Charlotte Office Market Slow, Steady

Stiles and Shorenstein Properties topped out 110 East in Charlotte, N.C., this August. Image courtesy of Stiles

The Charlotte, N.C., office market is experiencing economic headwinds that have already made their impact on the national market, data from CommercialEdge shows. Leasing activity remained the healthiest among its peer markets, while the number of transactions and deliveries, as well as the average prices, dropped significantly when compared to the same period of last year.

Year-to-date through September, the Charlotte metro had more than 2.9 million square feet of office space under construction, representing 3.8 percent of total stock. The rate stayed the same since March and remained more than double the national figure of 1.6 percent.

Some 902,445 square feet, or 1.0 percent of the total stock, were added to the market’s pipeline in the first nine months of the year. The figure was lower than the square footage recorded during the same interval in 2022, when more than 1.3 million square feet broke ground.

One of the metro’s office developments got closer to completion in August. Stiles and Shorenstein Properties LLC have topped out their 370,000-square-foot Class A office building in the South End of Charlotte. The 23-story 110 East, currently the only Class A office building sited on a light rail platform, is expected to be complete by March 2024.

Another one of Charlotte’s more significant developments, the 625,665-square-foot Queens Bridge Collective developed by Riverside Investment & Development in Midtown – South End broke ground in May 2023 and is expected to be complete by July 2025. The 42-story property will also feature retail and dining options.

Both prices and sales volume decrease

Roughly 1.2 million square feet of office space traded in Charlotte year-to-date through September, for a combined $172 million. A total of 11 sales out of 17 closed during the second quarter of 2023, when some 970,000 square feet traded for a combined $130 million. The amount of traded square footage by the end of the third quarter was significantly higher last year, when 4.5 million square feet changed hands for roughly $1.1 billion.

In September, the median sale price per square foot in Charlotte was $161, significantly below the national average of $193. When compared to similar secondary markets, Charlotte lagged Austin ($379 per square foot), Dallas-Fort Worth ($209 per square foot), Phoenix ($227 per square foot) and Atlanta ($163 per square foot).

Esplanade at Southpark. Image courtesy of Yardi Matrix

The metro’s largest sale in terms of price year-to-date involved Esplanade at Southpark. Highbrook sold the 220,408-square-foot office building to Childress Klein for $31 million in June.

Office leasing decreases in Charlotte

After seeing continued improvement over the first quarter of the year, clocking in at 11.4 percent at the end of March, Charlotte’s vacancy rate started to grow in the following months, reaching 15.5 percent in August and 16.2 percent in September. However, this increasing rate was still the smallest among similar secondary markets, with Atlanta clocking in at 18.7 percent, Phoenix at 18.8 percent, Dallas at 19.0 percent and Austin at 21.2 percent in September. It was also significantly below the national average of 17.8 percent.

Vantage South End. Image courtesy of Mohr Partners

In one of the market’s more significant deals, Tyron Investors secured a new tenant at its 286,235-square-foot Vantage South End East Tower in Midtown – South End Charlotte. The office space will serve as DP World’s new North American base of operations. The United Arab Emirates-based tenant deals with cargo logistics, port terminal operations, as well as maritime services and free trade zones.

Coworking lags peer markets

As of September, Charlotte had some 507,576 square feet of shared office, representing 1.3 percent of its total rentable office space. The metro’s coworking inventory lagged all its peer markets, with Atlanta leading the fold (2.0 percent of rentable office space), followed by Austin (1.7 percent), Phoenix and Dallas-Fort Worth (both 1.6 percent).

Charlotte’s largest coworking firm as of September was Regus, with an inventory of more than 156,800 square feet. Other flex office providers with substantial inventories in the metro included Hygge (92,837 square feet) and Spaces (67,141 square feet).