Office Space For Rent Charlotte NC

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Office Space For Sale Charlotte NC

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Office Space Charlotte NC

Market Summary

Charlotte has made great strides in diversifying its economy, and the office space market in Charlotte NC continues to gain momentum, although demand growth fell behind supply additions over the past four quarters ending in 18Q1. Charlotte is one of the fastest-growing office space markets in the nation in terms of jobs and population. Even with the fallout of HB2, low costs of business and living in addition to the business-friendly government have kept office space demand steady throughout this cycle. Construction has picked up in response, and vacancies have begun to rise from cyclical lows. This year is poised to represent a slowdown from peak supply additions in 2017, with the construction pipeline consisting of projects predominately in the Uptown Submarket. Tight vacancies have benefited Charlotte office space rent growth, and as 18Q2 commenced average rents were almost $5/SF above the metro’s pre-recession peak.

Office Space Charlotte NC

Leasing Summary

After a few years of moderate office space supply additions, 2018 is poised to be another significant year for office space construction in Charlotte, and the metro’s availability rate suggests vacancies could trend upwards slightly in the near term. Fundamentals have been solid through this cycle, with vacancies compressing each of the last five years. This year will likely see the end of that trend as more than one million SF is expected to be added during the calendar year. As 18Q2 commenced, vacancy remained below the historical average at around 8.7%, and a total of 3.3 million SF was under construction.

The Charlotte NC metro has enjoyed relatively low vacancy rates this cycle, and rent growth, while slowed from 2015 highs, remains well above historical benchmarks. Absorption has been strong, but demand continues to be limited to specific Charlotte office space submarkets. The CBD, Airport, and Highway 51 (Ballantyne) submarkets have accounted for the lion’s share of absorption in the market. Tenants have been flocking to these for a variety of reasons. Those seeking more open space and executive housing prefer the premier suburban office area in Ballantyne. MetLife chose over 400,000 SF in the Ballantyne Corporate Park for its new corporate location. Other firms, including Selective Insurance Company of America, SPX, and Carolinas Healthcare, have also moved to this area in recent years. Logistics firms and other tenants seeking proximity to Charlotte Douglas International Airport are boosting absorption in the Airport Submarket. For example, Alro Steel, Sealed Air Corporation, Odyssey Logistics, and PMAB all moved to locations in this Charlotte office submarket.

Tenants seeking visibility and cachet have favored the CBD. Bank of America and Wells Fargo each have namesake buildings larger than a million SF in the CBD. Regions Bank and WeWork took 64,000 SF and 52,000 SF, respectively at the recently delivered 615 S. College St. Formerly based in Hartford, global asset management company Barings chose the Charlotte CBD as a new headquarters location. The company is the owner and anchor tenant, occupying the top nine floors of the new 25-story 5 Star 300 South Tryon, which completed in 17Q3.

Charlotte NC Office Space Rent

Average office space rents in Charlotte are approaching $25/SF and have grown each quarter for more than three years straight. Year-over-year growth reached a cycle high of over 8% in 15Q3, and it has remained above 6% since then. In fact, since the beginning of 2015, annual Charlotte NC office rent growth has averaged 6.5%. The story isn’t the same across all Star ratings though. As of April, overall rents are more than 20% above their prerecession peak, having recovered back in 2014. Rents in 1 & 2 Star assets didn’t recover until 15Q4 and are now still less than 10% higher than their prerecession highs, however. Rents in 4 & 5 Star buildings fell by only 8% during the recession and recovered to their peak in 14Q3. Now, at over $31/SF, 4 & 5 Star rents are 20% above their pre-recession high.

Charlotte NC Office Space Construction

Charlotte office space construction has resumed, and 2017 was a cyclical high for supply in the metro with nearly 2.5 million SF delivering. Two large properties have opened in the Charlotte NC CBD over the four quarters ending in 18Q1. First, the 375,000 SF 4 Star 615 S. College opened next to the Westin Hotel. The property includes features such as an elevated green plaza, two-story corner balconies, floor-to-ceiling windows, and a fitness center. The tower was built on top of an existing underground parking deck, which allowed for a timely completion. In 17Q3, the 638,000 SF 300 S. Tryon office completed, and as of January there was a little more than 280,000 SF listed for lease.

Charlotte NC Office Space Sales

Capital is migrating to this secondary market as pricing in the primary office markets continues to escalate. Indeed, investment-grade sales have skyrocketed over the last few years in Charlotte. Sales volume in 2017 topped $2 billion and the median price reached an all-time high in the market, approaching $200/SF for the first time. March 2017 saw Bissell Cos. unload the Ballantyne Corporate Park, which caused a spike in both sales volume and median pricing in the metro. New York-based Northwood investors purchased the 48-property portfolio for more than $1.2 billion, an allocated price between $100/SF and $375/SF across the 39 Charlotte NC office buildings included. As of April 2018 more than $180 million in office assets has changed hands, representing less than 2% of the Charlotte NC metro’s inventory.

Charlotte NC Office Space Economy

This isn’t to say the Charlotte NC office market is completely without risk. Chiquita Brands International closed the company’s headquarters in the NASCAR Plaza tower in Charlotte in 2015, after relocating its headquarters to the area from Cincinnati in 2012. More than 300 jobs in Charlotte were eliminated, and it’s unclear exactly when and how Chiquita will pay back the millions of dollars in local and state incentives that will have to be repaid through clawback provisions. Chiquita relocated its headquarters to South Florida without public incentives because of the area’s accessibility to Port Everglades, which is near Chiquita’s shipping and research facility. To add insult to injury, Lash Group and LPL Financial are moving a combined 2,000-plus jobs out of North Carolina, vacating smaller office spaces in favor of building regional headquarters in the cheaper and incentivized South Carolina market. South Carolina scored yet another victory when Volvo Cars reported plans to open its first U.S. plant near Charleston. As South Carolina continues to grow its economy via incentives, lower business costs, and wide open spaces, investors in Charlotte need to monitor midsized/non-centralized companies to make sure this does not become a growing trend. Thanks and credit to my researcher Max Peker, CoStar Analyist II for this awesome report!