Charlotte Office Market Shows Mixed Signals

The Charlotte, N.C., office market continued its slow evolution in the first seven months of the year, according to Yardi Research Data. However, some indicators showed signs of improvement.

The Queen City witnessed limited new construction activity as the sector still struggles with rising construction costs. Meanwhile, a high number of completions secured the metro the second spot among its peers in terms of deliveries. Still, its vacancy rate remained below the national value.

As for transactions, the metro still posted low sale prices and volume, despite recording notable year-over-year growth in investment.

Deliveries increase, pipeline still small

As of July, office deliveries in Charlotte included more than 1 million square feet across three projects, representing 1.2 percent of stock and marking a 177.7 percent year-over-year growth. The metro ranked second among its peers after San Diego (1.4 million square feet delivered). Nashville rounded out the top 3, with completions amounting to nearly 640,000 square feet.

One of the largest delivered projects was The Vanguard Group’s 700,000-square-foot building at 2405 Governor Hunt Road in Charlotte’s University City neighborhood, initially designed as Centene Corp.’s East Coast headquarters. Vanguard bought it last year for $117 million to use as its new regional office and completed it this June.

Meanwhile, developers broke ground on just two projects in Charlotte’s office market, totaling 156,124 square feet. The metro’s under-construction pipeline comprised 611,447 square feet of competitive office space across five projects, representing 0.7 percent of its existing stock—below the national average of 0.9 percent. The Queen City ranked sixth among peers, with Austin leading at 3.6 percent, followed by Nashville, Tenn. (1.8 percent) and San Diego (1.7 percent).

The under-development square footage placed Charlotte at the lower end of the peer market rankings. Denver and Orlando, Fla., had similarly sized pipelines, with 612,728 square feet and 630,884 square feet underway, respectively. Austin occupied the first position, with nearly 4 million square feet under construction.

One of the ongoing developments is Grubb Properties’ 120,000-square-foot project at 315 E. 36th St., which broke ground earlier this year. Rising on the former Herrin Ice site in Charlotte’s NoDa neighborhood, the project serves as the office component of a mixed-use campus that will eventually include more than 500 apartments across two residential buildings.

Charlotte’s vacancy rate stays below national value

The metro’s office vacancy rate remained below the national average of 19.4 percent in July. The index clocked in at 17.7 percent, marking a 370-basis-point increase over the past 12 months.

High vacancies continue to hit most key markets, with some of Charlotte’s peers registering notable spikes. Austin posted the highest rate at 27.2 percent, followed by Detroit (24.6 percent) and San Diego (23.2 percent).

A recent office lease in Charlotte involved a 58,600-square-foot space at 110 East, a 363,984-square-foot mid-rise owned by Shorenstein Properties and Stiles. Digital currency wallet and platform Coinbase committed to two floors at the property.

Charlotte’s listing rates stood at $35.67 per square foot, above the national average of $32.72 per square foot. Peer markets with more affordable rents included Nashville ($31.19 per square foot) and Phoenix ($29.53 per square foot), while more expensive rents were registered in Austin ($45.61 per square foot) and San Diego ($45.23 per square foot).

Sales volume up in Charlotte’s office market

Charlotte’s sales volume year-to-date as of July totaled $291 million, with 11 properties encompassing 2.1 million square feet changing hands. The figure marked a 47.6 percent year-over-year increase in transaction activity. Properties traded at an average of $144 per square foot—well below the national average of $182 per square foot.

Among peer markets, Charlotte’s sales volume outperformed Tampa’s ($261 million) and Nashville’s ($96 million) but fell short of most others. San Diego ranked first, with $844 million, followed by Denver ($555 million) and Phoenix ($487 million).

In one of the largest deals that closed in the metro since the start of the year, U.S. Realty Advisors paid $106.8 million for LPL Financial Holdings’ office campus in Fort Mill, S.C. Peakstone Realty Trust sold the two-building, 451,598-square-foot property in April.

Another notable transaction was the $71.5 million sale of Ballantyne Tower, a 264,080-square-foot property completed in 2011. Estein USA and Vanderbilt Office Properties purchased the fully occupied asset from SPX FLOW Inc. in July.

In terms of sale prices, Charlotte was one of the less expensive markets among peers, outperforming only Denver ($120 per square foot) while lagging San Diego ($344 per square foot), Austin ($223 per square foot) and Phoenix ($197 per square foot), to name a few. The Bay Area led the U.S. rankings with $377 per square foot.

Steady coworking sector

Charlotte’s coworking sector amounted to 1.5 million square feet across 99 locations as of July. The figure accounted for 1.8 percent of the total leasable office space inventory, slightly below the national average of 2 percent.

Among similar markets, Charlotte was on par with Austin and close to Orlando (1.9 percent) and Phoenix (2.0 percent); the metro that topped the chart was Nashville, with 3.3 percent. In terms of square footage, the Queen City occupied the second-to-last place, just ahead of Orlando, with 1.4 million square feet, while Denver topped the list with nearly 3.9 million square feet.

Regus was the flex office provider with the largest footprint in Charlotte, with 182,734 square feet across its locations. Companies that followed include Souder Properties (147,152 square feet), Hygge (100,000 square feet), WeWork (96,916 square feet) and Venture X (65,694 square feet).