Skyscraper fans waiting for anchor
Vacant space keeps a lid on development of uptown buildings
DOUG SMITH, Charlotte Observer
Portman Holdings titillated skyscraper fans a few days ago when it kicked off marketing for an 11-story office building beside the Westin Charlotte.
The Atlanta-based developer hired Charlotte's Transwestern Percival to help it find tenants.
The way I figure it, we're now up to at least a half dozen such projects percolating on proposed development sites uptown.
How soon will we see one of them coming out of the ground?
The short answer, said one real estate wag, is "when the big gorilla (anchor tenant) comes along and commits to at least half the space in one of those buildings."
Lenders typically require signed leases before they approve financing for construction.
The timing isn't good these days, real estate analysts say, because too much vacant space is on the market countywide.
Carolinas Real Data's second-quarter office index for the Charlotte Chamber puts the countywide vacancy rate at 15.7 percent, virtually unchanged from the first quarter.
The actual rate probably is higher, said real estate analyst Frank Warren of Warren Associates, because of "shadow space," or vacant subleased space that isn't counted in market-wide surveys.
Subleased space is excluded, say Carolinas Real Data and other researchers, because even if it is vacant, a primary tenant is still paying rent on it.
If subleased space had been included in the second quarter survey, Carolinas Real Data notes, the vacancy rate probably would have been about 18.3 percent.
Countywide, that equates to about 7 million square feet, or roughly seven 60-story Bank of America Corporate Centers.
As challenging as that looks, there are bright spots.
"Raw market trends are not particularly helpful for a specific submarket such as downtown," Warren said. "You have to look at each submarket and analyze what the conditions are there."
The center city vacancy rate has hovered between 9.5 percent and 10 percent over the past three quarters -- better than some areas of the county, where rates have soared beyond 20 percent.
The problem uptown, Warren said, "is the market has been at essentially the same rate for a while, and demand has been very static."
Neither local nor national experts can predict when the market will get back in balance, but most don't anticipate substantial improvement before next year.
A marketwide 10 percent vacancy rate generally is considered desirable, experts say, because it means space is available for internal expansion as well as new companies moving into the city.
There are positive signs in Charlotte. The second quarter vacancy rate remained stable in Carolinas Real Data's survey, and the amount of available subleased space declined for the fourth straight quarter.
Also, developers started very few office buildings -- about 129,000 square feet total -- during the quarter.
Landlords are chiseling away at the oversupply by offering reduced rates, generous allowances for remodeling space and incentives for signing long-term leases.
Carolinas Real Data said it found concessions ranging from three months to one year free rent, depending on the term of a lease, to discounts on office space improvements for tenants.
Much of the commercial leasing activity over the past two years can be traced, brokers say, to tenants cutting better deals and moving within the market.
The average quoted lease rate decreased to $20.04 a square foot annually in the second quarter from $20.17 a square foot in the first quarter, Carolinas Real Data reported.
The deals are helping reduce inventory, but, Warren said, "What we really need is for demand to pick up. I feel better about the past few weeks. I'm sensing more optimism, and brokers say things are starting to pop again."
Portman Holdings says it's ready to pull the trigger on that 11-story building beside the Westin as soon as an anchor tenant is signed.
Bank of America and Wachovia, whose strong growth fueled the skyscraper boom for three decades, have slowed expansion.
The next big anchor probably won't be a bank. Uptown likely will see the next skyscraper, Warren said, when a relocating company decides to anchor a new building. When will that be?
"If the players on the chess board don't expand uptown, I don't see a new high-rise building for at least five years," he said.
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