CITY HIGHLIGHT, JUNE 2006
CHARLOTTE CITY HIGHLIGHTS
Lane Holbert, Engle Addington, C. Robert Percival, Andy Misiaveg
Charlotte Industrial Market
The Charlotte industrial market is changing from a tenant’s market to a landlord’s market. The first quarter of 2006 started on a positive note with 784,711 total square feet of positive absorption, comprising of 443,777 square feet of warehouse and 340,934 square feet of flex. Although vacancy rates ended the first quarter at 11.2 percent, up from 10.5 percent for year-end 2005, this is attributed mostly to Lauth Property Group delivering a 432,000-square-foot bulk, 32-foot clear cross-dock facility in Transpoint Business Park and the former 1 million-square-foot Winn-Dixie distribution center.
New warehouse construction is back in swing after a 5-year period of virtually no speculative development. Childress Klein Properties just started grading for a 260,000-square-foot rear load building in their Ridge Creek Business Park. They have leased 140,000 square feet of this building to a division of The Home Depot. Also, ProLogis just started construction on its second 260,350-square-foot cross-dock building in West Pointe Business Park. The company made the decision to start the second building after the U.S. Post Office committed to lease 173,000 square feet in the almost complete 260,350-square-foot building that was started last fall.
The former 1 million-square-foot Winn-Dixie distribution center, located in the Southwest submarket, is under contract to a value-add investor from Dallas, Texas. They have already leased more than 42 percent of the property to two tenants, including 251,000 square feet to West Logistics.
Current trends show that there is scarcity in large blocks of space, (more than 60,000 square feet) which fuels higher than expected lease rates. There is a marked demand for 30-foot (or greater) ceilings and truck court depth for trailer parking which is evidenced by both the demand for prime space and, in turn, the vacancy rate of 8 to 10 percent found in the older buildings.
The majority of new development is taking place in the areas with the most available land, namely the Southwest and Airport West (Interstates 85 and 485) submarkets. Key developers include Lauth, Childress Klein, American Asset Corporation and Crescent Resources. Additional development is taking place in outlying areas such as Gaston, Cleveland and Cabarrus counties and across the state line into York County, South Carolina.
— Lane Holbert, CCIM, CRCBR, NAR, is vice president at Colliers Pinkard in Charlotte, North Carolina.
Charlotte Multifamily Market
The past year has been good, if not great, for the apartment market in Charlotte. The local economy continues to improve with strong employment gains. Vacancies have improved, with the current rate at 8.8 percent compared to 10.7 percent 1 year ago. Same store rents have increased 3.5 percent during the last year, with the average rental rate at $673.
Development is gearing up again, with nearly 2,300 units currently under construction and another 6,500 proposed. Much of this activity is infill development occurring in and around Uptown, which is the central business district of the city. The submarket located just south of uptown Charlotte is popular due to its short commute to the CBD and its proximity to shopping and restaurants. The area is home to such sought after neighborhoods as SouthPark, SouthEnd and Dilworth, just to name a few. Two of the proposed development projects in this submarket are located along the new light-rail transit system. Virginia-based H.H. Hunt expects to begin construction at the end of the year on 290 units at Abberly Station. It is located near the site of New Bern Station, a planned stop on the southern leg of the proposed light-rail line connecting uptown and the southern loop of Interstate 485. Crescent Resources, the real estate division of Duke Energy, is planning to break ground at the end of the year on a mixed-use project at the SouthEnd district station called, simply, C. C will include 280 apartments and 140 condominiums surrounding a plaza of shops and restaurants.
Another popular development trend in the Charlotte area is adaptive reuse or the renovation of historic textile mills into residential units. In recent years many local textile and apparel manufacturers have been forced to close their doors, due to increased competition from overseas. Developers are converting these abandoned mills into distinctive spaces. The apartments often feature such aesthetics as exposed brick interiors, high ceilings with exposed beams, and oversize windows. Crosland’s Alpha Mill expects to deliver the first of 161 units this summer. Winter Properties is currently working on a second phase at Highland Mill, when complete it will include 159 loft-style apartments. In addition, the city of Rock Hill is in the process of selecting a master developer for the Rock Hill Cotton Factory, which is part of the greater Textile Corridor redevelopment project. Although this project is in the early planning stages, it demonstrates the increasing popularity of breathing new life into these old buildings.
Average rental rates range in Charlotte range from $592 for a one-bedroom unit to $839 for a three-bedroom unit with the total average being $673. Downtown is the most expensive with an overall average of $1,135 per month.
The average vacancy rate is 8.8 percent in Charlotte, with 7.9 percent for one-bedroom units, 9.2 percent for two-bedroom units and 10.2 percent for three-bedroom units. Downtown has the lowest vacancy rate at 3.5 percent.
The forecast for the next year is very good for the Charlotte apartment market. Vacancy rates should continue to improve to between 6 and 7 percent. Rental rates should continue to increase as the use of concessions decreases. Finally, owners can breathe a little easier as the market is experiencing the upswing they’ve been waiting for during the past few years.
— Engle Addington is a multifamily analyst with Charlotte-based Real Data.
Charlotte Office Market
The Charlotte office market continues to show signs that 2006 will be a very good year. The office market is strengthening and most market watchers are seeing strong leasing activity through the first quarter. Charlotte ended last year with an upbeat forecast for 2006. Several speculative buildings under construction have now been finished and are showing excellent leasing activity. Specifically, Piedmont Town Center I & II, in the SouthPark submarket, have signed leases totaling more than 75,000 square feet within the last 90 days. Other buildings within the SouthPark submarket, which is the second largest market in Charlotte, are also reporting excellent leasing activity and this trend is projected to continue for the foreseeable future.
Elsewhere in the market, the suburban locations of Ballentyne and the Interstate 77 southwest submarket are all seeing excellent activity. The Bissell Company’s two speculative 140,000-square-foot office buildings are seeing strong activity. Developer AAC has leases out for signature for more than 120,000 square feet on its new 200,000-square-foot speculative office building in the southwest submarket. Maersk has announced that it will purchase and renovate the 350,000-square-foot Royal and Sun Alliance Building and bring an additional 250 jobs to Charlotte.
Regarding the downtown office market, Charlotte is experiencing an exceptionally low vacancy rate of approximately 2 percent. Developer Childress Klein Properties has broken ground for a new 1 million-square-foot office tower to be named Four Wachovia Center. With the bank taking more than 800,000 square feet, this will bring a small addition to the Class A office market. However, it is speculated this space will be leased well before the building is delivered in 2009. Other announcements in downtown Charlotte include the construction of the Ritz Hotel and the announcement that NASCAR will build their Hall of Fame building within the next 2 years. Furthermore, there are discussions underway that a 300,000-square-foot office tower will be built in conjunction with the Hall of Fame, fueling speculation that NASCAR will be the anchor tenant for the project.
With an overall average vacancy rate of 15 percent, it’s easy to see why Charlotte continues to experience a strong growth trend in its office market. Companies are finding that the business climate, strong work force and overall livability factors are playing a major role in selecting Charlotte as their preferred place to expand their business. The majority of growth for Charlotte has been predominantly established from existing companies expanding and consolidating operations in this market. However, a number of companies are looking at the Charlotte region for corporate relocations, which is always a good indication of a city’s business climate. This year looks to be a good one for these corporate relocations and expansions.
Overall, Charlotte has been very fortunate to have experienced stable but strong absorption during the past 2 years. With all the fluctuations in the global economy, the city has been relatively insulated from those effects and will continue to be a leader in the office market for the Southeast.
— C. Robert Percival, SIOR, CPM, is president and chief executive officer of Charlotte, North Carolina-based Percival McGuire Commercial Real Estate/TCN Worldwide.
Charlotte Retail Market
The Charlotte Retail Market is heating up as summer approaches. The six-county MSA population is more than 1.6 million and is averaging more than 3 percent growth per year since the 2000 census. Developers and retailers are both taking advantage of the fertile economic conditions, as new shopping centers are popping up inside and outside of Mecklenburg County.
Long thought of as a mature trade area in Charlotte, the Southpark area has experienced an upsurge in development. Led by the expansion of Southpark Mall by the owners, Simon Property Group, the mall has multiple new retailers announcing their first stores in Charlotte to be opened in the next 12 months including Crate and Barrel, Neiman Marcus, Ralph Lauren, Hermes, and BCBG Max Azria. Piedmont Town Center, being developed by Lincoln Harris at the corner of Fairview Road and Assembly Drive, will showcase shops, restaurants, residential and offices in a two tower setting, and will be the home to Charlotte’s first Oceanaire Seafood, Del Frisco’s Steakhouse, and Brio Restaurants. Grubb Properties is opening Morrison Place this year, at the intersection of Sharon and Morrison. The site will contain 125,000 square feet of retail, anchored by Earthfare, and also condos and apartments.
The Charlotte suburbs are experiencing a tremendous retail boom also. Local Charlotte developer Childress Klein Properties has two massive undertakings in the works, opening this year. Rivergate Shopping Center, located at the intersection of Highway 160 and Highway 49 in southwest Charlotte, will house 600,000 square feet of retail anchored by Super Target, Home Depot, Best Buy, Marshalls, Office Max, Petsmart, Old Navy, and Books A Million. Afton Ridge is located in Kannapolis at Interstate 85 and Kannapolis Parkway, and anchors include SuperTarget, Marshalls, and Best Buy. Phase II will follow in 2007, and feature multiple junior anchors and shops. Crosland is set to open Blakeney this year at the intersection of Rea and Ardrey Kell roads. This 490,000-square-foot center is anchored by Target and Harris Teeter, and will feature other junior anchors, shops, and restaurants in an upscale village setting. Carolina Place Mall in Pineville, owned by General Growth Properties, is scheduled to open a new expansion area this fall that will be anchored by Barnes & Noble, Linens n’ Things as well as the region’s first REI.
Wal-Mart has taken advantage of Charlotte’s growth also. They have opened a new store in West Charlotte at the intersection of Wilkinson Boulevard and Ashley Drive, and they have supercenters scheduled to open later this year in Belmont and Indian Trail.
In the neighborhood retail segment, Food Lion has converted five of their retail stores in the Charlotte metro area into their higher end concept, Bloom. The stores feature wider aisles in a more customer friendly layout. Also, Harris Teeter and Lowes Foods both continue to open new stores and compete with each other for the best grocery locations, as do CVS and Walgreen’s in the drugstore category.
— Andy Misiaveg is a partner with The Shopping Center Group in Charlotte, North Carolina.
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