Not only is downtown Columbia experiencing an unprecedented boom in residents spurred by new student housing projects, but rental rates for the best office space are at all-time highs and vacancy rates are near 10 percent, according to a report by commercial real estate brokers Colliers International.
Downtown is growing so rapidly that brokers have expanded the central business district’s footprint to Elmwood Avenue, Blossom Street, Harden Street and Huger Street. Previously, the central business district was bounded by Bull Street, Assembly Street, Elmwood and Gervais Street.
The expansion is intended to incorporate the multi-use Kline Center and other projects set for Huger Street and the Vista, the Bull Street redevelopment project on the site of the old S.C. State Hospital, USC’s new law school rising on Gervais Street, the Station in Five Points student housing development on Harden Street, and the University of South Carolina’s Innovista research district.
“The Columbia market has grown up quite a bit,” said David Lockwood, Colliers executive vice president. “A lot of that is due to the (residential) boom downtown. And USC is driving that.”
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Annual rental rates for Class A – or the the highest-quality – office space in the central business district have topped $22 per square foot for the first time ever, reaching $22.56 per square foot, according to the Colliers report. That’s up nearly 6 percent from 2014 and 13 percent since 2012.
“That’s the highest asking rental rates ever in Columbia,” Lockwood said.
And those rates will continue to rise as the costs of maintaining buildings climb and owners continue to upgrade buildings like Bank of America Plaza and 1441 Main with new technology and amenities, said Matt Kennell, chief executive of City Center Partnership, which encourages and guides investment in the central business district.
“When you get new finishes and technology in buildings they become more desirable,” he said. “Tenants want modern, efficient space and owners can charge more.”
Also, vacancy rates are now at 10.8 percent, up slightly from the third quarter of 2015 when they were at 10.4 percent. At the end of 2014, the rate was 11.7 percent.
But today’s rate will drop even farther in March, when the law firm of Rogers Townsend moves much of its operation from St. Andrews into a full floor of the Main & Gervais building in space once occupied by NBSC bank.
“A lot of firms miss the business climate of downtown and are moving in from the suburbs,” Lockwood said. “And tenants are expanding because of the improved economy.”
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Rogers Townsend chairman Bryan Barnes said several factors led the firm to relocate downtown.
The firm had outgrown its 55,000-square-foot space in the Synergy Business Park and needed to expand. The 20 attorneys and approximately 55 staffers who are moving downtown primarily work with banks, architectural firms and developers, which are clustered in the downtown area. And firm officials wanted to tap the street life and energy that has developed on Main Street and in the Vista.
“The fact that there is such a concentration of activity fits with the direction we’re moving” with those particular clients and with the nonprofits that the firm supports, Barnes said. “For the employees, it gives us a fresh, new environment in which all of us can work together and practice law.”
Marketing director Tina Emerson added that the new location in the Main & Gervais building, which is Main Street’s newest office building and sits across the street from the State House, is also more convenient and efficient.
“You don’t have to drive to lunch and to meetings,” she said. “That takes a lot of time. We can get more done there.”
Barnes said the search for downtown office space was difficult.
“We recognized that it was a tight market,” he said. “We got lucky with this space.”
Today, the largest amount of contiguous available space are two 14,000-square-foot locations. Large law firms and companies like to have entire floors, generally 20,000 square feet, Lockwood said. That allows their operations to flow more smoothly and employees can work closely together.
“Parking is also very tight downtown,” he said. “That’s a problem.”
But despite the high rents and tightening occupancy, don’t look for a new office tower anytime soon.
Banks – for decades the prime drivers for new office towers – are downsizing, not expanding into new quarters. And the days of building a 20-story speculative high-rise are long gone because of economic concerns.
“We just don’t have the large tenant to anchor a new office tower,” Lockwood said.
The trend, he said, will be to build smaller office buildings in the expanded central business district. Lockwood predicts that other mid-rise buildings, as they are called, will begin to fill in space in the expanded business district.
For instance, USC is building a five-story, 120,000-square-foot technology building at the corner of Blossom and Assembly streets. It will house IBM and Fluor.
Bull Street developer Bob Hughes of Greenville is building a four-story, 100,000-square-foot building adjacent to the Columbia Fireflies minor league baseball stadium. The First Base Building will have 85,000 square feet of office space and 25,000 square feet of retail space.
The Kline Center planned for Huger Street at Gervais Street at the site of the old Kline Iron & Steel Co. will also include a section of offices. The square footage has not been released.
“They are going to be boutique-ish buildings,” said Lockwood, who added that many of the mid-rises will be mixed use, often with retail on the ground floor. “And balancing downtown with smaller buildings will keep the market tight.”
Central Business District
Class A annual rental rates
2015 – $22.54
2014 – $21.32
2013 – $20.83
2012 – $19.94
Class A vacancy rates
2015 – 10.8 %
2014 – 11.7 %
2013 – 8.9 %
2012 – 9.2 %
SOURCE: Colliers International