Charleston Office Market Report (Q1 2021)28 Jan 2021
The tide has turned from a landlord-driven market to a solid tenant’s market, but it has not peaked yet. Expect it to swing further in favor of tenants, giving them the upper hand for years to come. In this tenant’s market, they will benefit from more choices, declining lease rates, enhanced tenant improvement allowances and rent abatement.
Through 2018 and into 2019, Charleston peaked in terms of record high lease rates and low vacancy, giving landlords a strong, favorable position in negotiation. Before the COVID-19 lockdowns began, there was already a softening in the leasing market due to new product being added by developers. The pandemic has accelerated trends that were predicted beforehand, notably due to construction remaining an essential service and through companies’ and workers’ new proficiency in a ‘work from home’ environment.
While office developers have been adding space to our market notably since 2017, in 2019 some buildings were planned and financed without tenants committing preconstruction, 100% spec development. Notably, over 600,000 sf of Class
A office was in planning in the NoMo area of Charleston’s upper peninsula before anyone heard the term COVID-19. Construction never slowed on these buildings and others which are approaching completion now. It would take years to fill these even in a healthy market without a pandemic.
While physical offices were closed entirely and travel cancelled in the initial lockdown, employees continued to do their work remotely. Through necessity, staff turned to technology, like video conferencing, to communicate and continue their work. As users became more proficient, many have found greater satisfaction and efficiency working from home, some of whom will not be returning to the office, at least not every day. Therefore, businesses are reevaluating how much space they need with many deciding less. This is a retraction we would not have seen without the pandemic.
Another metric illustrating the dramatic swing to a tenant market is the magnitude of sublet space. When companies commit to a lease term, they take into account the possibility of needing more or less space before the end of their commitment. Space available for sublease has typically been less than one percent of our market pre-pandemic. Now over 4% of our total office market, 7.5% of Class A space, is available for sublease, creating more choices for tenants looking for space.
For those businesses moving into or growing within Charleston the choices are plentiful and terms favorable. While faced with challenges in the near future, employers and investors alike continue to choose Charleston to locate and grow. People want to live and work in Charleston. Fortunately, Charleston enjoys a stature as a lifestyle choice for employers seeking a location to attract and retain employees seeking a great place to live.