How Union Pier could lure potential commercial investors to Charleston

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While the Charleston market has bucked a trend in commercial real estate office space — actually showing a decrease in vacancies this quarter compared to the end of 2023 — high interest rates and uncertain forecasting has continued to make it a challenge to find buyers for office buildings.

It’s inspired one Charleston commercial real estate firm to be nimble and use creative marketing to find ways for traditional office buildings to be more attractive for lender backing.

Lee & Associates, a commercial real estate leasing, sales and management firm, has leaned into Union Pier, a proposed mega-development along the Charleston peninsula’s waterfront, to market an office building for sale at 525 E. Bay St., a half mile away from the proposed development site.

It was announced in March that the Union Pier, a massive 70-acre waterfront stretch currently owned by the South Carolina Ports, would be bought and developed by Charleston billionaire Ben Navarro, who owns development firm Beemok Hospitality and has developed high-end properties including the Credit One Stadium and Charleston Place Hotel. The Union Pier is expected to be built out over the next 25 years.

Lee & Associates is marketing the prime corner lot at 525 E. Bay as perfectly poised to serve contractors, builders and other partners for the Union Pier development. The listing is described on a blog post on the firm’s site as “Office Space With a View of the Future.”

“Any kind of consultant for Union Pier (would be an ideal tenant) — traffic engineers, anyone involved in the soft costs or the hard costs,” said Bob Nuttall, managing principal of Lee & Associates. “I could see architects, engineers, developers, environmental companies — really anybody who’s going to be doing work on Union Pier that would want to be close to it. It’s a very good investment opportunity for somebody who wants to be right where the action’s going to be for the next 25 years.”

While 525 East Bay is currently 100 percent occupied with commercial office leases through the end of next year, Nuttall notes that the high interest rate environment still makes it challenging to find buyers. The hope is that large mega-developments like Union Pier will bring more demand for ancillary Class A office space nearby.

New uses for traditional office space

In addition to leaning on the Union Pier development to attract buyers, Lee & Associates has extensively researched ways to add new uses to 525 E. Bay St. traditional Class A office building to be more attractive for lenders.

Nuttall said the firm worked with LS3P, a Charleston-based multi-disciplinary firm to do studies on zoning and uses to find the highest and best use for the site that would add value to the commercial office space. This includes the feasibility of adding dorm-style apartments to an existing parking area.

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“This way, somebody can build 18 apartments and rent them and turn that into an income stream,” Nuttall said.

Lee & Associates has also gotten feasibility plans to add a drive-through on the first floor for a bank.

“I think it’s a great opportunity for a bank site,” Nuttall. “We’ve talked to a couple of banks and we can take a couple of the parking spots and have a drive through underneath the building.”

New office space construction on hold

According to commercial research from Colliers International, new construction on office space has paused nationwide, “as developers take a wait-and-see approach to any increase in activity while construction and financing costs remain high.”

The U.S. office vacancy rate rose to 17.5% at the end of the first quarter of 2024, a post-COVID high. According to the research, Charleston’s vacancy is lower, at 16.3%, according to Colliers.

Nuttall said in Charleston, if a new office building gets approved to be built, it’s about three years minimum until it’s ready to be occupied and lenders are wary of the future of office space.

“There’s nothing in the pipeline, because banks don’t want to talk,” he said. “There’s a lot of ‘shadow vacancy,’ meaning a building has a lease on it, but nobody’s occupying it. (For example) several companies signed 10-year leases on buildings, and then sold the buildings to investors and they’re paying rent, but not occupying the offices.”

Nuttall said navigating this new environment of commercial office space, his firm has leaned into telling the story of Charleston, the charm of the smaller-story office buildings and how the building fits into the fabric of the area.

Potential buyers of 525 East Bay aren’t just being sold a Class A office building, they’re owning a piece of Charleston history, Nuttall said.

“When I send out the listing, I add, ‘Let me tell you the story of Charleston,’” Nuttall said. “Let me tell you the story of the Peninsula. Let me tell you the story of Union Pier and how this building fits right in.”