Charlotte real estate professionals said Wednesday that they expect the city’s apartment boom will keep booming, office rents will go up and job and population growth will power both.
“It just feels awesome right now,” said Jon Morris, a partner at Beacon. He spoke Wednesday at the 20th annual Charlotte Market Forecast, by the North Carolina chapter of Certified Commercial Investment Members. “That’s the vibe I get.”
Although almost universally positive, some of the panelists struck a cautionary note. Fitzhugh Stout, managing director of Integra Realty Resources, said Charlotte is near the peak of the expansionary phase of apartment construction, heading towards “hypersupply.”
“The real concern is we’re near the peak,” he said.
Here are some key takeaways from the panel:
▪ Office rents are going up, as supply is still tight. Louis Stephens of JLL said the Class A office vacancy rate has fallen from 19.8 percent in 2010 to 10.3 percent now. “If you’re a tenant and you’re any size, it’s going to be tough to find any space,” he said. Rents at office buildings under construction, such as Capitol Towers in SouthPark and 300 South Tryon uptown, are topping $30 a square foot, he said.
“The last time we were at $30, it was 2007,” said Stephens. The factors driving rents up also include higher construction and land costs for new buildings, as apartments take up more prime spots. “Apartments are competing with office. Most of the time, apartments win,” said Stephens.
▪ We’re not near the end of the apartment boom, even with more than 10,000 units under construction and 10,000 more planned. That’s a record number, and vacancy rates have crept up to 6.7 percent, but panelists said enough people and jobs are moving to Charlotte to sustain the growth.
“I can actually make a case for you that we’re underbuilding the market right now,” said Mike Ortlip, senior vice president of Grandbridge Real Estate Capital. About 43 percent of households in Mecklenburg County are renting, and much of the city’s strong population growth is fueled by young millennials, who are even more likely to rent. “Charlotte’s multifamily boom has room to run,” he said.
▪ New retail space will be mixed-use centers, not single-use shopping centers. Look to developments such as Waverly and the Charlotte Golf Links, which will include homes, apartments, offices and shops, if you want to know what’s coming.
“The days of the Rivergates and Afton Ridges might be past for a while,” said Chris Thomas, a partner with Childress Klein, whose firm is developing Waverly.
▪ Cheap capital, strong demand and good times won’t last forever. “If you’re borrowing, borrow soon,” said Ortlip. The glut of cheap capital and super-low interest rates will inevitably run out someday, turning things more to a lender’s market.
“If I had to stake my career on it, I’d say we have 12 to 18 months,” said Morris, talking about the resurgent market for industrial space. Even though we’re in “blue skies” now, “gray skies won’t be too far away.”