Vacancy on the Rise in Charlotte as Big Projects Are Underway

Charlotte’s office sector records high vacancy rates, on par with national trends, while deliveries showed significant drops, according to CommercialEdge. Office investments showed a slight increase, with a $117 million sale pushing volumes higher.

As of July, Charlotte had 1.8 million square feet of office space under development across seven properties, representing 2.1 percent of total inventory stock.

The rate was higher than the national average of 1.3 percent and the most of peer markets, such as Raleigh-Durham (2.0 percent), Dallas (1.9 percent) and Orlando (1.2 percent). The only similar metro with a lower construction pipeline was Orlando, where approximately 1 million square feet of space make up its pipeline.

Charlotte’s overall office vacancy and solid pipeline could lend themselves to some office-to-residential conversions, but the market does not feature among the top markets in the country by amount of conversion candidates. CommercialEdge’s Conversion Feasibility Index paints a picture of what markets have the most significant office inventory that has a strong likelihood of conversion to residential space.

Charlotte’s under-construction pipeline still steady

A significant office development currently underway is 2405 Governor Hunt Road, a 700,000-square-foot office project in the metro’s University City neighborhood, initially designed to become Centene Corp.’s headquarters in the East Coast region. Construction on the Class A development started in 2020 and was acquired by Vanguard in April, for $117 million. The company will establish its new regional office at the development, that is scheduled to be delivered in late 2025.

Another notable office project is Legacy Union 600, a 390,000-square-foot development at 600 S. Tyron St., developed and owned by Lincoln Harris. The property broke ground in 2022 and is the fourth office building within the 10-acre mixed-use development Legacy Union, within Uptown Charlotte. The 24-story office tower is developed in partnership with Goldman Sachs Asset Management and scheduled to be delivered in late 2025.

Three projects started construction in the first seven months of the year, expected to total 265,500 square feet, while developers delivered two properties totaling 377,768 square feet, marking a 73.6 percent year-over-year drop.

The two new office buildings that came online are the 363,984-square-foot mid-rise at 110 E. Blvd., owned by Stiles and completed in March; and the 26,000-square-foot, two-story office asset at 19525 Jetton Road. The latter came online January and is owned by Vulcan Property Group.

A slight increase in sales volume

Year-to-date through July, 10 office properties totaling 1.8 million square feet of space traded in Charlotte, for a total of $204 million, marking a 15.6 percent year-over-year increase. Charlotte’s investment activity outperformed Nashville’s ($195 million) and Orlando’s ($126 million), while Dallas led with $584 million.

Notable office deals since the start of the year include the $19.3 million acquisition of The Johnston Building. KHP Capital Partners picked up the 172,382-square-foot office asset from seller Spaulding & Slye Investments in May. Another significant deal is Montecito Medical Real Estate’s $13.8 million purchase of the 33,891-square-foot medical office building at 1601 Abbey Place. The deal closed in June, with Healthpeak Properties as seller.

Office assets in Charlotte changed hands at an average sale price of $155 per square foot, higher than Atlanta ($146 per square foot) and Dallas ($116 per square foot). Among peer markets, Austin led with $432 per square foot.

Charlotte’s office vacancy rate on the rise

Charlotte’s office vacancy rate started to grow since the start of the year—from the 12.8 percent recorded in January to 15.5 percent in April. In June, the office vacancy rate in the metro slightly moderated, at 14.8 percent.

Although significant office deals didn’t close in the metro as of July, one notable leasing agreement remains Tyron Investors’ new deal at Vantage South End’s East Tower, 286,235-square-foot office building. The new tenant is DP World, that will use the new space as its new North American base of operations, with the leasing deal closed in late 2023.

At the end of July, the coworking sector in Charlotte stood at 505,060 square feet, the same footprint of shared space registered at the end of March. Across similar markets, only Orlando had a lower footprint of coworking space, with 321,187 square feet of shared space in the metro. The share of coworking space as percentage of total leasable office space reached 1.6 percent—below the national of 1.8 percent and on par with Orlando’s number.

Year-to-date through July, the flex office provider with the largest footprint in the metro remained Regus, with operations totaling 169,787 square feet. The company was followed by Souder Properties, with 95,000 square feet, Hygge, with 92,837 square feet, WeWork, with 86,000 square feet and Salon Lofts, with 83,908 square feet.

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