Charleston’s commercial property market appears to have bottomed out following last year’s departure of several oil and gas firms, according to the latest property survey by commercial broker Howard Swint.
The city’s five “Class A” office buildings — Chase Tower, BB&T Square, Huntington Square, Laidley Tower and the United Center — saw their overall vacancy rate inch up to 10 percent in April, only slightly higher than the 9.8 percent rate from Swint’s last survey, conducted Nov. 1.
Swint has conducted the survey at least once a year for the last 10 years. The data is based on current property listings for each of the buildings.
The current 10 percent rate is significantly higher than last April, when the properties were at what Swint called “effective full occupancy.” The 3.4 percent vacancy rate they logged at the time was the lowest rate since before the Great Recession began in late 2008.
However, vacancies spiked in the second half of last year as several oil and gas firms — such as Chesapeake Energy, Cabot Oil and Gas, Halliburton and Autobahn Engineering — began to realign operations and shift corporate offices elsewhere. Many of the jobs and offices shifted to energy market hubs like Canonsburg, Pa.
Swint said it appears like the local commercial market has bottomed out following that mass outflow.
“My sense is that we’ve pretty much realized most of the brunt of the loss of natural gas jobs,” he said. “It’s stabilized.”
The city’s five Class A buildings have a total of 959,452 of lease-able square feet. Of that, 95,914 square feet is currently vacant and open for new tenants.
Class A buildings are typically more modern, with on-site parking and security and located in the heart of a city’s business district. Another class, Class B, consists of properties in smaller, older buildings, similar to those along Capitol, Quarrier and Virginia streets, that may not have on-site parking or other amenities.
Vacancy rates vary widely from building to building.
Chase Tower, which has 227,695 total square feet, is the most full with a 3.3 percent vacancy rate — down from the 5.4 percent rate Swint observed on Nov. 1.
Huntington Square, with 116,000 available square feet, had the highest vacancy rate at 18.6 percent, in-line with the November survey.
BB&T Square, with 250,429 square feet, had a 5.5 percent vacancy rate, also in-line with the November survey. The United Center, at 151,012 square feet, saw its vacancy rate go up from 11.2 percent in November to a current rate of 14.3 percent, while Laidley Tower, with 214,326 square feet, also saw its vacancy rate go up from 13.6 percent to 14.5 percent over the same time frame.
While a 90 percent occupancy rate is less than last year, Swint pointed out it still remains better than many other metropolitan areas.
Baltimore had an 87 percent occupancy rate and St. Louis had an 87.3 percent rate, according to first-quarter reports from commercial real estate firm Colliers International.
“Charleston has a very strong class A market, even at 90 percent occupancy,” Swint said. “We’re the envy of a good many cities, really.”
Swint said many other cities overbuilt commercial properties during the housing and property boom of the last decade. Once the market went bust, those cities ended up with a glut of available space.
While oil and gas companies caused the 2013 market shifts, Swint said the coal industry could determine the future.
“The health of the coal industry could be the most important market force to watch as not only do the firms themselves provide a significant level of demand but also a good many of their suppliers,” Swint said. “Charleston is home to a good number of accounting and law firms that rely heavily on the industry for their business.”
He said CONSOL Energy’s recent decision to sell five of its West Virginia mines, as well as the planned closure of several coal-fired power plants in the future, do not bode well companies tied to the production of coal for power generation.
Metallurgical coal, used in steel making, could buoy the market, but there has been soft demand and oversupply in world markets, which could continue to pressure local coal operations.
“How does that all relate to the Charleston office market? That’s to be determined,” Swint said.
The survey also found pricing in some office spaces has come down in the last few months.
The advertised lease rate for space in the United Center dropped from $23 per square foot in November to $21.50 today. Chase Tower’s advertised pricing fell from $22 to $20 a square foot, and pricing dipped from $19 to $18.50 a square foot at Huntington Square.
Swint said the decrease in Class A rates could put pressure on rates in Class B buildings downtown in the coming months. However, he did note an emerging trend of converting some of that Class B space to residential space could help that market.
The West Virginia Housing Development Fund building along Virginia Street was recently sold to a developer that plans to convert it to house condominiums. Renovation work is also underway at the Kyle Furniture warehouse along Smith Street, which will house 15 condominiums once complete.
Swint said this repositioning of office space to residential use could be a positive influence for Charleston’s downtown property market.
Contact writer Jared Hunt at firstname.lastname@example.org or 304-348-4836.