Yahoo Finance Office vacancies remain a concern around Charlotte. But there’s a silver lining
Office vacancy rates have hit another high in the city of Charlotte but as new construction slows and more people return to the office, rates may stabilize.
Office vacancies stood at around 24.7% at the end of June, according to recent reports from commercial real estate firms JLL and Cushman & Wakefield. This brings the overall year-to-year office vacancy rate to just about 22%, which is just about where the rates sat last year.
While the numbers may seem high, JLL’s senior research analyst Brittney Love said there’s several factors to consider. Mainly, that the new builds are “floating” or increasing the vacancy rate.
“As you’re adding more product to the market, you’re going to see the vacancy peak,” Love said. “Then as construction slows down, you’re going to see stabilization.”
Part of the vacancy peak involves the completion of 110 East, a 24-story tower in South End that brought with it 370,000 square feet of office, retail and restaurant space, Bryan White, JLL’s executive director of leasing said. With the tower coming online in April, its vacant space contributed to the 13 million square feet of office vacancies in the city.
The tower opened without pre-leased tenants, according to the Charlotte Business Journal.
Cause for concern
While the number is high, White said it isn’t an indication that the market is stagnant.
About 10 million square feet of that vacant space is “good product,” White said, meaning they are new buildings with features that are meant to draw in tenants and ultimately employees. For example, 110 East was recently voted “most intelligent office building” by RealComm, a real-estate tech company, CBJ reported.
“It’s really almost a hospitality focus,” White said. “There has been a big focus from the corporate standpoint of are they providing a work environment that is commute worthy? Are you creating an environment that is a catalyst to make employees want to come back to the office?”
Adding amenities such as coffee shops, restaurants or gyms are increasing the appeal of returning to work. And they seem to be working.
According to the JLL report, about 78% of the pre-pandemic workforce has returned to the office in uptown, South End and sections of the University area. JLL added that Charlotte has surpassed the national average of about 50%.
“This ongoing trend highlights the market’s appeal, attracting new tenants looking to establish their presence in Charlotte,” the report read.
Charlotte construction is slowing
Another factor to consider is that office space construction is slowing down.
Love said there’s about 645,000 square feet of office space set to be built by the end of the year. There’s the Legacy Union project with about 415,000 square feet and the Commonwealth project with around 150,000 square feet.
White said that with less construction, demand will increase and the vacancies may be filled. There’s also the potential trend of repurposing older office buildings into housing or “leisure-oriented spaces.”
Love said JLL tracks about 558 buildings in the city. Within those, there’s about 13 million square feet of vacancies. About 62% of that space is concentrated in only 10% of the buildings.
“Which is a good thing. You’re not sitting here thinking every building in Charlotte is sitting vacant,” Love said.
Life in older buildings around Charlotte.
However, the bulk of those vacancies are in “vintage properties,” the old-school office buildings without amenities. Most of those are located in the northern section of uptown, near the airport and in parts of the university area.
To entice tenants, White said a possible next step for some of these older properties is adaptive reuse or conversions, like Camp North End.
Other examples of conversions include the 100-year-old Johnston Building on Tryon Street that’s set to be converted into a hotel and Duke Energy’s former headquarters on South Church Street, which will be redeveloped into housing and retail space.
While office conversions could lead to lower vacancy rates, White added that the core of many office buildings don’t lend themselves to be easily transformed into housing. Thinking of their layout, some spaces would be without windows, plumbing or electrical work.
As the owners of older buildings figure out how to grow their appeal, White and Love said leasing in the newer buildings shouldn’t be a problem. That coupled, again, with the slow of construction should set vacancy rates right.
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