DI’s Post-Pandemic Commercial Real Estate Outlook Remains Cautiously Optimistic

BY: MARIE ROCHA-TYGH,
Featured in THE DANIEL ISLAND NEWS • JULY 5, 2023

Blackbaud promotes in-building enhancements to attract new renters.

COVID lockdowns caused a rise in remote work and many experts anticipate that a significant number of employees may never return to the office full-time. This, along with the prospect of a possible financial slowdown, is creating some uncertainty about the future of office buildings.  

Madeline White of Charleston Industrial said this environment can create challenges especially when it comes to bigger properties. “Leasing activity in spaces larger than 6,000 square feet has dramatically been reduced across Daniel Island,” she said. “Prospect showings have slowed down due to the one-two punch on economic activity from both inflation and rising interest rates.”

Even though many workers across the country prefer to work from their living rooms, Mike White of Charleston Industrial remains bullish on the Charleston commercial market partly because of the influx of roughly 35 new people a day moving into the area. He also credits his optimistic outlook with larger Daniel Island companies finding creative ways to use their post pandemic space.

“Buildings that were previously occupied by software-driven firms like Blackbaud and Benefitfocus have high vacancies and their large floor plate offices are now available for subleasing,” he said. “Blackbaud owns their HQ building and is converting much of their second and third floors for multi-tenant use. Benefitfocus was recently purchased by Voya Financial, and their workforce remains in remote status. Voya continues to pay rent and has long-term lease obligations. These buildings are available for sublease.”

Charleston Industrial is marketing more of the employee amenities available in their listings. The company even shares positive testimonials from employees that have returned to the office.

“Blackbaud’s management has been very smart in providing their multiple collaboration spaces to new tenants who have populated their HQ building. Post-pandemic tenants are expecting a variety of building amenities to enhance their daily in-office experience. These in-building enhancements include unique offerings of food, entertainment, wellness and collaboration areas,” Madeline White said.

Both Mike and Madeline White are upbeat about property prospects. “Daniel Island’s commercial office future remains quite bright! We benefit by attracting entrepreneurs and successful businesspeople who prefer the work-life balance that our unique island town offers. Our buildings that offer walking distance to town center restaurants remain at full capacity,” Mike White said.

Benefitfocus workforce remains in remote status so much of their space is available to lease.

Pete Harper of Lee & Associates is also positive about the area’s outlook. “Given the lack of new credit available to developers, I believe there will be very little new construction of office and medical space in the next few years,” he said. “Small office demand in Charleston will continue and with no new supply the existing inventory should continue to be absorbed.”

Harper said there aren’t a lot of retail spaces available on the island and it’s tough to find small office and medical space at or below 2,500 square feet. “Very few commercial spaces come up for sale on Daniel Island. When they do, if they are vacant and ready for a business to occupy, they usually sell quickly at the asking amount,” Harper said, adding, “However, for office spaces, there is approximately 25% of the total office inventory available currently on Daniel Island, focused primarily in larger buildings with 10,000+ square feet available.

Much of the space is for sublease through Blackbaud or Benefitfocus.”  

According to Harper, vacancy rates in Charleston are close to 10% for office space while overall vacancies in other larger metro areas is around 20%. But, he said, all areas need to find ways to adapt to the current commercial climate. 

“Large companies are downsizing the amount of office space they need based on the work from home approach,” Harper explained. “The larger problem now is the credit freeze/crunch commercial real estate owners are feeling. Even if an office building is 95% leased and is having no problems with cash flowing, lenders are reluctant to offer an extension at current loan rates. Owners are now needing to bring new equity to the capital stack or pledge more collateral for properties that are basically in great financial condition,” he said.

Harper added that larger office spaces are often harder to rent or sell. “Daniel Island does have problems with large footprint spaces but not in the small office space category from 500 to 2,500 square feet. So many decision makers have moved to Daniel Island, and they want to work close to their home... Many of the businesses on DI have multiple employees who live in one of the nearby neighborhoods.”

The continued demand for housing in the area is a great asset for commercial property throughout the Daniel Island and Clements Ferry area. 

“The commercial real estate market on Daniel Island will be fine long term. It was designed and created to work well with amenities and the housing base. Also, it is well located in the MSA [metropolitan statistical area] and will remain desirable to the demographic base that supports quality retail and office demand,” Harper said.