Charlotte’s real estate market forecasts have been pretty universally positive for 2017, and CBRE added to the optimistic chorus last week, with predictions that growth and development will continue at their fast pace.
“Vibrant economic expansion, solid leasing dynamics and strong investment returns have made Charlotte one of the most sought after markets in the Southeast,” CBRE wrote in its annual forecast. “Fueling its growth is a combination of affordability, high quality of living and an educated workforce.”
Here’s what the commercial real estate firm expects for key sectors in the coming year:
Despite the record apartment-building boom in Charlotte, with some 23,500 new units planned or under construction, CBRE doesn’t expect vacancy to climb or rents to fall. That’s because job growth and in-migration is expected to provide a steady supply of new tenants to lease those new apartments.
“Occupancy in the multifamily sector remains strong, consistently averaging around 95% from 2012 to present. Occupancy is expected to maintain, if not surpass, those figures over the next two years. The significant amount of development has not scared investors,” CBRE wrote. “In the next two years, the total number of units absorbed will outpace the new supply.”
The vacancy rate might increase in 2017 and 2018 as new office projects – most of them not fully leased – hit the market, CBRE said. But the increase should be temporary, and rising rents combined with fewer options for tenants seeking big blocks of space should help power more development.
“Consistent tenant demand has helped bring vacancy rates to pre-recession lows. The Charlotte office market is in expansion mode and experiencing declining vacancy rates and record high asking rates,” CBRE said. “In order to alleviate the space constraint, more speculative office construction will hit the market by the end of 2017.”
Although brick-and-mortar retail and traditional malls have suffered in the face of Internet competition, Charlotte’s growing population and infill opportunities in areas such as South End, Plaza Midwood and NoDa are expected to draw new retailers to the city. Asking rates for new retail leases have hit $30 per square foot, CBRE said, and are expected to rise.
“The continued strength of the Charlotte multifamily market has created new retail opportunities in multiple infill locations throughout the metro area,” CBRE said. One of the biggest drivers: Grocery stores, which are anchoring many of the new mixed-use and infill developments. Publix Super Markets is building a new store in Cotswold on Randolph Road, while Whole Foods is anchoring both Waverly on Providence Road south of Interstate 485 and Crescent Stonewall Station uptown.
“Grocery users are driving a lot of the new, larger projects, with the aforementioned Publix and Whole Foods being the most active in the market,” CBRE said.
The record occupancy hotels in the Charlotte market reached in 2015 – a 70.7 percent average – has helped drive a lot of new development (the previous record was 65.3 percent, set in 2007). But CBRE said the next year could be tougher for the hotel sector
“Unfortunately, the high occupancy levels are expected to diminish in 2017 as a wave of new hotels are scheduled to open at a time when new demand growth is also expected to slow,” CBRE said. “Looking forward, the increases in room supply in 2017 is forecast to cause a decrease in occupancy which will in turn lead to lower rates over the course of the year and into 2018. Because of state politics, several canceled events and conventions are keeping expectations for the hotel sector modest.”
If online retail has hurt physical stores, all that Amazon Prime shopping and online grocery services are helping to drive a boom in warehouse and distribution space.
“With approximately 50% of the U.S. population living within a one-day truck drive of Charlotte, industrial space in the market is very desirable to large distributors,” CBRE said. “Additionally, with its growing population base of over two million, there is a considerable consumer base for users focused on the “last mile” of the distribution chain.”
Some 2.5 million square feet of industrial space was added throughout the market in 2016, and lower vacancy rates, higher rents and tenant demand are expected to keep investors and developers interested in building more.
“With Charlotte’s strategic location as a potential distribution hub with strong access for the entire Southeast, we will continue to see an increasing need for warehouse space. Consistently strong market fundamentals – low vacancy rates and rising asking rates – will keep investor interest high,” CBRE said.