 21.% % 1% Year Built Star Rating Page 11

13 Sales Past 12 Months RECENT SIGNIFICANT SALES Property Sale Property Name Address Rating Yr Built Bldg SF Vacancy Sale Date Price Price/SF Cap Rate 1 l 36 Rivers Ave 45, % 11/9/217 $33,, $73 2 Comcast Center For Exc 345 Ingleside Blvd 216 8, % 1/19/217 $21,1, $264 3 Albermarle Point Center 176 Croghan Spur Rd , % 7/24/217 $19,5, $ % 4 The Offices at Nexton 21 Sigma Dr , % 8/31/217 $17,2, $181 5 Rivers Park Business Ce 885 Rivers Ave ,583 % 8/7/217 $14,75, $93 6 Michael P Araneo Building 4221 Faber Place Dr , % 6/29/217 $11,331,443 $236 7.% 7 Rivergate Center II 4975 Lacross Rd ,597 % 8/31/217 $9,898,72 $ Morrison Dr 8,439 % 12/1/217 $9,1, $1, Faber Place Dr , % 12/2/217 $8,7, $ % Gardner Road 164 Gardner Rd ,5 3.8% 1/16/217 $5,7, $9 7.% King St ,63 % 1/6/217 $5,55, $ W Montague Ave 27 2,173 % 5/1/217 $4,56, $ Tobias Gadson Blvd 29 17, % 8/15/217 $3,95, $ % E Bay St % 7/27/217 $3,86, Elms Center Rd 26 14,25 % 7/27/217 $3,783,75 $ % 16 Palmetto Primary Care P 25 Elms Center Rd 212 2,5 % 7/2/217 $3,71,125 $ % 17 Medcare Urgent Care Ce 872 Dorchester Rd 29 6,427 % 1/12/217 $3,25, $56 7.2% Cannon St 213 7,692 % 6/2/217 $3,5, $ % Albemarle Rd 24 7,916 % 8/16/217 $2,8, $ % 2 31 Smith St ,615 % 7/27/217 $2,65, $ Page 12

14 Economy Charleston has successfully embraced globalization and economic diversification to develop an innovative and thriving economy that is among the nation s top performers. With the success of Boeing, Mercedes, Benefitfocus, and People Matter, the Chamber of Commerce forecasted a net gain of 21, jobs in 216 and 217 across all job sectors. Rapid expansion in a number of the metro s economic drivers is the reason for such strong performance. For example, Charleston s historic charm and architecture make it a major tourist destination in South Carolina, boosting growth in the important leisure and hospitality sector. A thriving port and proliferation of manufacturing facilities have also combined to fuel growth that is tracking above the national average. The business/professional sector outpaced the local economy with growth around 5% over the past year, but the manufacturing and construction industries are expanding as well. Volvo plans to construct a $5 million factory that will ultimately employ 4, in Berkeley County. Construction began in September 215, and the first vehicles are expected to enter production in 218. MercedesBenz will be spending a halfbillion dollars to construct an 8.6 million SF facility to make its Sprinter series of commercial vans. Construction began in 16Q2, and the plant could bring as many as 1,3 jobs. Unsurprisingly, the leisure and hospitality sector continues to grow, as Charleston remains one of the nation's top tourist destinations. Benefitfocus, a top employer in Charleston, has expanded its headquarters in Daniel Island, completing its first leg of development in 15Q1. This project, once completed, is anticipated to add 1,2 employees, with the majority of them being engineers. Daniel Island, nestled in between North Charleston and Mt. Pleasant, is a 2yearold masterplanned village containing 6, homes, two golf courses, a country club, two million SF of office, 1.2 million SF of retail, three schools, a marina, at least 1,5 apartment units, and close to 4 acres of open space for new development. This island holds the highest median income in the market at $94, and has seen 35% income growth in the last five years. YEAR OVER YEAR JOB GROWTH Source: Moody s Analytics Page 13

15 Economy DEMOGRAPHIC TRENDS Current Level Current Growth 1Year Growth Forecast Growth Demographic Category Metro U.S. Metro U.S. Metro U.S. Metro U.S. Population 777, ,657,13 1.4%.7% 2.%.8% 1.4%.7% Households 313,54 125,922, % 1.2% 2.2%.8% 1.7% 1.1% Median Household Income $59,826 $59,75 2.8% 3.3% 1.9% 1.5% 2.7% 2.9% Labor Force 378,466 16,748,1.6%.7% 1.9%.5% 1.%.8% Unemployment 3.3% 4.3% 12.% 9.1% 3.3% 1.2% Source: Moody s Analytics POPULATION GROWTH LABOR FORCE GROWTH INCOME GROWTH Source: Moody's Analytics Page 14

16 Submarkets CHARLESTON SUBMARKETS Page 15

17 Submarkets SUBMARKET INVENTORY Inventory 12 Month Deliveries Under Construction No. Submarket Bldgs SF () % Market Rank Bldgs SF () Percent Rank Bldgs SF () Percent Rank 1 Dorchester County 399 1,92 6.6% 6 % % 5 2 Downtown Charleston 454 5, % % % 6 3 E Charleston County % 1 % 4 East Islands/Mt Pleasant 423 3, % % % 4 5 Greater Charleston 559 4, % % % 2 6 James Island/Folly Beach % 7 % 1 4.7% 7 7 North Charleston 728 9, % % % 1 8 Outlying Berkeley County 329 2,8 7.2% % % 3 9 W Charleston County % 9 % 1 West Islands % % 6 SUBMARKET RENT Gross Asking Rent 12 Month Asking Rent Annualized Quarterly Rent No. Submarket Per SF Rank 1 Dorchester County $ % 6.6% 3 2 Downtown Charleston $ % % 7 3 E Charleston County $ % 9 % 4 East Islands/Mt Pleasant $ % 4 8.9% 6 5 Greater Charleston $ % 2 3.6% 4 6 James Island/Folly Beach $ % 8.4% 2 7 North Charleston $ % 5 6.2% 5 8 Outlying Berkeley County $ % 3 % 9 W Charleston County $ % 7 % 1 West Islands $ % 1 17.% 1 SUBMARKET VACANCY & NET ABSORPTION Growth Rank Growth Rank Vacancy 12 Month Absorption No. Submarket SF Percent Rank SF Percent Rank Construct. Ratio 1 Dorchester County 64, % 2 47,15 2.4% 4 2 Downtown Charleston 23,98 3.5% 3 (18,157).3% 1 3 E Charleston County % 4 East Islands/Mt Pleasant 153,136 4.% 4 137, % Greater Charleston 385, % 7 34,9.7% James Island/Folly Beach 8, % 1 (6,116) 1.2% 9 7 North Charleston 843,585 9.% 8 116,74 1.2% Outlying Berkeley County 116, % 6 5, % W Charleston County % 1 West Islands 11, % 5 1,181.4% Page 16

18 Supply & Demand Trends OVERALL SUPPLY & DEMAND Inventory Net Absorption Year SF SF Growth % Growth SF % of Inv Constrct. Ratio ,174,77 582, % 528, % ,591, ,78 1.9% 41, % ,7, ,12 1.8% 378, % ,455, , % 338, % ,9, , % 79, % 1.2 YTD 29,6,496 % (85,993).3% ,6, , % 469, % ,686, , % 457, % ,248, ,56 1.2% 316, % ,911,617 14,838.5% 378, % ,77, ,23.8% 42, % ,548, , % 581, % ,222, ,563 1.% 545,38 2.% ,957,732 3, % 494, % ,657,46 269,69 1.% (31,76).1% 28 26,388, , % 374, % & 5 STAR SUPPLY & DEMAND Inventory Net Absorption Year SF SF Growth % Growth SF % of Inv Constrct. Ratio 222 7,352, , % 68, % ,771,57 582, % 475,243 7.% ,189,216 55, % 414,85 6.7% ,638, ,27 8.6% 32,76 5.4% ,193, , % 682, % 1.2 YTD 4,371,848 % (39,662).9% 217 4,371, , % 445, % ,45,35 414, % 416, % ,63,45 3,541 9.% 4, % ,329,99 83,97 2.6% 48, % ,246,2 82, % 75, % ,163,31 44,81 1.4% 129, % ,118,5 65, 2.1% 166,8 5.3% ,53,5 % 25,615.8% 29 3,53,5 % (5,844) 1.7% 28 3,53,5 262, % 143, % Page 17

19 Supply & Demand Trends 3 STAR SUPPLY & DEMAND Inventory Net Absorption Year SF SF Growth % Growth SF % of Inv Constrct. Ratio ,63,614 1,425 % (32,857).3% ,62,189 1,426 % (3,3).3% 22 11,6,763 1,344 % (7,79) % ,599,419 1,92 % 24,179.2% ,598, , % 86,419.7% 1.5 YTD 11,47,884 % (45,699).4% ,47,884 51,612.5% (47,315).4% ,419,272 25,859.2% 14,311.1% ,393,413 4,128.4% (25,834) 1.8% ,353,285 76,577.7% 222,496 2.% ,276,78 146, % 177, % ,129, , % 342,28 3.1% ,92, , % 227, % ,738, ,76 2.6% 44, % ,465,378 26, % 3,629 % ,24, ,386 3.% 265,23 2.6% & 2 STAR SUPPLY & DEMAND Inventory Net Absorption Year SF SF Growth % Growth SF % of Inv Constrct. Ratio ,217,764 % (47,352).4% ,217,764 % (43,442).3% 22 13,217,764 % (28,128).2% ,217,764 % 11,552 % ,217,764 % 22,39.2% YTD 13,217,764 % (632) % ,217,764 (4,24) % 71,8.5% ,221,968 (2,842) % 26,592.2% ,224,81 (3,613) % 122,14.9% ,228,423 (19,646).1% 17,132.8% ,248,69 (7,215) % 167, % ,255,284 54,484.4% 19,664.8% ,2,8 35,22.3% 15, % ,165,778 27,196.2% 28,18.2% ,138,582 8,574 % 15,59.1% ,13,8 12,954.8% (34,539).3% Page 18

20 Rent & Vacancy OVERALL RENT & VACANCY Gross Asking Rent Vacancy Year Per SF Index % Growth Vs Hist Peak SF Percent Ppts Chg 222 $ %.9% 2,392,64 7.4% % 221 $ %.4% 2,338, %.4% 22 $ %.7% 2,156,617 7.%.4% 219 $ %.9% 1,983, %.3% 218 $ %.5% 1,875, %.4% YTD $ %.6% 1,796, %.3% 217 $ % % 1,71, %.4% 216 $ %.2% 1,85,82 6.3%.2% 215 $ % 5.5% 1,825, % % 214 $ % 11.5% 1,84, %.9% 213 $ % 16.6% 2,42, %.8% 212 $ % 2.2% 2,24, % 1.% 211 $ % 21.6% 2,496,25 9.2% 1.1% 21 $ % 21.2% 2,776, %.8% 29 $ % 17.1% 2,971, % 1.% 28 $ % 11.2% 2,67, %.9% 4 & 5 STAR RENT & VACANCY Gross Asking Rent Vacancy Year Per SF Index % Growth Vs Hist Peak SF Percent Ppts Chg 222 $ % 1.5% 724,37 9.9% 1.3% 221 $ %.9% 751, %.7% 22 $ % 1.1% 644, % 1.4% 219 $ % 1.1% 58,989 9.% 2.% 218 $ %.6% 366, % 1.9% YTD $ % % 266, %.9% 217 $ % % 227, % 3.4% 216 $ % 2.% 346, % 1.% 215 $ % 8.6% 347, % 3.9% 214 $ % 14.% 447, %.7% 213 $ % 19.% 412, % % 212 $ % 19.1% 44, % 2.9% 211 $ % 2.5% 489, % 3.7% 21 $ % 19.2% 591, %.8% 29 $ % 2.4% 617, % 1.7% 28 $ % 18.9% 566, % 2.5% Page 19

21 Rent & Vacancy 3 STAR RENT & VACANCY Gross Asking Rent Vacancy Year Per SF Index % Growth Vs Hist Peak SF Percent Ppts Chg 222 $ %.6% 1,198,54 1.3%.3% 221 $ % 1.% 1,164,222 1.%.3% 22 $ %.4% 1,132, % % 219 $ % % 1,123, %.2% 218 $ %.2% 1,146, %.3% YTD $ % 1.3% 1,144,522 1.%.4% 217 $ %.5% 1,98, %.8% 216 $ % % 999, % % 215 $ % 7.4% 988, % 2.1% 214 $ % 13.2% 742, % 1.3% 213 $ % 2.1% 888,35 7.9%.4% 212 $ % 29.6% 919, % 1.2% 211 $ % 31.8% 1,34, %.7% 21 $ % 32.7% 1,97, % 1.9% 29 $ % 27.7% 1,265, % 2.2% 28 $ % 17.9% 1,8, % % 1 & 2 STAR RENT & VACANCY Gross Asking Rent Vacancy Year Per SF Index % Growth Vs Hist Peak SF Percent Ppts Chg 222 $ % 1.4% 469, %.4% 221 $ %.7% 422, %.3% 22 $ %.9% 378, %.2% 219 $ % 1.% 35, % % 218 $ %.4% 362, %.2% YTD $ %.3% 385,97 2.9% % 217 $ %.3% 384, %.6% 216 $ %.1% 459, %.2% 215 $ % 2.5% 489, %.9% 214 $ % 9.2% 614,9 4.6% 1.% 213 $ % 12.3% 741, % 1.3% 212 $ % 12.6% 916, %.4% 211 $ % 13.2% 971, %.9% 21 $ % 12.1% 1,87, % % 29 $ % 6.2% 1,88, % % 28 $ % 1.5% 1,95, % 1.% Page 2

22 Sale Trends OVERALL SALES Completed Transactions Market Pricing Trends Year Deals Volume Turnover Avg Price Avg Price/SF Avg Cap Rate Price/SF Price Index Cap Rate 222 $ % 221 $ % 22 $ % 219 $ % 218 $ % YTD $ % $267.9 M 8.6% $2,391,232 $ % $ % $26.3 M 5.9% $1,379,916 $ % $ % $21.8 M 5.5% $1,434,328 $ % $ % $215.8 M 6.2% $2,14,951 $ % $ % $155.3 M 4.1% $1,89,381 $ % $ % $116.1 M 6.6% $1,225,673 $ % $ % $67.9 M 2.1% $1,15,178 $ % $ % $78.9 M 4.9% $1,398,442 $ % $ % $7.7 M 2.3% $1,972,571 $ $ % $27.8 M 1.% $768,33 $ % $ % Page 21