CITY HIGHLIGHTS, SEPTEMBER 2012

COLUMBIA CITY HIGHLIGHTS

Columbia Office Market

Johnson

During the last two quarters, vacancy rates for Class A and Class B office properties in Columbia have declined. So far in 2012, overall Class A vacancy rates have fallen from 12.2 percent to 11.4 percent, while Class B vacancy rates have fallen from 27.3 percent to 27.1 percent. However, as tenants have been taking advantage of the opportunity to upgrade their spaces, the overall vacancy rate has remained unchanged at 22.2 percent, as Class C vacancy rates have increased from 23.7 percent to 26 percent.

The Cayce/West Columbia submarket saw the biggest statistical declines in vacancy during the last year. Class A vacancy declined from 27.6 percent to 17.3 percent. Class B vacancy rates declined from 25.7 percent to 13.8 percent. While the change demonstrates increased activity in the submarket, the submarket saw only 13,603 square feet of positive absorption for the year.

Activity in the Central Business District has been muted. In 2012, vacancy rates have declined by 40 basis points. Tenants are upgrading to Class A spaces from Class B and C buildings. Vacancy rates for Class A buildings downtown declined 70 basis points to 11.8 percent. However, vacancies have increased in Class B spaces rising 40 basis points to 30.2 percent and over 240 basis points to 37.4 percent in Class C spaces.

The City of Columbia passed legislation this year that will allow student housing to be constructed in buildings zoned OI with a special exception. The legislation removes the cap on units per acre for these properties, which should allow for some Class C properties downtown to be converted to student housing. This will take those buildings out of the existing office inventory, which should cause vacancy rates to fall.

Another major development in the market is that a building with speculative office space is under construction. The 35,000-square-foot building, located at 1074 Pinnacle Point Drive in Northeast Columbia, broke ground in the second quarter of 2012. The building is more than 50 percent pre-leased, and has 16,000 square feet of space available. The Main and Gervais building, which opened in December 2011, was the last major office property completed in the Columbia market. The last building under development to contain some speculative space was the Southern First building in Cayce, which was completed in 2009. The property still has 4,770 square feet available.

Demand for space this year has mostly been by smaller tenants wanting between 2,000 and 5,000 square feet. While there are low-priced sublease spaces and other opportunities for larger tenants, they have failed to attract much attention. This has left owners with the difficult decision of whether or not to divide large spaces. Uncertainty related to national politics and the overall direction of the economy may have many larger firms waiting until the beginning of 2013 to fund expansion plans or make significant changes.

Pricing has remained relatively flat across the market with no consistent trend. The asking rate for Class A space is $18.63 per square foot, $14.84 per square foot for Class B space and $12.06 per square foot for Class C space. Changes have varied in each submarket, however rates remain highest in the Central Business District at $19.70 per square foot for Class A space and $16.55 per square foot for Class B space. Cayce/West Columbia has the highest suburban Class A asking rates at $19.50 per square foot, while Forest Acres has the highest Class B asking rates at $14.69 per square foot. This demonstrates that demand for space is still clustered around the core of the downtown market and prices decline the further one looks in the suburban markets.

— Ben Johnson is the research/client services manager for Columbia-based Grubb & Ellis/Wilson Kibler.

Columbia Retail Market

The Columbia retail market has experienced substantial activity during the past three years as many big-box retail stores left vacant during the recession have been filled with new tenants. Closures such as Linens ‘n Things, Circuit City and Goody’s provided a unique opportunity for retailers to pursue quality real estate at attractive rental rates.

Leasing these spaces has reduced Columbia’s overall retail vacancy rate from 12 percent in 2009 to the current market vacancy rate of 8.34 percent. The declining vacancy rates and lack of significant supply is putting upward pressure on rental rates. According to 2012 mid-year retail reports, average asking rates for available junior anchor space increased by $1.38 per square foot to $13.09 per square foot while average asking rates for available small shop space increased by $1.92 per square foot to $13.98 per square foot.

There has been a strong trend towards infill development as the denser submarkets outperformed the suburban markets. Forest Acres boasts a vacancy rate of only 1.14 percent while downtown’s vacancy rate is 2.08 percent.

Columbia-based developer EDENS is redeveloping Cross Hill Market, a 75,000-square-foot project in southeast Columbia. Cross Hill Market will mark the first Columbia locations for a number of retailers, including Whole Foods, Taziki’s Mediterranean Café, Nadeau Furniture, Charleston Cooks and Basil.

Trader Joe’s will also make its first foray into the market in the Forest Acres submarket.

Other notable developments include a junior anchor development by

RealtyLink on Harbison Boulevard and the initial phase of Killian Crossing, a 450-acre site in northeast

Columbia. The RealtyLink development is taking place on a highly coveted corner on Harbison Boulevard within the Harbison submarket and will include DSW, HomeGoods,

ULTA and Staples. The site was formerly home to a medical office building. The developers of Killian Crossing are installing infrastructure and constructing an initial phase bringing new activity to the northeast submarket.

These new projects represent excellent real estate locations and have each been in the planning stages for quite some time. Activity in the Columbia market is strong; however, transactions are slow to come together.

The market should experience a continued focus on the primary trade areas, particularly the denser, more mature submarkets like portions of southeast Columbia, Forest Acres and downtown. These areas will likely see a few more anchored and unanchored retail developments in the next 12 to 18 months.

Columbia’s retail market was not overbuilt in the pre-recession years; therefore, the market has held reasonably strong during the past few years. Although the coming months should present development and redevelopment opportunities in the primary submarkets, opportunities will require creativity, patience and a firm understanding of the dynamics in each respective submarket.

— John Peyre (J.P.) Scurry, Jr., CCIM, is vice president of Colliers International South Carolina.

Columbia Industrial Market

The first half of 2012 has proven fairly stable for the Columbia industrial market. While the first quarter of 2012 experienced trickle over activity from the end of 2011, the second quarter tempered that with marked slowdown. Even though the vacancy rate remained relatively flat at 15.78 percent, average asking rates actually increased 5 cents to $3.53 per square foot.

The Columbia industrial market has seen significant investment during the past 12 months, with manufacturing continuing to lead the pack with major investments from Amazon.com, Mars Petcare, Nephron Pharmaceuticals, Bridgestone, Michelin and Continental Tire. South Carolina — and the Central Midlands area, in particular — has experienced significant growth.

Amazon.com delivered its 1.2 million-square-foot distribution center and Nephron is building its $313 million campus in Lexington County. Mars Petcare is constructing a 290,000-square-foot expansion in Richland County, in the Southeast corridor.

South Carolina is fast becoming the North American capital for tire manufacturing, with most of those facilities located throughout the Midlands region. Bridgestone is expanding, adding 474,000 square feet to its current facility and the company is constructing a new 1.5 million-square-foot manufacturing facility in Aiken. Continental Tire continues construction on its $500 million plant in Sumter County and Michelin continues its $1 billion expansion in Lexington County, both in excess of 500,000 square feet.

Most transactions for existing property needs average 25,000 square feet. Industrial brokers are seeing more activity and requirements for greenfield sites to accommodate projects exceeding 100,000 square feet. Indicators show these deals will transact and be realized in 2013.

In Northeast Columbia, the vacancy rate increased almost 1 percent to 26.98 percent, while average asking rates increased to $3.71 per square foot. In this submarket, big box properties are behind the high vacancy: only seven properties are responsible for 70 percent of total vacancy in the submarket. The majority of smaller properties consist of occupied warehouse or high-performing flex space with higher rates. This is how the submarket has managed to increase the average asking rate despite the vacancy.

The Northeast submarket is well positioned to experience positive activity in the second half of 2012, as it possesses the sole remaining large Class A industrial space in the area, as well as its prime position in the path of continued growth toward the Charlotte area along the Interstate 77 corridor.

The Lexington submarket continues its successful reputation of industry recruitment and continues to be a target area for new investment. Proof includes the Amazon.com distribution facility opening, coupled with Nephron’s construction of its more than 500,000-square-foot facility and Avtech’s recent ground-breaking on a 46,000-square-foot facility.

The Southeast submarket showed the most growth in the first half of this year. The average asking rate in the Southeast submarket increased to $3.34 per square foot from $3.26 per square foot and vacancy has decreased from 19.93 percent to 19.54 percent. This rate can be described as artificially high due to a large percentage of functionally obsolete or outdated space. At the present time, FedEx continues the construction of its 126,079-square-foot building.

The industrial market is strategically located to experience significant economic growth during the next 12 to 18 months. This is a direct result of several events, with the most noteworthy being the pending deepening of the Charleston Port, located less than 100 miles away, as well as the expansion of Charlotte’s airport and rail hub to accommodate the port deepening.

Overall, forecast for future growth for the Columbia area is positive for the balance of 2012 with an expectation of continued economic investment through 2013.

— Ben Brantley, SIOR, is the senior vice president of industrial brokerage services for CBRE/Columbia.

Columbia Multifamily Market

In the first half of 2012, three projects in the market area sold, including Ashland Commons, Paces Brook and Tamarind Apartments (pictured). The transactions resulted in an average sales price of $47,600 per unit.

The metro Columbia area’s multifamily market has continued to show improvement through the first half of 2012. Overall apartment occupancy has increased by three percent since January 2012, with average occupancy currently slightly greater than 91 percent. A net of 320 units have been absorbed year to date. During the past 12-month period, 1,237 units have been absorbed.

Market rents, however, have increased only slightly during the past six months (0.03 percent), with an average monthly rent of $762. Overall, rental rates in the market area have not experienced any significant change since 2009. It is, however, projected that rental rates will improve during the next year as occupancy rates rise.

Multifamily property sales in the Columbia MSA have improved significantly in the past year as more investors re-enter the market. Their re-emergence is due to a combination of an improved economy coupled with the lower returns currently available on many alternative investments.

In the first half of 2012, three projects in the market area sold, representing a total of 592 units. The three sales included Ashland Commons, Paces Brook and Tamarind Apartments, and they resulted in an average sales price of $47,600 per unit. This compares favorably to the combined 997 units sold in 2010 and 2011.

The second half of the year started with K.T. Spears Creek’s sale of the 240-unit Greenhill Parish Crossing Commons, a Class A property located in Northeast Richland County, in August for $19.5 million. Colliers International represented the seller.

Most of the sales transactions during the past year have been located in the Irmo/Chapin area of Richland and Lexington counties. The 328-unit Haven at Lake Murray represented the top of the Class A market and sold in September 2011 for $33.75 million, or $102,896 per unit. AVR Columbia purchased the property.

With the upturn in leasing activity, there are 978 units currently under construction or recently completed in the Columbia market, including 51 units at Palms on Mail (Arnold Construction); 60 units at Arcadia Park (Carlisle Development Group); 180 units at Arcadia Edge (Estates Inc.); 156 units in a second phase at Sage Point (Power Properties); 315 units at Ballentine Crossing (Certus Partners); and 216 units at Marina Bay (Arnold Construction). An additional three projects are in the pre-development stages.

— Woody Moore, CCIM, Executive Vice President of Colliers International South Carolina.

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