CHARLOTTE – Proposed office buildings in Uptown and in SouthPark are expected to seek rents several dollars higher per square foot than any rents being paid currently.
Last month, plans were revealed for an Uptown office tower to be developed by local company Spectrum Properties. The Spectrum tower is the third plan revealed for Uptown, after plans by Portman Holdings and Crescent Communities were revealed previously.
A few miles down the road in SouthPark, another local developer, Lincoln Harris, has received a rezoning that will allow it to build two sister office buildings.
The Charlotte real estate industry is abuzz with the new office activity; it’s been two years since any office space was completed in the city.
But real estate sources say that the Spectrum project and the Lincoln Harris project are looking to take advantage of that lack of new space and will ask tenants to pay somewhere in the mid-$30s per square foot in rent, which would be the highest office rents in the city.
Those rents could potentially drive office users elsewhere.
Andrew Jenkins, managing partner of Charlotte-based Karnes Co., an office-market analytics firm, said previous new buildings in the city had tried asking for rents above the $30 threshold, but couldn’t keep them up.
“When NASCAR (Plaza) came online, they were asking between $31 and $33 (per square foot),” Jenkins said of the Uptown office building that was finished in 2009. “But they’ve come down to the high-$20s since then.”
Around the same time NASCAR Plaza was finished, the Ally Center and the Duke Energy Center were also finished. Jenkins said rents at Duke are between $28 and $32 per square foot and are $26 per foot at the Ally Center.
Not only are the rents for the Spectrum project and the Lincoln Harris project reputed to be higher than those buildings, sources say they’ll be much higher than average rents in either the SouthPark or Uptown office markets.
Sources say the Spectrum tower will be somewhere around 600,000 square feet and is planned to go up at 300 S. Tryon St. The Lincoln Harris project, which is called Capitol Towers, will be two buildings totaling 475,000 square feet, according to the company.
The sources quoting the Spectrum rents wished to remain unnamed, but Taylor Allison, an office analyst at Jones Lang LaSalle, said he’s heard Lincoln Harris is quoting around $35 per foot for Capitol Towers.
Jenkins said the highest rents in Uptown, beside the Duke Energy Center, are at the Bank of America Corporate Center and One Wells Fargo, which he said both charge $32 per square foot.
The highest office rent in SouthPark is $30 per square foot at Piedmont Town Center, Jenkins said.
Average office rent in all of the Charlotte office market is $22.76 per square foot, according to Karnes data. In the respective submarkets, the average rent in Uptown is $28.48 and the average rent in SouthPark is $25.12.
So will tenants pay $35 per square foot in those markets?
John Ball, a senior leasing agent with Trinity Partners, said it likely will be a challenge for Spectrum to get $35 and up for rent in Uptown.
“If they’re planning on charging mid-$30s per foot, that would be above high end. It would be more expensive than what we could do on our site,” Ball said, referring to the project Trinity is planning with Portman Holdings in Uptown, one of the three planned office buildings.
“They would be banking on the flight to quality. Banking on the scarcity of big blocks of space. It will be a test.”
Jenkins said when tenants start seeing $35-per-foot rents in Uptown and SouthPark, they may choose to eschew that space and find something of similar quality in another submarket, or another market altogether.
“That’s going to be an interesting dilemma,” Jenkins said. “Do they want to be in urban space or do they want to be in suburban space?”
Jenkins said Bissell, the company that developed the Ballantyne Corporate Center, “might say, ‘Hey, if you want tower space, we can build tower space.’ It might not be 60 stories, but they can build a tower (in Ballantyne) that would be cheaper.”
In the end, it’s going to come down to supply and demand. Large blocks of contiguous office space aren’t available in SouthPark and Uptown, two of Charlotte’s most desirable markets. So developers are betting that tenants want to be in those markets badly enough that they’ll fork over more money than anyone else in the city is paying.
“We haven’t had much new property come online since 2009,” Jenkins said. “You can kind of look at that as five years of pent-up rent escalation. You don’t have very much availability in those markets.”
Allison conceded: “It is higher, but it’s expected with new development. Duke Energy and some of the other trophy buildings are asking in the low $30s and if they had significant high-quality vacancies they could potentially push into the mid-$30s. I am not sure what (Spectrum and Lincoln Harris) will actually get in terms of rents, but it is definitely expected to ask in the mid-$30s.”
Charlotte’s most expensive office rents per square foot
1. Spectrum Properties – mid-$30s
2. Capitol Towers – mid-$30s
3. One Wells Fargo – $32
4. Bank of America Corporate Center – $32
5. Duke Energy Center – $28-$32
6. Hearst Tower – $31
7. 5/3 Center – $29.50
*Data from Karnes Co.