Office leasing
in Charlotte's center city is the slowest since the early 1990s
recession, but the majority of the nation's 50 largest markets are doing
worse.
Only five cities
-- Raleigh; Bakersfield, Calif.; Milwaukee; Sacramento and Washington --
reported better downtown occupancy rates than Charlotte in the first
quarter. In a nationwide survey, Colliers International pegged
Charlotte's center city vacancy rate at 10.3 percent compared to the
national average of 15.1 percent.
"You can
attribute that basically to the fact that the banks have maintained a
stable employment base in the downtown area," said real estate analyst
Frank Warren of Frank Warren & Associates. "Their space needs have
remained fairly constant."
But double-digit
vacancy rates are unusual in the center city, which was reporting just
under 5 percent a year ago.
Over the past
two years, Wachovia and Bank of America have vacated leased space in
some uptown buildings and consolidated offices in the center city. And
new buildings such as the 46-story Hearst Tower have opened, luring
tenants out of older, less desirable offices.
Colliers
International counted only about 100,000 square feet of space under
construction in the core -- good news for building owners who must
compete with new offices.
"Charlotte is
more fortunate than some of those other cities, because developers here
put the brakes on new construction early," Warren said.
Atlanta, which
the Charlotte Chamber visited last week with about 100 business and
civic leaders, is reporting a vacancy rate of 13 percent with 1.24
million square feet under construction.
In parts of
Atlanta's core, developers have begun converting vacant office buildings
to loft apartments and condominiums, giving up on leasing to office
tenants.
Could that
happen in Charlotte, which is enjoying a resurgence in center city
residential development? Probably not, the experts say.
"Where that has
worked, the buildings have been older, with smaller floors and in close
walking distance to jobs," Warren said. "We have such a limited base of
those buildings here."
Also, said Tim
Newman, president of Charlotte Center City Partners, "We still have
enough land in the center city and the capability to do new residential
development tailored to certain market segments."
Colliers
International put Charlotte's first-quarter suburban office vacancy rate
at 19.7 percent.
Most real estate
experts consider 10 percent an optimum vacancy rate, because it
indicates the market has space to accommodate expanding and relocating
businesses.
Charlotte's
center city competes well against larger cities, because many companies
consider uptown rental rates a bargain for space in a financial hub near
two of the nation's largest banks.
Also, tenants
get amenities for employees along with their leases in the skyscrapers.
In the first
quarter, uptown landlords were quoting an average $22.90 a square foot
annual rent for Class A space, generally considered the market's newest
and finest.
That's a good
deal, Warren said, because parking in the center city is affordable,
restaurants are abundant and "the synergy of uses makes downtown a
desirable place to be."
In Boston, for
example, landlords were quoting an average Class A downtown rate of
$43.50 a square foot in the first quarter.
Uptown Charlotte
has slightly more than 1.3 million square feet of vacant office space.
In recent weeks, tenant interest has picked up, real estate salespeople
say.
But Charlotte
real estate forecasters don't expect the market to regain pre-recession
momentum until next year, when economists say job generation and
business expansion could increase.
Colliers
International predicts that the national office market will "hobble
along" for the foreseeable future.
"Significant job
losses in February, March and April suggest businesses across the
country continue to reduce headcounts wherever possible, leaving demand
for office premises at extremely low levels," the real estate firm wrote
in its first quarter survey.
With more than
55.4 million square feet of offices under construction nationwide,
Colliers International said, vacancy rates likely will continue rising
as rental rates decline.
The national
overall office vacancy rate of 16.5 percent could rise to 17 percent
this year and peak in 2004, the firm said.
