SOUTHEAST SNAPSHOT, AUGUST 2005

Greenville Office Market

After posting negative absorption in successive years during 2002 and 2003, the Greenville, South Carolina, office market resurged in 2004 by posting a positive net absorption of 70,000 square feet. Currently, the rental rates across the city range from $17.50 per square foot full service to $20.50 per square foot full service in the central business district and $15.50 per square foot full service to $17.50 per square foot full service in the suburban submarkets. During the past few years, the primary weaknesses in Greenville’s office sector have been focused in the suburbs, as the vacancy rate stands currently at 27.5 percent. Very limited office development has been occurring in Greenville’s suburban markets; despite the fact that interest rates are low and several office condominium projects have been developed, it is too early to tell how the market will react to and accept this product. As a result, the suburban office market has been limited mostly to small build-to-suit projects.

A great deal of interest is flowing through the downtown market; for example, major tenants such as Elliott Davis and Suitt Construction both have moved their offices from the suburban market into the city. Therefore, effecting from the poor performance in the suburbs, the vacancy rate in the CBD is much healthier, standing at a 15.5 percent clip.

Several developments are underway in and around Greenville, significantly impacting the market dynamic. In the CBD, RiverPlace is nearly complete; this development will move the focus of Greenville’s Downtown submarket down Main Street to the area near the Peace Center and the new City Park along the Reedy River. RiverPlace is a mixed-use development, and its first component, an 87,000-square-foot office building, has been completed recently. Residential condos, a parking garage, retail space and a Hampton Inn also are planned for the project.

Near the intersection of Interstate 85 and Laurens Road in the suburbs, Clemson University’s Graduate School of Automotive Engineering has broken ground on the International Center of Automotive Research (ICAR). This 250-acre project, which is a partnership among Clemson, BMW and Michelin, expects to bring jobs and further development to this area. In fact, next door to ICAR, Rosen and Associates is developing Millennium Park, in which Hubbell Lighting Inc. has plans to build a 200,000-square-foot, $25 million headquarters. Construction on that project is expected to be underway soon.

As a result of its better market fundamentals, the CBD is the focus of most new development. RiverPlace’s construction has effected announcements of several other new office buildings, but development of these has not yet commenced due to the owners’ desire to pre-lease preceding groundbreaking. In the suburbs, most of the development is focused near ICAR and Millennium Park.

Columbia, South Carolina-based Holmes Smith Development is a new company in the market that has plans for a mixed-use building in the CBD containing significant office space. This project is a joint venture with Greenville-based Vivian Wong, but it is Holmes Smith’s first office development in the area. In addition, Miami-based Rosen and Associates, which is developing Millennium Park, also is new to the area.

With the market remaining soft, many tenants have been moving from Class B and C properties into Class A spaces, effecting no significant growth in overall space. As a result, the Greenville office sector has experienced very little in-migration from tenants moving into the market from the outside.

While new development remains tentative throughout the suburbs, several major leases have been signed: Lockheed Martin signed a new 76,250-square-foot lease at 400 Brookfield Parkway; Tetradata now occupies 30,000 square feet at Park East; ECPI also signed a new lease for 30,000 square feet at 1001 Keys Drive; and Charter Media has leased 24,000 square feet at Parkway Plaza. In the CBD, Womble Carlyle and Marsh USA both have signed new leases at RiverPlace for 27,500 square feet and 25,000 square feet, respectively; Aimco has renewed its 80,000-square-foot lease at One Liberty; and AGFA also has renewed its 60,000-square-foot lease at 10 S. Academy Street.

Looking toward the future, the major development activity will continue to occur on S. Main Street in the CBD and at I-85 and Laurens Road in the suburbs. The Greenville office sector has turned the corner, boasting positive market fundamentals during 2004, and expectations suggest that these statistics and trends will perpetuate themselves during 2005.

— Brent Freeman, president, Real Estate Services

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