Banking, Tech Employment Usher Charlotte’s Office Market Into the Future
The momentum of the Charlotte office market continued in the first quarter of 2019, as office rents rose for an eighth consecutive quarter and the city notched a major economic development win with the announcement that BB&T and SunTrust would merge, creating a new bank that will be headquartered in Charlotte. The news came on the heels of announcements late last year that Honeywell plans to relocate its corporate headquarters to the city and that LendingTree would expand its headquarters, creating 436 jobs over five years.
The city’s economic strength has been fueled by a growing labor market that was led by the tech sector in 2018. Last fall, CompTIA’s 2018 Tech Town Index found that Charlotte is the No. 1 city for information technology workers when it comes to job opportunity and cost of living. At the time of the report, more than 44,000 IT jobs had been posted in Charlotte over the previous 12 months. That number is projected to grow by 11 percent over the next five years as Bank of America Corp., Wells Fargo & Co. and Ally Financial look to fill IT jobs at all levels.
Office rental rates in Charlotte increased by 6.5 percent on a year-over-year basis to $29.42 per square foot, on average. In Charlotte’s central business district, the average rental rate at the end of the period was $34.30 per square foot, while the average rate in Charlotte’s suburban markets was $25.61 per square foot. From 2015 through the first quarter of 2019, average direct rental rates have risen 24 percent.
With 2.7 million square feet of office space under construction, Charlotte’s central business district is one of the most active in the nation. The city’s CBD, which includes Uptown Charlotte, South End and Midtown, ranks fourth in the country in terms of construction as a percentage of inventory (12.7 percent), behind only Austin, Nashville and San Antonio, according to JLL research.
Two marquee developments recently delivered in South End include 300 West Summit, an approximately 64,000-square-foot speculative, Class A office building, and Dimensional Place, the 282,000-square-foot East Coast headquarters for investment management firm Dimensional Fund Advisors. In addition, Beacon Partners is now in the final stages of construction with The RailYard, a mixed-use development in South End featuring two eight-story buildings with 300,000 square feet of creative office space that is 96 percent preleased.
Tenant demand has assuaged concerns about potential oversupply. Wells Fargo & Co. announced that it would lease the entire 330,000-square-foot 300 South Brevard building, and there are several large corporations seeking space within the CBD. During the first quarter, 680,369 square feet of office space was absorbed, with 65 percent of that activity occurring in Uptown Charlotte. Total vacancy dropped to 12.3 percent in the city as a number of large blocks of space in Uptown and the Airport submarkets were occupied.
In addition to corporate relocations such as Honeywell’s 500 new jobs by 2024, Charlotte continues to benefit from the expansion of homegrown companies. In late April, LendingTree announced that it would lease 175,000 square feet for its headquarters at a new, unnamed project by The Spectrum Cos. and Invesco in South End. That project will include two office towers totaling 580,000 square feet, 50,000 square feet of retail and a 200-room boutique hotel.
Charlotte’s fundamentals remain strong, and the region’s available talent and quality of life continue to add to its appeal for large corporate users both inside and outside of the city.
— By Chase Monroe, Carolinas market director and Charlotte brokerage lead, JLL. This article first appeared in the June 2019 issue of Southeast Real Estate Business magazine.