SOUTHPARK – With vacancy rates well below market norms and above-average rents, this office submarket in south Charlotte continues to be one of the strongest performers in the city.
Second-quarter numbers from Charlotte-based Karnes Co., an office-industry analytics firm, show that the SouthPark office market is healthier than it’s been since 2009.
So far this year the submarket also has seen two office sales, the first in a few years. And with a multitude of amenities within the market, SouthPark should continue to tighten and draw heavy interest from investors looking to join the market.
Rob Cochran, senior managing director of the Charlotte office of Cassidy Turley, who was on the sales team of the most recent office sale in the submarket, said SouthPark is strong and should only get stronger. (For more on that sale, see Commercial Confidential)
“People, investors are looking for properties in urbanized locations that have all the retail, residential, office, high-density type locations,” he said. “The investors know that’s what tenants want now, so that’s what they’re now looking for.
“And SouthPark is the epitome of that. More people are living there, people want to work there. They’ve created a real live-work-play type of environment.”
And the Karnes numbers support Cochran’s assertions.
In the second quarter, the overall vacancy rate in the submarket was 10.6 percent, down from 12.1 percent in 2012 and 13 percent in 2011. The average vacancy rate in Charlotte last quarter was 16.6 percent.
SouthPark has a total office inventory of 4.3 million square feet, of which 452,440 square feet are vacant.
The Class A vacancy rate in the second quarter was 8.6 percent, down from 9.8 percent in 2012 and 10.7 percent in 2011, the report shows. Class B vacancy was 20.6 percent, down from 23.6 percent in 2012 and 24.4 percent in 2011. The report shows SouthPark as having no Class C space.
Ross Howard, a research analyst in the Charlotte office of Jones Lang LaSalle, said part of the reason for the relatively low vacancy rate in South Park is a lack of large, available space. In the submarket only, five spaces bigger than 15,000 square feet are available and no spaces bigger than 20,000 square feet are open, Howard said.
“Absolutely the market is tightening there,” he said. “With the amenities that are in the general area, starting with the SouthPark Mall, and if you look at the wealth of the residential market, you’re always going to have a strong tenant base.”
And with that strong tenant base comes an uptick in rental rates, Howard said.
Average rents in the submarket in the second quarter were $23.74 per square foot, up 10 cents from average rents in 2012 and 23 cents from 2011 rents. Second-quarter rents were at their highest point since 2009, when they were $23.94 per square foot. The average rent in Charlotte in the second quarter was $22.46.
Class A rents weren’t up much from last year, to $24.55 from $24.54 per foot. But Class B rents were up 50 cents, to $20.23 from $19.73 per foot.
Howard said that he expects the SouthPark market to continue tightening through the end of the year and beyond, as the market moves from “tenant-friendly to landlord-friendly.”
Andrew Jenkins, president of Karnes, said last month that the improvement in the SouthPark market will appeal to investors. Jenkins, however, wasn’t immediately available for comment on this story.
“There’s money looking to come into markets in Charlotte and I think SouthPark is a market they’re looking at,” Jenkins said. “You would think it would be better to invest (in SouthPark) sooner rather than later.”
And Cochran agrees, saying owners are likely looking at now as a good time to sell in SouthPark.
“It’s going to be a function of their ownership position, but it’s safe to say that people would look at this as a submarket to sell,” he said. “If I have a need to sell, now is a time to do it.”