CHARLOTTE – With the purchase of the Southborough building on South Boulevard, Charlotte-based Beacon Partners, a commercial real estate firm, has increased its presence in the Midtown office submarket to more than 200,000 square feet.
The 27,135-square-foot Southborough building may be a drop in the Beacon bucket of Midtown office space, but the company has made it clear that it’s looking to add to its portfolio in that submarket.
Beacon may be on to something, as Midtown continues to be one of the strongest-performing office submarkets in the city, and with heavy residential growth and an array of amenities, it appears primed to continue that growth.
Ross Howard, an office research analyst in the Charlotte office of Jones Lang LaSalle, said he thinks Midtown’s location will make it difficult for the submarket to sputter.
“Midtown is a natural extension of the Central Business District and having access to the largest office area in the Carolinas is a huge attraction,” he said. “There are several corridors in the Midtown submarket, but in South End the light rail has really brought life back to the office market.
“You’re seeing a lot of multifamily (development) popping up and that’s just going to make the market stronger.”
South End has been ground zero for Charlotte’s recent apartment boom, with what seems like a hulking new complex on every block in that neighborhood. Thousands of units are currently under construction in South End and are set to open within the next couple of years. On the other side of the Midtown submarket, at the intersection of Morehead Street and Kenilworth Avenue, two apartment projects have been announced, though neither has broken ground.
The apartment development bodes well for the future of the submarket, but Midtown appears to be hanging in there just fine at present.
Of the 11 office submarkets in the Charlotte area, only the Cotswold submarket has a lower vacancy rate than Midtown, according to the second-quarter office report from Charlotte-based Karnes Co. Office space in Cotswold is 6.3 percent vacant and Midtown is 9.2 percent vacant, even though Midtown has more than 2 million square feet more space, the report shows.
Midtown also boasts the fourth-highest average asking rent in the city with rents at $22.47 per square foot, trailing only the Downtown, SouthPark and N.C. 51/Southeast submarkets, the Karnes reports says.
Howard said that despite Midtown consistently being one of the healthier office submarkets in the city, it appears to be tightening. The Karnes numbers support that claim.
The 9.2 percent vacancy rate is the second quarter is down 1.5 percentage points from 10.7 percent vacant in 2012 and down from a recent high of 13.2 percent vacant in 2011. The last time Midtown’s vacancy rate was below the current level was in 2009, when the submarket had an 8.1 percent vacancy rate.
As vacancies are falling, rents are rising in Midtown. The second-quarter average rent of $22.47 per square foot is up from rents of $22.24 in 2012, $21.74 in 2011, $21.57 in 2010 and $21.67 in 2009.
Howard said the low vacancy coupled with rising rents, in addition to the residential rooftops coming to the submarket, could be the proper environment for additional office development. He’s just not sure when that could happen.
“There are a couple of parcels in the Midtown submarket that are viable” for new office development, he said.
“But there are two sides of the story. Looking at it from a supply-and-demand perspective, it seems like it would be viable. But I’m not sure if rents are yet to the point that it would make sense.”
New development on the horizon or not, Beacon has been playing to ensure it gets a piece of the Midtown spoils. The Southborough purchase is just the most recent move.
Beacon has four other Midtown buildings in its portfolio, totaling 185,728 square feet, according to the company website. The largest of those four is the 107,824-square-foot Morehead Place, at 521 E. Morehead St.
Don’t be surprised if that portfolio grows in the future. Robin Bookmiller, Beacon’s marketing director, said the company is eyeing other Midtown properties.