Report: Charlotte office market strengthened late last year

Updated at 4:49 p.m. Jan. 17, 2013

CHARLOTTE — Charlotte’s Class A and B office market had a strong finish last year, with net absorption of 403,624 square feet in the fourth quarter and the average asking rent rising to $20.78, according to a new report from Cassidy Turley.

As the office market strengthens, it’s becoming more favorable to landlords and less favorable to tenants, according to the commercial real estate leasing and management company.

“We’re certainly moving into a landlord’s market citywide,” David Dorsch, a Charlotte-based principal for Cassidy Turley, said this week.

Dorsch said that means incentives — free rent, moving allowances, landlords paying for upfits — are becoming harder to find, mainly in the Class A market.

The evaporation of incentives coincides with a rise in demand for Charlotte’s Class A space, he said, adding that, in large part, the demand has been driven by the expansion of large, local companies, expansions that could be found occurring in 2011 and 2012.

Charlotte’s Class A market has a vacancy rate of roughly 15 percent, or 4.5 million square feet, he said.

In the meantime, new Class A space isn’t being built in Charlotte because loans for construction are still hard to get, he said.

Cassidy Turley, therefore, is predicting that asking rents in the Class A market will rise above an average of $21 a square foot.

The report also points out that much of the space absorbed in the quarter was tied to deals that were signed in early to mid-2012 and insulated from the fourth quarter’s “depressed deal velocity.” Also, the report says, the overall office vacancy rate for Charlotte’s Class A and B office market remained unchanged, at 17.4 percent, from the third quarter, as two speculative, vacant buildings — the Gragg and Woodward towers — were added to Ballantyne.

Combined, those two buildings have 525,016 square feet.

The report examines only a slice of the Charlotte metro area and is based primarily on Mecklenburg County, although it includes a portion of York County. The report’s geographic focus is, roughly, from the northern part of Mecklenburg County to northern York County in the south and from east Charlotte to Charlotte Douglas International Airport to the west.

The report is also based on activity across 332 buildings in the “urban” and “suburban” markets. It also includes only buildings that are at least 30,000 square feet apiece and have competitive ownership, which means the building’s owner is not the sole occupier of the building. Class C space is not included in the report.

The net absorption of 403,624 square feet in the fourth quarter took place across urban and suburban markets, with the biggest share of square footage, 339,086, being absorbed in the urban market. In the fourth quarter, the urban and suburban submarkets had a combined vacancy of 7.7 million square feet.

Hailed as a “success story” in the report, uptown Charlotte saw its vacancy rate drop 3.5 percentage points in 2012, falling to 10.7 percent by the end of the year. Also, the report says, major banks seem to have staunched space contractions and are no longer dragging down net absorption.