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Strong quarter for uptown office market

Future activity may depend on timing, placement of proposed construction

skyline_720.webRenewed activity has boosted the outlook for Charlotte’s uptown office market this year, a welcome change from the doldrums experienced in the fourth quarter of 2014.

Corporate demand for space has caused the vacancy rate to drop, new capacity is in the pipeline, and construction is underway on a 25-story office tower. Moreover, builders are vying for a city-owned parcel that sat vacant for years, and longtime developer Lincoln Harris has inked a contract for a 9.4-acre plot leading into the heart of the business district.

But even though the economy and job market have improved from the recession era, builders aren’t exactly plunging into new central business district development, says Andrew Jenkins, regional director of analytics for the Mid-Atlantic region at local analytics firm Karnes.

“It wasn’t a record quarter, but it was a strong quarter,” Jenkins said. “It’s the same problem. There’s not a lot of brand new space and people have to look elsewhere.”

Fear of failure is holding back new development, he says, citing rising construction costs and the large capital required for a successful venture.

Confidence in the market is of utmost importance, he said.

“You don’t want to sit on an asset you can’t leverage,” he said. “We need someone to come in and bet on the market.”

Skyline office space posted 86,000 square feet of positive net absorption in the latest quarter, according to Karnes–more than was recorded in each of the last two years. The fourth quarter of 2014 saw 41,100 square feet of negative net absorption, a figure largely attributed to an undisclosed tenant’s moving out of nearly 40,000 square feet at 400 S. Tryon.

Uptown’s vacancy rate, meanwhile, fell 0.5 percentage points to 10.7 percent in the first quarter, from 11.2 percent in the previous quarter. Rents averaged $27.83 per square foot, up from $27.46 at the end of last year.

Charlotte-based Bank of America once again accounted for the majority of leasing gains, expanding into 43,000 square feet on the ninth floor of the Transamerica Square Center at 401 N. Tryon St. The finance giant last completed a similar move in the third quarter of 2014, when it took 109,900 square feet of vacant inventory at the BofA Corporate Center, part of which was previously occupied by The Duke Endowment.

In other activity, CNL Commercial Real Estate Inc. leased more than 15,800 square feet of space in the 32-story Interstate Tower at Trade and Tryon, compensating for the building’s loss of 7,600 square feet stemming from Faison Enterprises’ downsizing there to 8,900 square feet. British corporate security company G4S signed on for 10,800 square feet at the 20-story Independence Center on North Tryon, while two law firms and a real estate company leased a total of 9,200 square feet in the 12-story Cameron Brown building across from Marshall Park. Meanwhile, global window and door manufacturer Jeld-Wen Inc., which moved its North American headquarters to South Church Street’s 15-story Ally Center from Oregon in 2013, is scheduled to expand by 14,500 square feet in the third quarter.

It appears that the race is on for new development, with some 1.9 million square feet proposed. That’s   below the 2.5 million square feet of proposed construction in the fourth quarter because Cornerstone Real Estate Advisors and Spectrum Properties launched construction this year on 300 South Tryon, a 25-story, 633,000-square-foot high-rise at Third and Tryon streets. It will be the first newly constructed uptown office tower since 2010.

Global investment manager Babson Capital Management will anchor the site, occupying 200,000 square feet. Babson already has 170 of its 1,000 employees in Charlotte, and 300 South Tryon will serve as its corporate headquarters. The building, slated for completion in 2017, will feature retail on the first two floors, as well as a restaurant, coffee shop and tavern.

Proposed office projects include Portman Holdings’ 19-story, 370,000-square-foot tower dubbed 615 South College. The company was slated to begin construction this month, but is still in the permitting process and is “several weeks away from breaking ground,” said Hunter Richardson, executive vice president for the company.

Crescent Communities also has plans for a 27-story, 715,000-square-foot office building at its hotel and office project, Tryon Place, at a site bordered by South Tryon, College and Stonewall streets. The company says it is finalizing building plans and expects to break ground this year.

And Ark Group hopes to start construction this summer on Uptown Village, a mixed-use project that will include an office building, apartments, hotel and retail space. AvidXchange Inc., a privately owned Charlotte-based software company that automates bill payments, will move into some 230,000 square feet of office space at the Hamilton Street site adjacent to the Music Factory. The project is scheduled for completion in late 2016.

Meanwhile, developers have finally taken interest in several uptown parcels created when construction work reconfigured sections of Interstate 277. The city has been trying to sell the land for several years to pay off $20 million it borrowed to finance construction on the NASCAR Hall of Fame.

A deal was worked out with the city in March for Crescent Communities to purchase the site extending from South Caldwell Street to the Westin Hotel along Stonewall Street for $10.3 million. Crescent plans a mixed-use development there.

Last month, the Charlotte City Council approved the $4.1 million sale of 2 acres at the corner of I-277 and Morehead Street to RED-Overlook, a multifamily partnership between locally based RED Development and a national real estate company.

The city also received two upset bids in May for a 3.8-acre tract south of Caldwell Street and across from the Hilton Garden Inn on Stonewall Street. Charlotte-based apartment development company Northwood Ravin has offered the highest bid, at $14.2 million for the property, with plans for 50,000 square feet of retail and office space, as well as residential units. The new upset-bid period for that property ends at 2 p.m. June 9.

One more piece of land remains for sale. The parcels are all zoned UMUD, an urban, mixed-use district that allows the tallest and densest development of the city’s zoning classifications.

How those sales will affect uptown’s office sector is anybody’s guess, said Jenkins.

“The infill will take time,” he said, adding that questions remain about “where businesses will go,” and which ward they will choose.

The largest uptown deal is reserved for Charlotte developer Lincoln Harris, which recently went under contract to buy the Charlotte Observer’s 9.4-acre site on the south side of uptown.

Lincoln Harris is in a 60-day due diligence period before the sale closes, according to an Associated Press story. The Observer, which is seeking more modern space, transferred its printing operations from the building last year.

As for the future of uptown’s office space, Jenkins sees more absorption of existing listings, as well as the usual ebb and flow of companies moving in and out.

Much depends, he says, on how Lincoln Harris’ large speculative SouthPark project, called Capitol Towers, fills up. It will feature two 10-story towers with nearly 500,000 square feet of commercial and retail space, as well as a six-level parking deck with 1,600 spaces. Phase one is slated for completion this summer.

In addition, uptown could be affected if Ballantyne commercial properties lease up, prompting new large-scale construction that lures prospective companies to south Charlotte.

 

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