SOUTHEAST SNAPSHOT, JUNE 2005

Greenville/Spartanburg Office Market

The Greenville/Spartanburg, South Carolina, office market currently is seeing movement in trends and statistics. Overall, the market outlook is good; demand is and absorption are increasing, and there is a lot less space available now than there was 6 months ago. Rental rates are up, and vacancies are dropping in both the suburban submarket and in the central business district.

Rental rates in the CBD are on the move, ranging from $18.25 per rentable square foot to $19.50 per rentable square foot, and the suburban market rates currently range from $15.25 per square foot to $17.00 per square foot. The wide disparity in rental rates is a product of developments in the suburban submarket that retain both Class A and Class B buildings in the same project. This mix results in significant vacancies throughout the project because it effects a downward pressure upon the Class A rental rates. Overall, vacancy rates in the CBD are in the low teens and suburban vacancy rates are, after deducting functionally obsolete buildings, in the 16 percent range.

Regarding construction trends, for major buildings in the Greenville/ Spartanburg market greater than 40,000 square feet, the key is pre-leasing; the market has not seen a major development in the last several years without a major pre-lease commitment, which is defined as more than 60 to 70 percent of the building being constructed. However, in smaller size buildings, companies’ desire to own has created a receptive financial market for office condominiums, making that market very active from the development standpoint. In the last few years, several developers have endeavored upon multiple, successful suburban office condo projects.

Companies currently are being drawn to the CBD, which continues to be a very desirable area for development. The lack of product perhaps enhances that desirability because everybody wants to locate and build there, but the submarket is not seeing enough product to meet the demand. One new office conversion project located at 22 S. Main Street is experiencing early success with the pre-sale of office condominium units. A similar office condo project being developed at 18 E. North Street should be on line by this summer; in addition, a few other office condo projects in the downtown area also are being planned. The only large office building being developed in the CBD is the River Place Development along S. Main Street and the Reedy River, but other major projects are being planned and discussed in the same area. Along with the development of the “new arts district,” these projects will anchor the south end of Main Street, and the southernmost border to that expansion is the new baseball stadium that has just broken ground. One of the impetuses for the development in this area is the City of Greenville’s commitment to invest in and redo infrastructure. As a result, private developers have responded nicely with a flood of capital.

 Generally, there are very few new developers to the area. Greenville/ Spartanburg is not a major market that attracts major developers; in effect, developers are homegrown, for the most part. The General Services Administration (GSA) may become the biggest outside developer as it looks toward building a new federal court house within the CBD. The overall scope of the project is 250,000 to 300,000 square feet, and if completed as planned, it will be the largest single building development in Greenville’s CBD since Daniel Construction (the precursor to Flour Daniel and now Flour Corporation) built its headquarters facility in the late 1960s. The GSA is in land acquisition mode and has developed a short list of three sites for consideration. In addition, the International Center for Automotive Research, or ICAR, is being developed by Miami-based Rosen and Associates and Clemson University in a campus setting at the intersection of Interstate 85 and U.S. Highway 276. This 250-acre campus will house several automotive-based projects including contributions from Clemson University, BMW, Michelin and others. The sister development to the ICAR Campus is the Millennium Campus, which is under development adjacent to the ICAR project. The first announced tenant is Hubbell Lighting, which plans to build a new $25 million company headquarters facility that will be completed in late 2006.

Perhaps the largest single category of expanding office space consumption is educational, as private technical schools are growing and expanding significantly. ITT Technical Institute moved into a new 20,000-square-foot build-to-suit facility developed by Liberty Property Trust. In addition, ECPI, a Virginia-based private technical school with 14 campuses located in the Carolinas and Virginia, just completed a new 30,000-square-foot lease in a facility highly visible from Interstate 385. Obviously, these schools are expanding to continue the retraining and re-education of the workforce. Other than this, there really isn’t a major single tenant or type of tenant absorbing the majority of space. Rather, we have a very strong local business climate that continues to modify, change, grow, expand and contract with locally generated businesses. A lot of regional and divisional headquarters for Fortune 500 companies exist in the area and, for the most part, as in the rest of the nation, the market essentially has reduced square footage and employment over the last 3 years.

The only really significant new submarket is the ICAR market and its related development. The Hollingsworth Estate unveiled its new master plan on May 5, and this too should prove to be opportunistic availability for developable land. The details of that master plan will follow at a later time.

In general, the market’s trends appear that they will continue. This market is a dynamic economic engine for the state, and it has had a lot of bumps in manufacturing, particularly in textile over the last 5 or 6 years; those losses are slowing substantially as the area is picking up new manufacturing that is not textile. As new industry begins to flourish, Greenville/Spartanburg will be on the right road again.

— William Burgess, CCIM, SIOR, principal, NAI Earle Furman, LLC

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.