It’s tough finding big spaces in South End

By: Tara Ramsey, staff writer//May 27, 2011//

It’s tough finding big spaces in South End

By: Tara Ramsey, staff writer//May 27, 2011//

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Balfour Beatty Construction last year moved its division headquarters to South End, setting up shop in the Design Center of the Carolinas, shown here May 24, 2011. South End has become a popular place, particularly for creative-type businesses, but large blocks of office space are few and far between. Photo by Noelle Edwards

Charlotte’s South End has an artsy — some might even say funky — vibe, with its easy access to light rail and historic buildings.

The businesses the area is known for are, generally speaking, small outfits that feel at home in the older buildings that feature lofty ceilings and hardwood floors.

Now, large businesses are paying more attention to the area, hoping to cash in on its growing popularity. But they are finding that the bigger their business, the harder it is to find available space large enough to accommodate them.

Although there is no shortage of vacant office space in South End — there is roughly 690,000 square feet available out of approximately 3 million square feet — businesses looking for at least 8,000 square feet will find it a tough task.

“The South End as an office market has evolved,” said Tracy Dodson, director of economic development for Charlotte Center City Partners, a group aimed at promoting economic development in uptown. “It’s always been strong, and that’s still very much the case, but now there are bigger businesses coming in.”

One of those bigger businesses is Balfour Beatty Construction, which last year moved its division headquarters to The Design Center of the Carolinas on Camden Road.

For Balfour, finding a location in the South End was the company’s goal, but because they realized options might be limited, they considered other Charlotte submarkets, such as Ballantyne.

The company looked at two office locations in South End, but The Design Center, with its 30,000 square feet of available space, across-the-street proximity to light rail and prominent street exposure sold the company, despite the slim pickings.

“The Design Center kind of worked perfectly,” said Joe Piacentino, Balfour’s vice president of finance. “It was all we needed.”

Not known for big biz

Dodson said the district has been attractive to businesses, especially those concerned about the environment, for various reasons: proximity to Uptown, access to transit and interstates and pedestrian-friendly layout.

While Center City and uptown to the north had 3 million square feet of office space constructed over a two-year period at the height of the construction boom, large office projects were never found in the South End, she said.

South End can only boast the construction of one large office building in the past three or so years, she said.

1927 South Tryon, which has 75,000 square feet, was completed in 2008. Other office construction in the district have been smaller, built-to-suit projects.

Dodson said there is plenty of smaller, older warehouse space in the district, but the same can’t be said for large spaces with bigger floor plans.

“It used to be businesses came to the South End because they wanted a funky, industrial, kind of cool old space,” she said. “Now, it’s, ‘I want to come into the district because I want to be in that district.'”

Popular place

Experts say South End is becoming a major contender in the local office market.

Even while the economy struggles to free itself from the grip of the downturn, interest in the district has been booming.

“We’ve been extremely busy lately,” Meredith Dickerson, brokerage associate with Charlotte-based Coldwell Banker Commercial Meca, said about South End.

Dickerson markets The Design Center of the Carolinas to potential tenants. She has done three new leases and a tenant expansion in the past few weeks.

“We’ve had a lot of good activity in this market,” she said.

Dickerson, whose business is focused on Midtown and South End, said she hasn’t seen a similar level of activity in the other areas she represents.

John Stipp, president of Charlotte-based Office Properties, a commercial real estate firm, said recent activity in the South End has been reminiscent of the “old days” before the economy tumbled in 2006.

“The market is still weak but potentially improving,” Stipp said. “There’s been a huge amount of activity over the last three to four weeks. People are executing leases.”

Dodson agrees.

“I have a lot of office projects in the South End right now and it’s really exciting,” she said. “It’s always going to be attractive to the creative industries, but now it’s popular with different types of companies.”

Up is the only option

Along the city’s light-rail system in South End, condominium and apartment developers have consumed most of the land. So, developers interested in building new projects must go vertical, a more expensive option, said Andrew Jenkins, managing partner at Karnes Research Co., a Charlotte-based real estate research and consulting company.

Even if they wanted to go vertical, Dodson said price-per-square-foot construction costs have not dropped enough to entice developers to build office projects.

“I think the South End has somewhat held their land values in terms of the downturn,” she said. “The price of construction has come down but not enough to make a $10 change in the price per square foot.”

Jenkins said South End has a 23 percent vacancy rate.

But there are not many buildings that have large floor plans, he said. Most of the office developments have office spaces with 10,000 square feet or less. Raw land for construction is hard to find in South End, he said.

“It’s easy to have a high vacancy rate when you have a bunch of 15,000-square-foot buildings,” he said. “And it’s hard to say you’re going to build an office park in that area because there is no real land available for that.”

The available space in South End could easily be used by retail businesses, which could result in even less space for potential office tenants, he said.

Office space is renting for $19 to $26 a square foot in South End, he said. That rate is “full-service rent,” meaning it covers insurance, common area maintenance and utility costs.

Rates prior to the economic downturn were approximately $30 a square foot in South End, Dodson said.

Creative types dig it

Experts say South End has typically lured businesses with a creative flair, those that are into older buildings with exposed heating and air conditioning units and brick.

“It’s not really a great setting for the more traditional office users, who like things like drop ceilings,” Dickerson said.

That’s why getting a large corporate tenant like Balfour Beatty was a coup for the district, she said.

Piacentino said the building the company moved into, with its exposed ceilings and wood decking, spoke to the company’s mission to be sustainable.

“One of things about the South End, this was not a generic vanilla office building,” he said.

Before moving to South End, Balfour had been at the intersection of Tyvola Road and Billy Graham Parkway in south Charlotte. The other areas the company considered for its new home included uptown and the Gateway Village area.

“One of the biggest drivers was that the area we were in, there were no amenities close by for our employees,” Piacentino said. “Now there are restaurants within easy walking distance. And there is a gym close by.

“Those amenities made the South End stick out.”

Lower rents were also a factor in the move, he said.

“The rent rates in general in Charlotte have come down,” he said. “We were able to get a better deal than we would have few years ago.”

Putting the aura at risk

Jenkins said the creative character of South End is part of what makes it unique.

“It’s a not-so-corporate environment, where you feel like you can wear jeans to work,” he said. “If you were in an office condo downtown, you would have to dress up everyday.”

Adding 200,000-square-foot office buildings, like those common in uptown, would help the area attract other large businesses like Balfour Beatty, he said.

“But it would also take away the aura of the area. It’d be like going to NoDa and throwing in some Dilworth and Myers Park houses.”

Tara Ramsey can be reached at [email protected].

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