Greenville-Spartanburg Office Figures Q4 2023
Dynamic Leasing Continues Amid High Interest Rates
January 30, 2024 10 Minute Read
The Greenville-Spartanburg office market in the second half of 2023 showed a consistent trend of leasing small spaces as soon as they became vacant, indicating a robust market. However, this trend may skew overall market data. The reported negative absorption of 12,014 square feet does not truly represent the leasing activity due to limited vacancies. In Q4 2023, there were 36 leases and renewals, amounting to 197,028 square feet. The Greenville suburban submarket reported 114,656 square feet of leasing activity because this submarket had the most space available.
The Greenville-Spartanburg office market is experiencing a shortage of Class A sub-10K sq. ft. vacancies, leading to many spaces being leased before they could be recorded as absorbed. The overall direct market vacancy rate during the fourth quarter of 2023 was 10.6%. Despite 36 leases and renewals, totaling 197,028 square feet, this quarter still reported negative absorption due to six new large vacancies. The ongoing leasing activity is making the market tight for spaces under 20,000 square feet; most quarter-over-quarter vacancies lying in offices over 20,000 square feet, which take longer to lease. Even with significant leasing and renewal activity, new vacancies can still result in an overall negative absorption for the quarter, as witnessed in Q4.
The Greenville-Spartanburg market saw three office sales worth $7 million in Q4, despite the economic stress induced by high interest rates and constrained lending. However, this trend of slower sales is expected to improve in the second half of 2024 as the constraints loosen, offering more investment opportunities and enabling portfolio restructuring. The Greenville office market continues to remain appealing to buyers due to its low-risk profile, popularity, and affordability as a secondary market. It largely remains unaffected by the problems faced by larger metros.
The market rental rates remained relatively stable from the third to fourth quarter, with an average rate of $23.04 per square foot. The central business district rental rates averaged slightly higher at $25.33 per square foot, whereas suburban Greenville and Spartanburg maintained a rate of roughly $21.50 per square foot. The demand for quality office space is high, indicating a potential for continued rental growth next year, although at a slower pace.
Economic Trends & Outlook
The economy and interest rates remained stable in Q4, with positive expectations for three rate cuts in H2 2024. The banking industry is predicted to adjust well to these changes, which could create opportunities in the real estate sector. Lower asset pricing may encourage sales of less desirable properties, and the Federal Reserve's expected end to its tightening cycle could increase real estate loans and transactions. There is a growing demand for public services such as municipal, education and healthcare due to disproportionate population growth. Major U.S. companies such as: Amazon, Apple, Chipotle, Citigroup, Disney, Goldman Sachs, Google, IBM, JP Morgan, Salesforce, Starbucks, Tesla and Uber are expecting employees to return to the office, which will likely be mirrored by tertiary market office users. The combination of a daily influx of 55 people in the region and a return-to-office push is likely to increase demand for existing space.