SOUTHEAST SNAPSHOT, MARCH 2008

Charlotte Office Market

These are heady times for the participants in and observers of Charlotte, North Carolina’s office market. A historically unprecedented low-single digit vacancy rate in the CBD is having a profound impact throughout the region both in the near term and long term. The vitality and buoyancy of this market is punctuated by strong deal velocity, impressive rent growth, and high tenant demand on several fronts. This in turn is contributing to a disciplined but active cycle of new development and value-add renovation in downtown and throughout the region.

If it has been ten years between visits for a business traveler, Charlotte’s downtown may almost appear unrecognizable. In that time period, beautiful office buildings, high-rise residential towers, a shiny new light rail system and a downtown NBA arena have been recent contributions to one of the prettiest skylines in the New South. As more residents are drawn to the city’s center, followed by desirable retail and service amenities, the effort to build and maintain a vital urban core is clearly evident. Faced with high market demand, Class A office rents have risen into the mid-$30’s, new territory for tenants and landlords alike

Tightness in the CBD has not only triggered new development “inside the (I-277) Loop,” but is having a ripple effect throughout the region. While 2.7 million square feet is under construction downtown, including the 400,000-square-foot NASCAR Plaza being developed by Lauth Property Group and Wachovia’s 1.5-million-square foot complex at the corner of 1st & Tryon, most of the space is already spoken for. In addition to Charlotte’s notable banks, major downtown tenants include Duke Energy and Shaw Industries. Downtown’s strength is pushing office tenants into traditionally suburban markets, generally in a southerly direction.

The submarkets starting from the CBD, and extending southward to the South Carolina state line, can best be described as a “string of pearls,” featuring attractive demographics, beautiful neighborhoods, the city’s finest schools and destination retail. The heavy allocation of business owners, corporate decision makers, and other professionals, has always made these markets fundamentally very attractive. Today, with traffic patterns changing, and in the face of seemingly endless growth, this corridor has increased in popularity

In the Midtown market all eyes are cast upon Colonial Properties Trust’s 150,000-square-foot Metropolitan. This 10-story, Class A building is quoting a full service rental rate of $28.50 - $30.00 per square foot, in line with nearby CBD rents, but with the advantage of free structured parking. Leasing at the Metropolitan has been brisk and market sources are claiming that as much as 90 percent of the building is or will be spoken for when it is delivered in the first quarter of 2008.

SouthPark has always been a desirable location. With the recently repositioned SouthPark Mall serving as its epicenter, available development sites are scarce. Strong overall leasing activity has given the Keith Corporation the impetus to launch The Pinnacle, a six-story, 123,000-square-foot Class A office condominium. Keith Corp is offering warm shell space for $285 per square foot. With building purchase opportunities virtually non-existent in SouthPark, Keith Corp offers a unique option and expectations for the Pinnacle are very high. Meanwhile, redevelopment and leasing activity on SouthPark’s flanks in the smaller submarkets of Park Road and Cotswold, are very strong.

Further south, the developers of Toringdon and Ballantyne have seemingly never experienced anything but good times. While Lichtin’s 50,000-square-foot, Toringdon IV is nearing completion, The Bissel Company is in the process of developing Ballantyne Corporate Center’s first 10-story, 250,000-square-foot building, with structured parking, along with two six-story, 150,000-square-foot buildings alongside the 12th hole at Ballantyne Resort Golf Course.

While this strong activity has been taking place, some of the most encouraging news for the Charlotte Office Market is associated with the strong activity of late in the Southwest submarket. Persistently soft since 2001, Charlotte’s largest suburban office submarket is showing promising signs of life. While AAC and New Forum are leading the charge with new development at Whitehall and Ayrsley, respectively, Orlando-based Eola Capital is has been very successful in backfilling Parkway Plaza. Highlighting Eola’s efforts is the recent lease of the 87,000-square-foot Parkway Plaza Two to Linsco/Private Ledger Corp.

With Charlotte and the immediate surrounding submarkets in strong shape heading into 2008, the region as a whole is flexing its muscle as a corporate destination. From Rock Hill, South Carolina, in the south, to Mooresville, North Carolina, on Lake Norman, and over to Castle & Cooke’s impressive North Carolina Research Campus in Kannapolis, Charlotte has evolved from its strong reputation as a major financial center and is well on its way to becoming a world class city.

— Tim Bahr is a commercial real estate broker with NAI Southern Real Estate in Charlotte, North Carolina.

©2008 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.