Charlotte Center City Partners President Michael Smith believes it’s time to add some skyscrapers to uptown’s skyline.
Last year, vacancy rates in uptown dropped 2.3 percent for prime office space – called “Class A” in real estate parlance. Vacancies now have fallen below 9 percent, an encouraging trend as companies buoyed by the economic recovery add workers.
But to make the new skyscrapers happen, Smith told City Council earlier this month, city leaders might need to subsidize the attendant parking garages.
That idea didn’t exactly make council members leap for joy. They’re already getting an earful from residents annoyed by a newly approved 7.25 percent city tax hike and the city’s $87.5 million contribution toward the Panthers’ renovation of Bank of America stadium.
But when I circled back to Smith last week, he elaborated on why the city might want to at least give the concept some thought.
Before the banking crisis, Smith said, the amount of office space in uptown kept growing because Bank of America and the former Wachovia kept growing.
In the 1990s, uptown added 5 million square feet of office space. In the first decade of the 21st century, it added 6 million square feet. But since 2010, no new space has come online.
According to Center City Partners, 118,000 square feet of space is available in the Fifth Third Center, 100,000 at 101 Independence Center and 90,000 at 525 North Tryon.
Vacancy rates above the 15th floor in all of uptown’s towers are down to 2 percent to 3 percent.
When insurance giant MetLife earlier this year announced it was coming to Charlotte and bringing 1,300-plus jobs, it chose 340,000 square feet of space at Ballantyne Corporate Park.
Uptown lost out.
So who’ll do the building now that the big banks are no longer in aggressive expansion mode? It appears the job might fall to more traditional developers. And for them, the calculus of launching a major office tower project uptown isn’t the same as it is for a big bank.
While the banks built towers to expand their operations and increase their long-term profits, a traditional developer comes in asking a more urgent set of questions.
Can the financing be arranged? How much will it cost? Are tenants lined up? How long before the initial investment can be recouped?
In short, the question of risk looms larger.
And since the city’s zoning code requires parking spaces for new office buildings of a certain size uptown, some say city-subsidized parking becomes a quick risk reducer.
“The uptown space is more expensive just due to the fact that you have to pay for parking,” said John Culbertson of Cardinal Real Estate Partners. “If you subsidize parking, it levels the playing field.”
Parking isn’t generally something most people think of as an economic development lever.
But cities around the country commonly build parking garages as a way to attract office space and jobs, said Casey Jones, immediate past chairman of the International Parking Institute, a trade group representing the parking industry.
“If the city is able to partner with the private sector and create opportunities for the office environment to grow, then retail will follow that and restaurants and service industries will follow both,” he said.
City planners are thinking about parking as they look for ways to keep uptown growing. Laura Harmon, assistant director of the Charlotte-Mecklenburg Planning Department, told me her department is talking with a consultant now about parking rules.
If the city doesn’t like the idea of subsidizing garages for developers, why not just eliminate the off-street parking requirements? After all, don’t they just encourage car driving in a city that’s spending heavily on light rail and trolleys?
“We’d be fine if (developers) would build in uptown without parking,” Harmon said. “But I don’t know that it would work. An office worker usually wants parking.”
Bryan Howell of Parkway Properties said parking is a key piece of the puzzle when it comes to building office space uptown. But he’s not convinced the time is right for more towers.
While he sees the point some are making about vacancy rates uptown, when he digs down into the data, he sees enough space coming available uptown over the next year or so to accommodate a major corporate relocation.
Plus, when it comes to building a new tower, he says, there’s always the question of whether you can get financing.
He’d like to see the occupancy rates squeeze even tighter.
“The underwriting of the fundamental economics has got to be in place. I’m not sure the market has those underwriting fundamentals in place yet,” he said.
That doesn’t mean uptown’s not a great market, he added. It’s still got the advantage of being home to the big bank headquarters and the networking opportunities that brings.
Smith said that while he’d welcome another bank-built tower, he also believes the current state of affairs represents an opportunity for Charlotte’s economy to evolve, to diversify.
He said he’s working with developers on multiple sites.
“We are a maturing market,” he said. “We do believe the demand is there.”