8% 9% 10% 11% 12% 13% 14% 15% 16% 2010 2011 2012 2013 2014 2015 2016 $16.00 $17.00 $18.00 $19.00 $20.00 $21.00 $22.00 $23.00 0 100 200 300 400 500 600 2011 2012 2013 2014 2015 2016 Net Absorption, 000's Asking Rent, $ PSF CHARLOTTE OFFICE Economy With high stock market volatility in early 2016, markets in April seem to have settled down into a state of sustainable growth. Despite previous intentions to raise interest rates again, the Fed decided in March to hold off for now. With an Election year underway, if a decision to raise rates occurs, it will likely be postponed until afterwards. Though Charlotte’s unemployment rate ticked up 0.2% to 5.3% in early 2016, the local unemployment rate has been on both sides of the national average, resulting in a relatively flat trend line in recent quarters. However, Charlotte’s job growth has been robust with employment increasing by 0.7%, adding 7,800 jobs this quarter, many of which were in financial services, business services, and the leisure and hospitality industries. Charlotte’s continuing economic and population growth, since the recession, can be largely attributed to its pro-business environment, desirable quality of life and low cost of living. Market Overview The Charlotte office market is starting off 2016 with a very positive outlook for the year. After delivering approximately 800,000 SF in 2015, the construction boom continues with another 2.8 million SF on the way. One-third of new office construction going up is build-to-suit, most of which is located outside of the urban core (Uptown, Midtown, and Southpark), the exception being the Dimensional Funds building in Midtown. Two-thirds of new office construction is “speculative”, most of which is in the urban core (Uptown, Midtown, and SouthPark) with the exception of the new Brigham building in Ballantyne. Projected deliveries are matching demand, as a spike in first quarter absorption starts 2016 off well. Year to date net absorption was 680,159 square feet, half 2015’s annual number. Overall asking rates are now up to $22.18, an increase of 5.4% over the last 12 months. Citywide vacancy rate decreased 0.4%, during the first quarter, to 8.5%. The upward trend in asking rates should continue throughout the year as new higher priced class A buildings deliver. Sales volume increased again this quarter with approximately $1.4 billion in transactions at an average closing price of $209 per square foot, a 6.2% increase from last quarter. Average cap rates remained relatively unchanged for the quarter at 6.8%. Suburban The Suburbs accounted for 100% of new deliveries and 74% of the YTD positive net absorption. Airport and York County submarkets alone contributed 447,857 square feet of the total 680,159 square feet in positive net absorption for the quarter. The Suburban vacancy rate decreased 0.3% from 9.1% to 8.8%. Still far below the CBD, suburban average asking rates Overall Vacancy Net Absorption/Asking Rent 4Q TRAILING AVERAGE Market Indicators Q1 15 Q1 16 12-Month Forecast Overall Vacancy 9.6% 8.5% Net Absorption 144,747 680,159 Under Construction 1,982,637 2,802,886 Average Asking Rent $21.04 $22.18 Economic Indicators Q1 15 Q1 16 12-Month Forecast Charlotte MSA Employment 1,179,100 1,186,900 Charlotte MSA Unemployment 4.9% 5.3% U.S. Unemployment 5.0% 5.0% Historical Average = 11.9% Office Snapshot Q1 2016 Charlotte, North Carolina MARKETBEAT
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8%
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2010 2011 2012 2013 2014 2015 2016
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2011 2012 2013 2014 2015 2016
Net Absorption, 000's Asking Rent, $ PSF
CHARLOTTE OFFICE Economy With high stock market volatility in early 2016, markets in April seem to have settled down into a state of sustainable growth. Despite previous intentions to raise interest rates again, the Fed decided in March to hold off for now. With an Election year underway, if a decision to raise rates occurs, it will likely be postponed until afterwards. Though Charlotte’s unemployment rate ticked up 0.2% to 5.3% in early 2016, the local unemployment rate has been on both sides of the national average, resulting in a relatively flat trend line in recent quarters. However, Charlotte’s job growth has been robust with employment increasing by 0.7%, adding 7,800 jobs this quarter, many of which were in financial services, business services, and the leisure and hospitality industries. Charlotte’s continuing economic and population growth, since the recession, can be largely attributed to its pro-business environment, desirable quality of life and low cost of living.
Market Overview The Charlotte office market is starting off 2016 with a very positive outlook for the year. After delivering approximately 800,000 SF in 2015, the construction boom continues with another 2.8 million SF on the way. One-third of new office construction going up is build-to-suit, most of which is located outside of the urban core (Uptown, Midtown, and Southpark), the exception being the Dimensional Funds building in Midtown. Two-thirds of new office construction is “speculative”, most of which is in the urban core (Uptown, Midtown, and SouthPark) with the exception of the new Brigham building in Ballantyne. Projected deliveries are matching demand, as a spike in first quarter absorption starts 2016 off well. Year to date net absorption was 680,159 square feet, half 2015’s annual number. Overall asking rates are now up to $22.18, an increase of 5.4% over the last 12 months. Citywide vacancy rate decreased 0.4%, during the first quarter, to 8.5%. The upward trend in asking rates should continue throughout the year as new higher priced class A buildings deliver. Sales volume increased again this quarter with approximately $1.4 billion in transactions at an average closing price of $209 per square foot, a 6.2% increase from last quarter. Average cap rates remained relatively unchanged for the quarter at 6.8%.
Suburban The Suburbs accounted for 100% of new deliveries and 74% of the YTD positive net absorption. Airport and York County submarkets alone contributed 447,857 square feet of the total 680,159 square feet in positive net absorption for the quarter. The Suburban vacancy rate decreased 0.3% from 9.1% to 8.8%. Still far below the CBD, suburban average asking rates
Overall Vacancy
Net Absorption/Asking Rent 4Q TRAILING AVERAGE
Market IndicatorsQ1 15 Q1 16 12-Month
Forecast
Overall Vacancy 9.6% 8.5%
Net Absorption 144,747 680,159
Under Construction 1,982,637 2,802,886
Average Asking Rent $21.04 $22.18
Economic IndicatorsQ1 15 Q1 16 12-Month
Forecast
Charlotte MSA Employment 1,179,100 1,186,900
Charlotte MSA Unemployment 4.9% 5.3%
U.S. Unemployment 5.0% 5.0%
Historical Average = 11.9%
Office Snapshot Q1 2016Charlotte, North Carolina
MARKETBEAT
www.cushmanwakefield.com | 2
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VacantOccupied
increased 1.6% to $20.41 per square foot, a steady $0.32 per square foot from the end of 2015. With continuing strong absorption numbers and 1,583,164 square feet of new construction with higher rents, Charlotte’s suburban office market should see asking rents continue to increase as demand remains healthy.
Uptown The Uptown office market did not have any deliveries in the first quarter, but does have 1,219,722 square feet currently under construction. With so much inventory on the way, it is encouraging to see net absorption of positive 180,035 square feet. Uptown’s low 7.5% vacancy rate has allowed developers and landlords to command better terms in lease negotiations. Asking
rents steadily nudged up in the first quarter to $28.18, a $0.19 increase from last quarter. Some of Uptown’s new projects include 300 South Tryon (638,459 square feet) and 615 S College (381,263 square feet). Another project that has been proposed, but not yet broken ground, is Crescent Communities’ Tryon Place project (715,000 square feet). It is a mixed use development that will be an excellent addition to the city’s sky line.
CHARLOTTE
Office Market SnapshotFirst Quarter • 2016
Outlook• Demand will continue to push rents higher, though
tenant improvement costs seem to be increasing almost as fast.
• Net absorption in 2016 will exceed historical averages and will drive down vacancy in suburban markets; however with new “spec” construction in the urban core, we could see vacancy rates start to flatten.
• Tenants continue to trend towards higher density occupancy, resulting in parking needs of 6+ per 1,000 SF, as well as aesthetic shifts, which are in part driving up construction costs.
• With the volume of capital chasing quality office buildings, 2016 will have increasing sale activity.
“We are at a momentous time with new speculative product in the urban core. The winners will be those at the forefront of tenant demand and for existing buildings, those buildings that can adapt. Shared resources/amenities, public transportation, lifestyle components and wellness lead the way. “What’s next?” is the question.”
- Jessica Brown, Project Leasing
Class A Asking RentCBD RENTS HAVE INCREASED 13.3% YEAR ON YEARSUBURBAN RENTS HAVE INCREASED 4.5% YEAR ON YEAR
Completed BuildingsDELIVERIES ARE BEGINNING TO TREND UPWARD
Vacant SpaceVACANCY CONTINUES TO TIGHTEN ACROSS THE CHARLOTTE METRO
Historical Average = 1.6 MSF
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Key Sales Transactions Q1 16
TOTAL BLDGS INVENTORY DIRECT
VACANTTOTAL
VACANT SFVACANCY
RATEYTD NET
ABSORPTIONYTD
DELIVERIESUNDER
CONSTRUCTIONAVERAGE
ASKING RENT
SUBMARKET
Airport 343 13,164,262 1,385,199 1,421,790 10.8% 195,415 0 608,173 $19.40
CBD 138 22,473,816 1,621,874 1,691,587 7.5% 180,035 0 1,219,722 $28.02
Cleveland County 260 1,787,963 99,207 99,207 5.5% (3,097) 0 5,147 $13.43
Cotswold 38 451,560 15,601 15,601 3.5% 4,975 0 0 $21.63
Crownpoint 243 3,087,601 396,948 398,754 12.9% 23,073 6,203 33,500 $16.25
East Charlotte 569 4,529,711 261,892 278,416 6.1% (5,657) 0 0 $14.01
Gaston County 683 4,059,896 286,045 286,045 7.0% 7,586 3,141 27,009 $13.90
Highway 51 298 8,559,120 852,309 856,542 10.0% (1,785) 0 287,500 $24.37
Iredell County 420 4,028,888 428,042 431,170 10.7% 11,387 0 1,700 $16.50
Midtown 644 8,862,426 427,564 448,753 5.1% 30,721 0 36,000 $23.22
Northeast/I-77 389 5,553,312 545,044 554,631 10.0% 57,018 36,505 75,000 $19.73
Northwest Charlotte 191 1,379,399 63,626 63,626 4.6% 1,753 0 0 $20.85
Park Road 71 1,237,032 128,489 128,489 10.4% (23,480) 0 3,413 $17.84
Southpark 128 5,655,529 597,898 690,689 12.2% 24,922 3,500 236,250 $27.86
Union County 376 2,345,939 199,543 211,431 9.0% 16,653 12,430 19,472 $17.74
University 137 8,299,678 673,961 726,385 8.8% (91,802) 0 0 $20.03
York County 532 5,815,744 326,030 329,449 5.7% 252,442 259,867 250,000 $17.99
SUBURBAN MARKET TOTALS 5,322 78,818,060 6,687,398 6,940,978 8.8% 500,124 321,646 1,583,164 $20.41
UPTOWN MARKET TOTAL 138 22,473,816 1,621,874 1,691,587 7.5% 180,035 0 1,219,722 $28.02
Class A 239 37,770,288 3,203,188 3,325,922 8.8% 481,847 250,000 2,651,145 $26.52
Class B 2,037 44,136,900 3,939,533 4,130,265 9.4% 200,284 71,646 151,741 $18.83
Class C 3,184 19,384,688 1,166,551 1,176,378 6.1% (1,972) 0 0 $15.84
CHARLOTTE METRO TOTAL 5,460 101,291,876 8,309,272 8,632,565 8.5% 680,159 321,646 2,802,886 $22.18
Office asking rents converted to Full Service
Key Lease Transactions Q1 16
CHARLOTTE
Office Market SnapshotFirst Quarter • 2016
TENANT PROPERTY SF TRANSACTION TYPE SUBMARKET
Compass Group Coliseum Center 1 & 2 226,657 Expansion Airport
MetLife Woodward Building 56,742 Expansion Highway 51
Town Square Media 200 South Tryon 51,288 New CBD
AIG BB&T Center 32,108 Expansion CBD
Ensemble Health Partners Alexander Building 30,870 Expansion Northeast/I-77
US Bank South Tryon Square 24,124 New CBD
Hannover Life Reassurance Company of America Simmons Building 19,429 Renewal Highway 51
Merrifield Patrick Vermillion 2400 South Blvd 12,000 New Midtown/South End
PROPERTY PRICE SF PSF SELLER / BUYER SUBMARKET
One Wells Fargo Center $284,000,000 1,018,120 $279 Starwood Capital Group/Vision Properties LLC CBD
Carillon Tower $147,000,000 476,308 $309 Hines/KBS REIT III, Inc. CBD
SouthPark Center $46,500,000 238,018 $195 The Dilweg Companies/Continental Capital Partners LLC SouthPark
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Office SubmarketsCharlotte, NC
The successful merger of Cushman & Wakefield and DTZ closed September 1, 2015. The firm now operates under the iconic Cushman & Wakefield brand and has a new visual identity and logo that position the firm for the future and reflect its trusted global legacy and wider history. The new Cushman & Wakefield is led by Chairman & Chief Executive Officer Brett White and Global President Tod Lickerman. The company is majority owned by an investor
group led by TPG, PAG, and OTPP.
About Cushman & WakefieldCushman & Wakefield is a global leader in commercial real estate services, helping clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenues of $5 billion across core services of agency leasing, asset services, capital markets, facility services (branded C&W Services), global occupier services, investment management (branded DTZ Investors), project & development services, tenant representation and valuation &
advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
Steve Gassaway Market Leader
550 S. Tryon Street
Suite 3400
Charlotte, NC 28202
Tel: +1 704 375 7771
Fax: +1 704 347 0793
The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.
Copyright © 2015 Cushman & Wakefield. All rights reserved.
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O ce SubmarketsCHARLOTTE, NORTH CAROLINA
Lynx Blue Line
Lynx Blue Line ExtensionComplete 2017
Park Road
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CHARLOTTE
Office Market SnapshotFirst Quarter • 2016
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