Charlotte’s office vacancy rate levels off, 
but some still wait for recovery

For Charlotte’s office market, there’s relatively good news in the fourth-quarter lease report from Karnes Research Co.

According to the report, released last month, the vacancy rate in the Charlotte area is about the same as it was the same quarter last year.

For an office market that’s seen vacancies rise since the Great Recession began, that’s a good thing. But industry officials say that does not necessarily mean Charlotte’s office market has turned a corner.

“We’ve been doing some more office leases, but it isn’t what I would call a full-blown recovery,” said Bob Pinto, broker at Charlotte Commercial Properties. “We’ve kind of leveled off.”

Karnes’ report says there’s about 49 million square feet of office space in Charlotte. The report tracks all office buildings that are larger than 15,000 square feet.

Vacant office space in the Charlotte area totaled about 9 million square feet in the fourth quarter, for a vacancy rate of 18.4 percent. That’s nearly flat compared with the 18 percent vacancy rate in the third quarter of last year and 18.3 percent in the fourth quarter of 2010.

According to a report released last week by Chicago-based real estate firm Jones Lang LaSalle, the national vacancy rate for office space is 17.6 percent. The “North America Skyline Review” is a quarterly report that examines top office buildings in 26 major market – including Charlotte, Atlanta and Washington, D.C. – and compares the vacancy rates in each market with the national average.

From 1996 to today, the average vacancy rate for Charlotte’s office market is 12.8 percent. Charlotte’s office vacancy rate in 2007, just as the Great Recession began, was 11.2 percent.

Mike Kemmet, a broker at the Charlotte office of Missouri-based Cassidy Turley, said the leveling off is far from a recovery.

“I would say this is more like treading water for the market,” he said. “We have had some good leases so far this month (February).”

Last month, Kemmet handled commercial leases at Midtown Centre and Toringdon Office Park.

At Midtown Centre, 1300 Baxter Street, Kemmet represented landlord Goode Properties in a lease to Legacy Talent and Entertainment for 1,900 square feet at the office tower for four years. In Toringdon Office Park, 3436 Toringdon Way, Kemmet renewed a lease for 18,000 square feet of office space for payroll processor ADP for five years.

Pinto represented Maryland landlord Robert Epstein in a deal last month at Calcutta Office Park, 3719 LaTrobe Drive in Charlotte. Pinto declined to name the tenant – Matt Shait of The Nichols Co. represented the tenant – but said they will lease 1,300 square feet of office space for $10 a square foot a year for two years.

“We are staying busy,” Pinto said.

Karnes’ report separates Charlotte’s commercial property market into 11 submarkets: Cotswold, CrownPoint/Matthews, Downtown, East, Interstate 77/Southwest, Midtown, North Carolina Highway 51/Southeast, North, Northeast, Park Road and SouthPark.

According to Karnes, there is “negative” demand for office space in Charlotte, to the tune of 150,126 square feet. In other words, that much square footage is available but not being used.

Most of the negative demand in the fourth quarter came from the downtown submarket, where there was a surplus of 105,998 square feet. The biggest losses in downtown stemmed from the Cedar Hill building, a 7,000-square-foot complex at 800 W. Hill St. in Uptown, when architecture and design firm Odell consolidated its 30,000-square-foot office into a 15,000-square-foot office; from the Carillon building, where about 65,000 square feet was vacated, including 40,000 square feet from Crosland Construction’s relocation and downsizing to Charlotte Plaza; and from Hearst Tower, where undisclosed tenants moved out of 38,720 square feet.

But the downtown office market is also seeing some gains, with Towers & Watson relocating into 13,275 square feet of the 1 Bank of America Center. Towers & Watson had occupied 8,504 square feet at Bank of America Corporate Center, under a lease that is set to expire in the first quarter of this year.

By the second quarter, Scor Global Life America is expected to move from 175,791 square feet of Transamerica Square to 140,000 square feet in the Bank of America Plaza.

Also this year, Chiquita is expected to absorb 150,000 square feet of space in the NASCAR Plaza when it relocates its headquarters from Cincinnati.

Rates for Charlotte office space have remained about the same since before the recession. The average rate in 2007 was $21.18 per square foot. Last year, it was $21.75.

Some office construction has added space since 2007.

In 2007, there were 509 buildings in Charlotte’s office market. In 2011, that number had increased to 549.

Charlotte’s office market is poised for growth, with slightly more than 1 million square feet under construction and another 4.8 million square feet proposed.

According to Karnes, no office construction was completed during the fourth quarter of last year.

Demolition of office space accounted for some of the decrease in the fourth-quarter vacancy rate. About 100,000 square feet of space was removed from Karnes’ inventory with three buildings in Independence Office Park demolished to make way for the Independence Boulevard widening project.

BAUGHMAN can be reached at [email protected]