Charleston is a great place to live, but it’s also a great place to work. As a result, the commercial real estate market remains strong and in demand.
“Charleston’s commercial real estate market continues to benefit from the overall population growth and economic growth in the Charleston region,” said Chris Cunniffe, Managing Broker at ENGEL&VÖLKERS.
However, Cuniffe added that the current market is also characterized by a high degree of caution among investors and users of commercial space.
“The main drivers of caution are uncertainty over the U.S tariff policy, high interest rates and high construction costs,” he said. “Currently, the retail market is very favorable for landlords, the industrial market is very favorable for tenants, and the office market is a mixed bag, with a high degree of variation from one submarket to another.”
Ashley Jackrel, senior vice president of office and investment sales at Avison Young, said that Charleston remains a strong market despite financing and market headwinds.
“The local office market is remarkably tight, especially in top-tier products, as business owners’ eye highly well-located office space to entice workers to return to the office,” she said.
Looking back, Thomas M. Boulware, SIOR, CCIM, and Broker-in-Charge at NAI Charleston, described last year’s market as challenging.
“Election years often cause investors to pause or take a ‘wait and see’ approach on who will prevail as the next president,” he said. “After the election, the market saw a significant increase in demand, which has seemed to wane a bit over the past 30 to 45 days. I’m not sure if this is related to the budget bill currently being debated in Congress, but I suspect that it has had an impact.”
Additionally, Boulware stated that increased borrowing rates and higher development costs have slowed the development process across all asset classes.
“The ongoing discussion of tariffs has also contributed to the slowdown,” he said. “There’s simply too much uncertainty at the moment to make a bet on the future.”
However, he stated that each asset class in Charleston currently has its strengths and varying challenges.
Industrial
For example, Boulware explained that the industrial market has seen a significant slowdown in demand for ample distribution warehouse space.
“A substantial amount of space—approximately 7,000,000 square feet—has been delivered to the market over the last 18 months, with a slow absorption rate to follow,” he said. “The shallow bay market, which consists of 7,500 to 25,000 square feet spaces, continues to see steady demand. Smaller flex bay units, ranging from 1,000 to 5,000 square feet, have also maintained strong demand as well, catering to the service sector industry.”
In contrast, Cunniffe noted that uncertainty over the impact of tariff policy is causing many industrial tenants to hold off on signing new leases, leading to higher vacancy rates for industrial buildings.
“The Charleston industrial sector is also still recovering from an oversupply problem caused by the surge of new buildings that were planned and constructed prior to the 2023 interest rate spike,” he said.
Retail
Boulware said the retail sector has been robust and continues to see demand across all markets.
“The current vacancy rate is approximately 3% across the Charleston MSA,” he said. “Due to a lack of available space, landlords are pushing rental rates higher for prospective tenants. Financing newer products remains a challenge, which also contributes to increased rental rates.”
The good news is that Boulware said Charleston remains a top destination for investors, business owners and future residents worldwide.
“We continue to see strong demand from those looking to invest in the Chas market,” he said. “The investments currently being made by Boeing, Roper, Charleston Airport Expansion, Mercedes and the SCPA acquisition are a reflection of the market strength and the anticipated future growth of Charleston.
Boulware said the biggest challenge is the cost of capital and debt costs for acquisitions/ new developments. “Various segments of construction costs continue to rise, while some are falling,” he adds.
Office
Jackrel works primarily in the office sector and said she sees two trends emerging.
“The first being investors purchasing class B/C buildings with plans to upgrade the facilities to attract new, top-tier tenants,” she explained.
For example, Avison Young sold 200 Meeting Street, a four-story mixed-use property totaling 145,407 square feet in the heart of Charleston’s Historic District to an out-of-state investment firm.
“They plan to upgrade the property with top-tier amenities and workspace to attract new tenants amidst the continued ‘flight-to-quality’ trend,” said Jackrel. “This will help ease the tight vacancy of Trophy product in the market once the renovations are completed.”
Jackrel said the second trend is tenants purchasing their buildings to avoid a lengthy and expensive design and development process amidst today’s challenging financing and construction environment.
“An example of this is that Avison Young just sold a 30,000-square-foot Class A office building at 501 Wando Park Blvd in Mount Pleasant to longtime tenant SeamonWhiteside,” she said.
“The local engineering and design firm will continue to occupy nearly 20,000 sf of the building for the firm’s headquarters.”
Jackrel said the local Charleston market has navigated economic headwinds well in recent years.
“This is due in large part to South Carolina consistently ranking as one of the top states for migration, given the moderate climate and central location on the East Coast, which helps drive economic development,” she said.
Looking ahead, she said, “Recent economic policy has stoked the flames of uncertainty, and business leaders are less likely to make decisions in uncertain times. The recovery for CRE has been slower than most experts projected, but we see numerous positive signs in our local market that indicate strong performance in the months/years ahead.”
For example, she states that if interest rates are reduced, she anticipates seeing more transactions.
“There’s extensive capital that’s been sitting on the sidelines for the past few years, just waiting for the right moment to get back in,” she said. “If ongoing economic policy spurns a recession like some economists suggest, we anticipate we’ll see more listings coming to market but fewer closed deals.”