Uptown faces office space glut

Uptown Charlotte has dazzled the real estate world this year with one of the nation's lowest office vacancy rates.

But that's almost certain to change with the Wachovia-Wells Fargo merger and the anticipated completion of several office buildings through 2010.

Wells hasn't disclosed details on the employment and space needs of the combined bank, but Colliers Pinkard's third-quarter market research report estimates the merger could result in 300,000 to 600,000 square feet of vacant space in the center city.

Colliers Pinkard principal David Dorsch said the merger coupled with the nation's economic upheavals “has brought the office and general real estate market to a point of uncertainty.”

Wachovia job cuts and ensuing office vacancies uptown would cause the uptown vacancy rate to increase from 2.5 percent, where it has hovered for most of the year.

If job reductions and cutbacks were slow and incremental, Colliers Pinkard said, the vacancy rate could remain relatively low until the bulk of uptown's new space comes on the market, pushing it perhaps as high as 11.6 percent by mid-2010.

The real estate industry generally considers 10 percent a favorable vacancy rate because it means space is available for expansion and corporate relocation.

Colliers Pinkard said about half the 3.9 million square feet of office space under construction in the third quarter was in four uptown projects: the Wachovia and Bank of America towers and two speculative buildings.

Much of the space in the bank towers is committed, the report said, “but this may change with the purchase of Wachovia by Wells Fargo.”

Real estate insiders say they believe Wachovia already has given back to the developer a substantial portion of the 500,000 square feet it planned to occupy in the 1.57-million-square-foot, 48-story tower that was to have been its new headquarters at Tryon and Stonewall streets.

A glut of center city space could create an office space war, real estate experts say, with the new towers luring tenants from older buildings.

Such battles also tend to cause rate cutting and lead to a shift from a landlord's market to a tenant's market.

That shift could occur as early as the first quarter of 2009, said Colliers Pinkard, which sees uptown rates flattening this year and declining 3 percent to 5 percent in 2009.

The citywide vacancy rate rose to 10.8 percent in the third quarter this year from 9.9 percent a year ago because of weaker demand and more new buildings coming on the market. The citywide average annual rental rate also rose to $20.16 a square foot from $18.50 a year earlier.

New speculative construction “has all but stopped,” Colliers Pinkard said.