Published Jan. 10, 2013
Colliers International offered an upbeat outlook for the Columbia office market in 2013, noting that available space in the Central Business District is shrinking and rental rates are bound to increase.
“Leasing activity is projected to decline in the CBD as vacancy rates and Class ‘A’ space remains limited,” the commercial real estate firm said in its fourth quarter report released today. “Additionally, limited new construction and repurposing projects may commence selectively in the CBD market.”
The total market vacancy rate for the quarter dropped to 20.23%, down from 23.33% in the third quarter in 2012 and 24.09% at the end of 2011. The vacancy rate for the downtown Central Business District fell in the fourth quarter to 14.21% from 22.61% recorded in the third quarter.
The vacancy rate for Class “A” space, which includes 11 buildings in the downtown area, fell to 10.13% for the quarter compared with 13.59% recorded for the third quarter.
A year ago, the vacancy rate for the Central Business District was 22.27% at the end of the fourth quarter and 14.09% for Class “A” space.
One plus for downtown has been the recent sale of Class “A” office buildings, Colliers said.
Cited among the top deals was AgFirst Farm Credit’s purchase of the Bank of America Place at 1901 Main St. for $26 million. AgFirst plans to move into 100,000 square feet of the building, bringing it to full occupancy.
Another bright spot in the downtown market was the purchase of the 17-story Meridian building by Massachusetts-based Commonwealth REIT from Holder Properties for $60 million.
As available space shrank in the Central Business District, the average rental rate climbed 3.9% to $19.94 per square foot in the fourth quarter and is expected to go higher in 2013, Colliers said.
Plans to redevelop the Palmetto Center and turn it into a student dormitory will take 450,000 square feet of Class “C” office space from the downtown inventory, Colliers said.
The Class “C” vacancy rate for the downtown area dropped to 28.07% in the fourth quarter, a hefty drop from the third quarter’s average of 48.47%, Colliers added.
“Even at a 28.07% vacancy, there are a number of Class ‘C’ buildings included which are functionally obsolete,” the firm said.
Colliers also expects activity to increase in the suburban submarkets where the vacancy rate at the end of the fourth quarter averaged 25.61%.
Rental rates for suburban markets, though, are expected to remain low through 2013 as landlords compete for tenants.
The vacancy rate for Class “A” space in the suburban markets was 14.93%, up from 13.77% registered at the end of the third quarter.