Charlotte’s Trophy Developments Put Rent Growth on Horizon

Leasing momentum and upcoming developments are poised to push Charlotte’s average office rents to record highs, the Charlotte Business Journal reported.

Limited access to capital, rising construction costs and higher pre-leasing requirements made it harder to launch office developments. But when they arrive, they’re expected to command leasing rates between $70 and $80 per square foot, well above the $53 to $55 per square foot trophy buildings command at the top of the market now.

At least 5.8 million square feet of leases are in the works across uptown and South End, with tenants looking for space in the 100,000 to 200,000-square-foot range, Charlotte Center City Partners’ senior vice president for economic development James LaBar told the outlet.

Average deal sizes have jumped to about 20,000 square feet, nearly double last year’s average, Trinity Partners Managing Partner Rhea Greene told the outlet. Demand is strongest for space in new towers like Lincoln Property Company’s Legacy Union and Stiles Corporation and Shorenstein Property’s 110 East.

Peer Sun Belt cities Austin, Dallas, Miami and Nashville have already seen this kind of premium pricing. Charlotte’s next wave of development, including Crescent Communities’ Carson & Tryon and the second phase of Riverside Investment & Development Company and Woodfield Development’s Queensbridge Collective, is expected to follow suit.

As available Class A space tightens, attention is expected to shift toward repositioned older towers like One South, 550 South and Fifth Third Center, where owners have invested millions in capital upgrades. Even aging uptown buildings like Charlotte Plaza and 301 South College are seeing renewed activity, the outlet said.

The market’s office vacancy stood at 22.4 percent at the end of the first quarter, according to JLL, but that’s expected to tighten as the city burns through supply.

Leasing momentum will eventually convince lenders to back new development, said Michael Smith, CEO of Charlotte Center City Partners, helping Charlotte compete for corporate relocations against other metros.

— Judah Duke