PrintPrintThe local office market continued take a beating in the third quarter as rental rates dropped and vacancy rates increased, according to Anchor Commercial Real Estate’s latest report. Overall, the office vacancy rate climbed less than 1 percentage point from the first to the third quarter, but it remains high in Charleston County, at 19.61%. Rental rates dropped from $18.10 to $16.65 during the same time period.
By Molly Parker
mparker@scbiznews.com
Published Oct. 12, 2009
The local office market continued take a beating in the third quarter as rental rates dropped and vacancy rates increased, according to Anchor Commercial Real Estate’s latest report.
“The unknowns of the economy continue to stall tenants’ decision-making process, pushing vacancy higher and rental rates lower,” the report says.
Overall, the office vacancy rate in Charleston County climbed less than 1 percentage point from the first quarter to the third, but it remains high, at 19.61%. Rental rates dropped from $18.10 to $16.65 during the same time period.
A healthy market has a vacancy rate between 10% and 12%, according to Milton Thomas, a principal with Anchor Commercial. The vacancy rate is highest — 25% — in North Charleston, where the majority of Class “A” office space is located. With a quarter of all office space sitting empty, rates have been falling. In the third quarter, rates fell by nearly $2 per square foot, to $13.20 in the third quarter.
Daniel Island’s office market was hit particularly hard in the third quarter. The vacancy rate increased almost 4%, to 18.12%, between the first quarter and the third. Rental rates also dropped by more than $2 during that period, from $19.83 to $17.75 per square foot.
The downtown office market remained a stronghold. The vacancy rate grew from 6.1% to 7.1%. Rental rates held steady at right around $20 per square foot.
In West Ashley, the vacancy rate increased from 19.2% to 22.2%, and rental rates dropped from $17.50 to $15.38. In Mount Pleasant, the vacancy rate increased from 18.39% to 21.47%. Rental rates dropped slightly, from $17.88 to $16.90, the report said.
“I think we have a little ways to go before we hit the bottom,” Thomas said.
The report predicts that distressed sales will make up a large portion of sales transactions next year. Cash-heavy investors will be well-positioned to capitalize on opportunities, it says.
Reid Davis, also a principal with Anchor Commercial, said that most of the deals the company has closed in recent months have dealt with clients who could pay cash. Banks are not lending money, he said.
“Owner-occupants are the only buyers with the ability to finance property under reasonable terms and will continue to be able to take advantage of low sales prices,” according to the report.
About six years’ worth of open office space is on the market today, Davis said. That means no new construction will be coming down the pike anytime soon.
“You couldn’t build a building today and get a rate that would be competitive in today’s market,” Thomas added.
The vacancy rate for the warehousing and industrial market was almost 17% in the third quarter, and the retail vacancy rate was nearly 12%.
Reach Molly Parker at 843-849-3144.
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