With the economy rebounding and the number of workers in uptown Charlotte rising past 100,000, developers and promoters envision a strong period of post-recession growth for the center city.
But there’s one problem: With all the new workers, real estate experts say too little office space remains to house the corporate relocations or expansions needed to power employment growth.
Uptown office vacancy rates have fallen to 8.1 percent, according to Charlotte Center City Partners, which promotes development uptown. Real estate experts say that’s at or beyond the point where more space is needed.
There are no blocks of contiguous space uptown containing 200,000 square feet or more, according to a draft of Center City Partners’ 2014 “State of the Center City” report due out Wednesday. Two such projects have been proposed but remain in early planning stages.
Insurance giant MetLife required 340,000 square feet when it moved its U.S. retail hub and 1,300 jobs to suburban Ballantyne last year. Chiquita Brands International leased 137,000 square feet when it moved into NASCAR Plaza uptown nearly two years ago.
“The fact that our vacancy rate is this tight is not a good thing,” Center City Partners President Michael Smith said. “We need to get more (office) towers going.”
City leaders have long argued that a strong urban core is necessary to keep suburban sprawl from choking freeways with traffic and deepening socioeconomic and racial segregation.
Building new towers won’t be easy, industry experts say. The big banks, builders of much of uptown’s skyline, haven’t sponsored any new towers since the financial crisis, and local developers, brokers and analysts aren’t expecting them to do so anytime soon.
Smith said private developers generally won’t commit to the typical 30-story, 700,000- to 800,000-square-foot tower unless they’ve got an anchor tenant lined up to occupy 30 to 40 percent of the space.
“They just can’t get it financed otherwise,” he said.
Real estate analyst Andrew Jenkins, managing partner at Karnes Research, said demand for office space over the past four years has been higher uptown than in any other part of the county.
If a tower gets built, he said, chances are good it will draw sufficient tenants.
“The biggest issue for uptown will be who will take the lead and risk on future development, which used to be the domain of the banks,” he said.
Smith said it will be interesting to see what Duke Energy does in the years ahead. A 2012 merger with Progress Energy made Duke the nation’s largest regulated utility. The 48-story Duke Energy Center on South Tryon was launched by the former Wachovia Corp. and is now owned by Wells Fargo.
“We’re committed to downtown Charlotte,” Duke spokesman Dave Scanzoni said. “But as far as any plans for offices or new buildings, there’s no discussion of that at this point.”
The overall business dynamics of uptown Charlotte look good, said Bryan Howell of Parkway Properties, the firm that bought the Hearst Tower from Bank of America in a $250 million deal nearly two years ago.
He said his firm, which owns and operates office properties, still has about 75,000 square feet available in the Hearst Tower and about 100,000 square feet available in 525 N. Tryon St.
“Those are nice blocks of space,” he said. “But I can see where some folks would like to see three- or four hundred thousand square feet available.”
Corporations looking to come to Charlotte do take note of the situation, said Bryan White and Chris Schaaf of real estate firm Jones Lang LaSalle. They represent companies looking for space and said top corporate executives covet the higher floors with unobstructed views.
Vacancy rates for those floors are around 2 percent uptown, said Schaaf, a senior vice president. Still, he added, the good quality of life here, low cost of living and well-educated workforce keep companies asking about Charlotte.
“At the end of the day, companies go where the good labor is,” Schaaf said. “The bad news is if we’re on a level playing field with another city that has existing (office) inventory and projects, they will likely win.”
More uptown office space is on the drawing board.
Portman Holdings, the Atlanta-based company that built the Westin hotel in 2003, has plans for a 15-story, 350,000-square-foot office building on top of the property’s parking deck at South College and Stonewall streets.
And Crescent Communities is planning a $200 million-plus mixed-use project at South Tryon and Stonewall streets, currently home to a Goodyear auto service center and a parking lot. It will include 500,000 to 700,000 square feet of office space as well as retail, a restaurant and possibly a hotel.
“We’re seeing growth back in the market,” said Ned Austin, vice president of Crescent Communities’ commercial group.
Crescent remains “deep in the site design process” and hasn’t pinpointed a groundbreaking date.
Smith is scheduled to unveil his State of the Center City report at a gathering Wednesday evening at the Seventh Street Market. Center City Partners has invited more than 150 real estate brokers, developers, public officials and others.
A draft of the report notes the new development in the Third Ward, spurred by Romare Bearden Park and the new BB&T BallPark. Childress Klein recently topped off its Element Uptown project, a 22-story apartment tower overlooking the park.
“Uptown is poised for significant residential and office growth,” said Fred Klein III, a partner with the firm.
Nearly 20,000 people live in uptown and South End, a number expected to rise to 25,500 by 2015, the report states. The growing population sets the stage for more street-level retail uptown, but the report says more ground-floor retail spaces need to be built into new developments or converted from space in existing buildings.
“We’ve got lots of challenges,” Smith said. “But it’s great to be in a new era of growth.”