Vibrant economic expansion, solid leasing dynamics and strong investment returns have made Charlotte one of the most sought after markets in the Southeast, according to a new report from CBRE. Fueling its growth is a combination of affordability, high quality of living and an educated workforce.
Consistent tenant demand has helped bring vacancy rates to pre-recession lows. The Charlotte office market is in expansion mode and experiencing declining vacancy rates and record high asking rates. In order to alleviate the space constraint, more speculative office construction will hit the market by the end of 2017.
Charlotte stands out nationally among the financial services and tech industries. Some of the factors drawing these industries, as well as other categories of tenants, to the market include a low cost of living, an educated workforce, a business-friendly environment and a hub airport. Charlotte’s strong market conditions have resulted in increased investment sales activity, particularly in SouthPark, the CBD and Midtown. Investors are keeping an eye on Charlotte’s suburban markets as well, as competition for assets in town intensifies, according to the report.
With approximately 50 percent of the U.S. population living within a one-day truck drive of Charlotte, industrial space in the market is desirable to large distributors. With its growing population of more than 2 million, the local consumer base has expanded and created a need for last-mile delivery. These two factors make the case for success among both large and small industrial assets in Charlotte.
Vacancy has reached a historic low, creating leverage for landlords to negotiate higher leasing rates, especially at Class A warehouses. However, the low vacancy creates demand for new build-to-suit and speculative development, with more than 2.5 million sq. ft. added to the market in 2016 and more on the way in 2017.
The industrial market is strong from an investment and leasing standpoint and is expected to hold this momentum for the next two years. Conditions should remain steady and keep investors’ interest high, the report said.
Economic expansion, population growth, solid retail leasing dynamics an strong investment returns have combined to make Charlotte one of the most sought after retail markets in the Southeast. A rapid absorption of retail space has exceeded the supply, allowing development of retail space in the urban and suburban markets.
Grocery users are driving much of the new, larger retail projects, with Publix and Whole Foods being the most active grocers in the metro. The top retail submarkets remain the CBD, Midtown, SouthPark and South Charlotte, where population growth supports retail growth. Other submarkets are expanding their retail footprint, as high-end multifamily allows for new retail options in transitioning Southend, Plaza Midwood and Noda.
The demand for hotel rooms is booming in Charlotte. Occupancy surpassed its peak mark of 65.3 percent in 2007, as hoteliers in the CBD benefited from the closing of budget hotels and subsequent removal of 250 rooms from the submarket.
New development will bring nearly 1,600 additional rooms to area, scattered in the Rock Hill/Monroe, Downtown and CBD/airport submarkets. Increase in developer interest can be attributed to the increase in overall activity in downtown Charlotte.
Multifamily remains the top-performing real estate sector in Charlotte. Charlotte has established itself as a growth market, making it desirable to multifamily developers and investors. As Charlotte follows the national trend of attracting millennials and Baby Boomers in a big way, local multifamily leasing fundamentals are strong.
Despite a high number of deliveries and construction, occupancy remains strong, consistently averaging around 95 percent from 2012 to present day, and is expected to maintain or surpass that figure over the next two years. Rent growth remains positive as well, yet Charlotte still provides a low cost of living compared to other markets nationally.