In a competitive office space market, tenants are looking for something to set properties apart.
That was the message to members of the Charlotte chapter of Commercial Real Estate Women at its October meeting Tuesday at the Charlotte Country Club.
A panel of industry insiders discussed the recovery in the Queen City real estate market. The panel included Chris Daly of Childress Klein, Brendan Pierce of Keith Corp., and Kristy Venning of Beacon Partners.
Asked how their customer base and tastes had changed in the recovery, each panelist talked about how much they had to rework their properties to get attention in a tightening marketplace and discussed some of the differences in the recovery between North and South Carolina.
“The creative demand has really exploded for office space as the demographics of our employee base has changed to millennials, as we keep hearing about,” said Venning. “All tenants want an environment that their employees want. Speaking as an older millennial, people want to feel connected to their community and the space there needs to reinforce that connection.”
Venning highlighted Beacon Partners’ project, 1616 Center, at Camden Road and Kingston Avenue in South End as an example of the kind of office space that is getting noticed and leased.
“We had a 76,000-square-foot building in 1616 Center that included retail space, a fitness center and many amenities,” she said. “You didn’t used to hear a whole lot about South End years ago, but now with the brewery and light rail, that is where everyone wants to be. We worked with [architect] David Furman on this and he said he wanted to build ‘cool stuff,’ only he didn’t say ‘stuff’ – he used a different word – so that set the tone for the project and it is very different than what Beacon Partners usually does. The interiors for this office building are really unique and they blend with the exteriors as well.”
Venning said the company put in unique office options to draw the attention of the millennial crowd, including interior trends similar to exterior trends, in which the structure of the building is exposed and there is abundant natural light inside the building.
“We see tenants with kegerators and shuffle board layouts in their offices and nap rooms,” she said. “Tenants are taking a lesser amount of square footage and it is less dense per person. There is less ‘me’ space and more ‘we’ space for collaboration.”
Daly, who manages SouthPark areas and suburban office space for Childress Klein, said he had seen a big difference in desired amenities as well.
“Everyone wants amenities like nearby shopping and restaurants, and SouthPark certainly has those,” he said. “But the suburban offices have the option to have amenities to come to them with food trucks and things that didn’t exist 10 years ago.”
Another amenity on Daly’s mind was parking space.
“The rule of thumb on parking used to be four spaces per 1,000 square feet but now it is more like seven spaces per 1,000, which is more difficult to do without building a parking deck. And that increases the cost of the project.”
He also said the recovery had been better for his projects in South Carolina.
“We have seen more success in South Carolina because North Carolina just doesn’t have that land available for those parking decks,” Daly said. “When it comes to competition between South Carolina and North Carolina, not only has North Carolina lost out in an economic-incentive-driven marketplace, but North Carolina has just been embarrassed. Everyone from Gov. Nikki Haley on down knows what they’re doing in South Carolina. North Carolina needs to get with the program and put more attractive economic packages on the table.”
Pierce agreed that developing projects in South Carolina could be easier in some cases, but didn’t find that to be so in his role as an industrial developer.
“There’s nothing wrong with South Carolina, but the tax structure there is actually very high for industrial space,” he said. “People hear about better South Carolina taxes and that is true if you qualify for economic incentives. But in industrial projects, you may not.”
Pierce explained that the Palmetto State has what he called an “inverted” tax structure with residential tax rates being the lowest, commercial rates in the middle and industrial rates being the highest.
This isn’t a deal-breaker automatically, he said, but is something to think about when doing an industrial project.
“The problem for an industrial developer building on spec is that the tenant might qualify for incentives, but when the tenant leaves, the developer is left holding a building with a high tax liability,” he said.
Still, Pierce said there had been recovery in the industrial market as well.
“The changes we see in the industrial market aren’t readily apparent. But the way warehouses were 20 years ago is different than today,” he said. “Back then, a speculative building would have been 125,000 square feet. Now a spec building would be 300,000. Ceiling heights have increased and trucks are larger so you need more paved area around the building to maneuver and park those trucks. The number of turns – or times a box goes in and out of a building – has increased. It takes more and more land now because companies need a place to store empty trailers where they used to send trailers back any chance they could get. Now they keep the empty ones for longer periods of time.”