Charlotte's Office Vacancies Rise to 17.3%

Charlotte finished 2001 with an overall vacancy level of 17.3%, up from 15.5% in the third period, according to a new report from CB Richard Ellis Inc.

Net absorption was a negative 37,996 sf in the fourth quarter, making the annual total 500,668 sf or an 80% drop in overall leasing activity compared to 2,527,859 sf leased in all of 2000.

"Leasing activity has clearly slowed over the past year, especially in suburban space," Ryan D. Clutter, an investment properties associate in CBRE's Charlotte office, tells GlobeSt.com. Clutter authored the October-December analysis.

Charlotte finished the year with a 485 basis point rise in office vacancy and a 265 basis point rise in industrial vacancy from a year ago, the CBRE report shows.

"Although these numbers indicate an unfavorable trend, the Charlotte market remains ahead of the national average, as both the office and industrial markets are 60 and 200 basis points below the national index respectively," Clutter tells GlobeSt.com.

"Helping to prevent further deterioration in the Charlotte vacancy rates is our cooling construction market," he says. "Both the office and industrial markets will see significantly less new product delivered in 2002 as the struggling economy has forced both debt and equity sources to hold off on new development projects."

The Charlotte office construction market is down 46.6% from a year ago; industrial is down 38.5%. "After the Hearst Tower is delivered in March (886,259 sf and 98.7% preleased), the construction market will be at its lowest levels since 1994," the CBRE investment specialist says.

Although net absorption is down, rents are up. The weighted average asking lease rate was $20.26 per sf for the overall market versus $20.06 per sf in the third quarter.

Class A space, accounting for 63% of the office inventory, averaged $22.12 per sf; class B, accounting for 30% of the market, averaged $17.48 per sf; and class C product was asking an average $15.78 per sf.

A total 261,963 sf of new product surfaced in the fourth quarter, bringing the year-to-date total to 1,618,066 sf. Another 1.4 million sf will be added by mid-2002. Of the amount under construction, 79% was preleased at year end.

New development is at a trickle pace. For example, Downtown saw 958,898 sf under construction in the fourth quarter, a 38% decrease from the 1,551,259 sf being built a year ago. In the suburbs, new construction levels were at a four-year low, down 55% in the last 12 months alone. Suburban construction totaled 427,762 sf compared to 946,503 sf at year end 2000.

"As the economy recovers and tenant demand is renewed for both office and industrial properties, the small construction market will play a favorable role in helping Charlotte to return to positive rent growth scenarios," Clutter tells GlobeSt.com.