Leaders of some of Charlotte’s top commercial real estate firms issued a bullish forecast Wednesday for development in the region, saying the area’s rebounding economy and thawing credit markets have set the stage for more residential, industrial, retail and office projects in 2014.
They offered their assessments at the unveiling of a new national survey that shows Charlotte rising on a list ranking 51 major U.S. cities for their real estate development and investment potential next year.
The Urban Land Institute’s survey of more than 1,000 real estate industry officials nationwide ranked the Queen City 16th, up one spot from the previous year. San Diego ranked ahead of Charlotte, with Raleigh-Durham landing just below it.
One of the report’s authors said the continued influx of newcomers to Charlotte, coupled with its stable education system and growing medical sector, makes it attractive to national as well as regional real estate investors.
“The only thing you don’t have is oil,” Urban Land Institute senior fellow Steven Blank said in an interview with the Observer. “When I hear people talk about the prototype (real estate) markets of the future, two of the places I hear talked about a lot are Charlotte and Raleigh.”
But the national report, and a companion report focused more closely on Charlotte, also identified potential drags on the region’s continued economic recovery. Among the concerns: the need for more and better jobs, and the potential for interest rate hikes and unfavorable tax policies. And while it cited the region’s banking sector as a strength, it also said the local economy is still too reliant on those jobs.
Uncertainty surrounding federal fiscal policy, as well as state and local budget problems, also made the list of economic concerns. Officials said those issues hadn’t registered in the survey previously.
“It’s a sign of the times and not necessarily a good sign,” said Ned Curran, CEO of the Bissell Cos., developers of Ballantyne Corporate Park.
Landon Wyatt, a partner at Childress Klein Properties, said changing state regulations often have the biggest impact on his firm’s operations. “Stability is the key. Understanding the playing field – the changing playing field – drives us crazy.”
The Charlotte portion of the survey found that when asked to forecast profitability in the year ahead for real estate-related business, 35 percent of respondents characterized it as “excellent,” 51 percent called it “good,” 10 percent said “poor” and 4 percent said “abysmal.” With the exception of the last category, which remained unchanged, all of the figures reflected more optimism than the previous year.
That report also said banks that feared lending on commercial real estate projects during the recession now are “all of a sudden comfortable” with the idea. The availability of equity capital from foreign investors, pension funds, private equity funds and other large institutions is also expected to increase.
“The outlook is mostly bright,” said Curran, who led a panel discussion focused on the local survey findings during a luncheon at Myers Park Country Club.
One example: Wyatt said the market for neighborhood shopping centers, which are often anchored by grocery stores, should receive a boost from the continued entry of the Publix grocery chain into the Charlotte region. That, along with Kroger’s purchase of Harris Teeter, will put two strong grocery chains into competition for real estate in Charlotte.
“This will be a real game changer for the Charlotte neighborhood center market,” he said. “I think we’ll continue to see that business grow into ’14, ’15.”
Winners and losers
The survey pointed out both winners and losers while analyzing the prospects for various sectors of Charlotte’s real estate market.
The report called the environment for new single-family housing developments “very favorable.” Sales of Charlotte-area homes rose 10 percent in October from a year ago, and demand has increased so steadily in recent years that experts now say there aren’t enough homes for sale.
The survey ranked industrial projects rated the next most favorable category for developers.
It raised questions, however, about the prospects for multifamily projects.
Blank told the lunch crowd that the national survey findings suggest apartment complex projects might be nearing the end of the boom they’ve enjoyed in recent years while the single-family housing market imploded. In the Charlotte survey, 44 percent of respondents said they’d advise selling multifamily investment properties – the highest “sell” rating for any type of property investment.
That drew good-humored objections from Chris Branch, a senior managing director at Faison Enterprises specializing in multifamily projects. He said apartment projects aren’t being overbuilt because there was an under-supply before the single-family housing bubble burst.
“We’re building apartments because there’s demand for apartments,” he said. “I really believe we’re in the fifth inning of a nine-inning game.”
He said he gets asked all the time to explain why so many apartments are being built in the South End area. He told the crowd at the luncheon that South End has seen multiple apartment projects because renters are increasingly seeking “an urban experience,” and because that’s where developers can find large parcels and appropriate zoning.
Blank, during his presentation to the lunch crowd, also noted that the national survey results suggested suburban office projects might be declining in appeal compared to urban ones.
Suburban properties have “worked out just fine for us,” joked Curran, whose firm is enjoying success with its Ballantyne park.
The park landed, perhaps, this year’s biggest local economic development plum when insurance giant MetLife announced it was relocating its U.S. retail headquarters and more than 1,300 employees to Ballantyne.
But the uptown Charlotte office market also is showing signs of strength, with major office projects planned at the Westin Charlotte property and at Stonewall and Tryon streets.
Ted Klinck, chief investment officer with Raleigh-based Highwoods Properties, said office leasing activity is picking up across all the markets it serves, from the Southeast to Pennsylvania. Companies seem to have more cash on their balance sheets, he said, and his leasing agents are increasingly bullish about the number of showings they’re doing and the interest levels of potential buyers.
“It’s starting to feel pretty good,” he said.
Eric Frazier covers economic development. Have a news tip or story idea? Email firstname.lastname@example.org; or call 704-358-5145. Follow @ericfraz on Twitter.
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