Charlotte’s office vacancies are stabilizing. This new uptown project helps explain why
Amenity options are typically associated with choosing a hotel or an apartment complex.
But post-pandemic, services and conveniences have become a large factor for companies choosing office space. And Charlotte has no shortage of newer or renovated buildings hosting salad shops, open common spaces and fitness centers, including Wells Fargo’s skyscraper at 550 S. Tryon St. and the recently renovated One Independence Center at 101 N. Tryon St., which The Charlotte Observer recently toured.
While the initial construction of these amenity-filled buildings may have increased office vacancies, the hope from developers is that their investments will eventually lead to fully leased spaces.
Citywide, Charlotte’s office vacancies are stabilizing, according to a recent report from commercial real estate firm JLL.
Vacancies in the third quarter sit at 22.5%, the report said, down from a high of 24.7% earlier this year. The newer buildings and ones that have been updated have an “85% higher occupancy rate” than the older spaces, according to the report.
“Tenants or companies that are looking to find space are looking for places where their employees will feel engaged,” said Chuck McShane, director of market analytics with real estate research firm CoStar.
“Either there’s convenience or there are our amenities there that are useful for teamwork… What we’re going to see moving forward is this sorting out of the older inventory. Which buildings are going to be able to attract tenants going forward in this new environment and which aren’t.”
Is the office vacancy rate bad?
Not necessarily. Vacancy rates have increased across the U.S. every year since the start of the pandemic. Nationally, the office vacancy rate is slightly above 20%, according to real estate firm Cushman & Wakefield.
In Charlotte, part of the issue is due to the construction boom in 2018 and 2019, McShane said.
“I think supply was a big story in Charlotte,” McShane said. “We were one of the tightest markets heading into the pandemic and we thought we’re going to need all of this office space. We expanded our office inventory faster than most other metros in the country.”
Addressing the supply, many buildings broke ground in 2019 and were completed in this new environment where no one could go to the office, further increasing the vacancy rate.
Charlotte’s market saw that this year with the completion of 110 East, a 24-story tower in South End with 370,000 square feet of office, retail and restaurant space. With no pre-leasing and still without tenants, as reported by the Charlotte Business Journal, the building is part of the high vacancy rate.
But because these new buildings have the amenities they do, like 110 East being considered the “most intelligent office building” by a real estate tech company, it’s assumed by developers and analysis that leasing won’t be a forever issue.
“We do have less office demand today than we did five years ago,” McShane said. “But the top trophy buildings, like the new ones in South End, they’re going to fill up just fine.”
JLL’s report added that, “historically, such properties tend to reach their leasing peak within six months of completion.”
What about the older buildings?
The real concern with office vacancies in the city are the “vintage properties” or old-school buildings without amenities.
Many companies are moving from these older spaces into newer ones, McShane said. For the jargon-friendly, that transition is called flight-to-quality.
Once a company leaves, the older buildings are having a hard time finding new tenants.
“In normal times, the older buildings that these companies were leaving would have been back-filled fairly easily,” McShane said. “That’s not happening now… And some of them are going to be obsolete going forward.”
But all hope is not necessarily lost for these spaces.
Some buildings can be converted depending on their floor plan, McShane said. Conversions already occurring include the 100-year-old Johnston Building on Tryon Street that’s set to become a hotel and the former Duke Energy headquarters on South Church Street, which will be redeveloped into housing and retail space.
There’s also renovation options.
Office space construction is slowing, McShane said. There’s about 545,000 square feet of office space being developed, JLL reported.
That’s decreasing the competition, McShane said. He added that about 60% of office space leases that were signed before the pandemic are about to expire, so companies may be on the move.
If a space can be renovated to add amenities, it may be able to compete with newer spaces on two fronts: enticing new tenants and creating a space that can be utilized after working hours.
“The best of the older properties are really investing a lot of money into new amenities, new retail space to make these environments less office-centric,” McShane said. “I think those are the ones that are setting themselves up for attracting the next wave of demand.”
One example is One Independence Center at 101 N. Tryon St.
‘A fantastic location’
One Independence was built in 1983 and hadn’t received much love in terms of renovations, according to Sagar Rathie, Crescent Communities’ commercial managing director.
So when Crescent, along with Nuveen Real Estate, acquired the 20-story building for $132.25 million in 2019, they were prepared to throw in lots of love.
“The appeal was always having a fantastic location right at Main and Main in an iconic building that people are well aware of,” Rathie said. “The thought was if we can transform the ground floor, we could drive momentum into the building itself.”
Once the pandemic started, the focus on the ground floor renovation became even stronger.
“We knew that no matter what, investing in the ground floor experience is going to ultimately create a draw for folks to come back or spend time or want to spend time here,” Rathie added.
The Charlotte Observer recently received an inside look of the renovations.
Sweetgreens and new spec suites
In the past four years, Crescent invested about $26 million into changing the ground floor. Rathie said part of the goal was to entice workers to return to an office setting.
“What we were finding when we were coming out of COVID was that we were competing with, as silly as this sounds, the couch,” Rathie said. “So, ultimately we needed to create a place that was commute-worthy and worthwhile.”
One of those “worthwhile” additions was Monarch Market, an 18,000-square-foot food hall that has 11 food stands filled with local and regional operators, as well as three bars.
Besides being an incentive to return to the office, the market has also become a reason to stay in the area outside of working hours both for employees and passersby.
“Delivering Monarch provided that extra boost for folks, not only that we’re here in the office during the week, but also nights and weekends,” Rathie said. “Saturdays are our best days at Monarch Market from a sales volume and foot traffic standpoint. Never in a 1000 years expected that in uptown.”
Since the opening of Monarch in November 2023, neighborhood market The Exchange at 36th opened in April and the long-awaited Sweetgreen restaurant opened in September.
An express version of Portofino’s Ristorante Italiano e Pizzeria and MD Boutique are set to open on the ground floor. And a breakfast spot may be added to the food line-up soon, Rathie added.
The renovations of One Independence weren’t just retail-based.
The main lobby attached to the Charlotte Marriott City Center was modernized, creating an open center with a glass ceiling where people can sit and relax.
“We want people to linger,” Rathie said. “That’s intentional.”
The lobby also features an open conference room space that tenants can rent out for events or utilize as an extra quiet space.
Then there are the new speculative suites. After all, this is an office building.
And the main point of renovating the ground floor was to eventually bring in new tenants, Rathie said.
Recently, Crescent brought on Spectrum Companies to be the leasing agent for the space. One Independence has a vacancy rate of about 44%, according to CBJ and CoStar.
Rathie said Crescent is in its third phase of delivering the new spec suites, which are pre-built and designed work spaces. Having the space already created allows for companies to move right in.
Some of the main features of the suites include an open front entrance adjacent to a kitchen space or the break area. The suites vary in size with some of the lower levels ranging from 2,500 to 9,000 square feet and the higher levels being 42,000 square feet.
The main anchor space that encompasses the top five floors has about 121,000 square feet.
Currently, law firm Robinson Bradshaw occupies the space but it will be relocating in March 2025. The firm is moving to Legacy Union, CBJ reported.
The open space will allow a new tenant to come in and put its name on the building, according to Virginia Luther, Spectrum’s managing director of leasing.
But filling up the office spaces isn’t necessarily a large concern, both Luther and Rathie agreed. Tour activity and tenant interest has peaked in the last year, Rathie said, more so than the last four years combined.
It seems amenities are the key in this new office market space.
“As we compare ourselves to a lot of the other struggling office towers uptown that are having a lot of financial troubles, this is not one of them,” Luther said. “I think a lot of different ownership groups kind of do partial investments or a little bit here and there.
“What (Crescent and Nuveen) have really done is gone full steam ahead and created this incredible ground floor experience, knowing that people want to come back to excitement, activity, energy. I mean, there’s just people walking everywhere.”
This story was originally published October 31, 2024 at 5:50 AM.
