Charlotte remains strong and comparatively resilient to the forces of economic slowdown. During the last 5 years, the Charlotte MSA has created new jobs at an annual growth rate of over 3 percent, and by March of 2001, the area employed 864,400 people, representing a significant increase from one year ago. However, the region has experienced some layoffs, including 2,300 workers from truck manufacturer Freightliner and 2,000 jobs from Wachovia and First Union. While layoffs may have attributed to slower overall job growth figures, Charlotte's unemployment rate remains incredibly low. At the end of March, the unemployment rate in the MSA was 3.7 percent and in Mecklenburg County, home to Charlotte's central business district, the unemployment rate was 2.7 percent, holding steady when compared to the same period one year earlier.

Recent optimism about the area's economy was fueled by First Union's announcement in April that it would acquire long-time rival Wachovia Corporation of Winston-Salem, North Carolina. The combined entity would create the fourth largest bank in the nation. As part of the announcement, First Union confirmed the merged bank's headquarters would be in Charlotte. Prior to the announcement, First Union was projecting no additional space requirements for the near term. Now, officials say the merged bank to be named Wachovia could need "significantly more space in Charlotte." The two big banks headquartered in downtown Charlotte, Bank of America and First Union, account for over one-third of the city's CBD employment.

Office

The Charlotte office market slowed somewhat in the first quarter with deliveries of new product outpacing absorption. Net absorption totaled only 295,000 square feet, and over 425,000 square feet of new space was delivered to the market. As a result, the overall office market vacancy rate was pushed above 10 for the first time in over five years. Total inventory increased to 35.1 million and another 2.7 million square feet are currently under construction. However, over half of the space under construction in the CBD is already over 95 percent pre-leased. Although several companies in the Charlotte region have put expansion decisions on hold for the near-term, office demand is expected to re-ignite in the third and fourth quarters.

Peter Conway, principal and director of leasing with Trinity Partners LLC in Charlotte, agrees. "The Charlotte office market continues to experience softening, both in the downtown and suburban submarkets. In downtown Charlotte, Bank of America and First Union have been gradually consolidating their downtown operations into a few key office towers, resulting in some relatively large blocks of excess space -- particularly in the Class B sector," he says. Trinity Partners is a full service commercial real estate services firm specializing in office and industrial real estate in the Carolinas. The company's office portfolio consists of over 3.5 million square feet including such major office projects as Bank of America Plaza, First Citizens Bank Plaza, Wachovia Center, and the Carillon.

"The top of the downtown Class A market, however, still remains relatively firm," Conway continues. "In suburban Charlotte, speculative office construction is being completed in an environment that is significantly weaker than when those projects were started 10 to 12 months ago. As a result, lease-up has been slower in these projects and much of this new space remains vacant."

Batson-Cook Construction is underway with the third phase of The Green, a major redevelopment project in downtown Charlotte. This phase includes a 10-story structure, which incorporates an historic building - the Ratcliffe florist shop. The first two floors of the building will contain approximately 48,000 square feet of office space, and 57 luxury condominiums will be featured on the top eight floors and will be called The Ratcliffe. The project also includes construction of a free-standing, three-story, 36,000-square-foot office building. Batson-Cook is also the general contractor for the previous phases of the complex, a partnership of First Union Corporation and Childress Klein Properties. They include the 32-story, 900,000-square-foot Three First Union Center, an eight-story parking deck and a park.

The north side of town is currently experiencing the strongest demand and the most aggressive pace of construction. Beacon Partners is adding a second building at its Harris Corners Corporate Park, Lichtin Corporation is constructing 125,000 square feet in its third building at Prosperity Place, High Associates is constructing its first building at Mallard Pionte totaling 100,000 square feet and Trammell Crow Company has broken ground on the first of three buildings at Floyd Smith Business Park near Lowes Motor Speedway.

Industrial

Charlotte's industrial market posted nearly 900,000 square feet of net absorption during the first quarter but delivered no new product. As a result, vacancy rates dipped to 9.5 percent. The first quarter's strong absorption was nearly equivalent to 50 percent of the prior year's total absorption. In response to heated demand and lack of product, 797,000 square feet of new space was under construction at the end of the quarter. However, given the pace of current demand, as well as the lack of large contiguous blocks of space, 2001 could prove to be a record setting year. At this point, any economic slowdown has yet to be felt in the industrial sectors.

Several large transactions helped prop up the first quarter's strong numbers: Home Depot leased 206,800 square feet, Eckerd leased 200,000 square feet and DMSI expanded into 246,000 square feet. In addition, two notable build-to-suits are under construction: 460,000 square feet for Wilton Connor Packaging at West Lake and 300,000 square feet for United Stationers in Withers Cove. Other construction activity includes two buildings for Crescent Resources totaling 198,000 square feet in The Crossings at Nations Ford, and a second building in Ridge Creek for Childress Klein containing 288,000 square feet. Trammell Crow Company also announced a fourth building in Crossroads sized at 152,000 square feet.

Retail

With net absorption nearly matching construction deliveries, the Charlotte retail market performed near equilibrium during the second half of 2000. In Mecklenburg County, 319,000 square feet of retail space was absorbed while 380,000 square feet of new product was delivered. In addition, 208,000 square feet of space was demolished, resulting in a vacancy rate decrease to 10.2 percent - down from 10.9 percent during the prior period. Rental rates remained virtually unchanged during the year with no pressure in either direction. With 1 million square feet under construction, the market should remain close to equilibrium throughout 2001.

The strongest demand for new retail product is in the University and Concord Mills submarkets; however, retail activity is being observed throughout the region. Recent significant completions include a 150,000-square-foot Lowes Home Improvement Center at Providence Commons and The Ghazi Company's 120,000-square-foot Grand Promenade. Concord Mills Mall remains the focus of retail activity; it was named the Number 2 attraction for visitors in the state of North Carolina during 2000. Recently, the MarketPlace at Concord Mills has attracted BJ's Wholesale and Chuck E. Cheese as anchors.

Forecast

Despite the national economic slowdown, Charlotte's underlying real estate fundamentals remain sound. High occupancy levels, rising rents and constrained development will prevent a downward cycle similar to what was experienced by many cities in the 1980s. Though results for the first half of 2001 will likely be subdued when compared to the same period one year earlier, the second half of 2001 is expected to rebound as the market works through pent-up demand.

Steve Gassaway is area director, global services business in the Carolinas for Trammell Crow Company.


©2001 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.