Charlotte is considering turning empty office space into housing

Also like other metros, Charlotte has a shortage of housing as people continue to move here, and an increasingly dire need for affordable housing.

• So, the natural question may be: Why not turn those cavernous offices into housing?
• In Charlotte these days, that’s exactly what city and development leaders are considering doing.

Why it matters: Rehabbing millions of square feet of unused or underused Uptown office space would not only alleviate a housing problem, it could provide a fresh revenue stream for property owners, thus adding to the city’s tax base.

• It could also help invigorate Uptown and draw in thousands of new residents.

Yes, but: It’s not as easy as knocking down a few walls and replacing cubicle desks with queen-size beds and kitchen cabinets. Transforming an office building into apartments means retooling plumbing and electrical systems, carving out more windows for natural light, and reconfiguring entire sprawling floors of space into more compact dwellings.

• Converting empty office space into residences or other uses, while it may open up a new revenue stream for property owners, is costly.

Office conversions are already happening. Last year, Duke Energy sold its 800,000-square-foot building at 526 S. Church. The property’s new owners, MRP Realty, will convert the 13-story tower into 450 apartments, as CBJ noted. The site will include retail, too.

What they’re saying: “Changes like these will breathe new life into buildings while also transforming our downtown into a more vibrant, greener neighborhood – and that’s only going to catapult our position as a top flight city,” says Cameron Barradale, Charlotte-based studio director at the design and architecture firm Gensler.

By the numbers: Uptown office buildings constructed before 1990 have a nearly 34% vacancy rate, per CoStar data. Uptown’s overall office vacancy rate is about 20%, equating to about 11 million square feet of space. “That’s likely to continue to go up as some of these other companies announce plans to move,” says Chuck McShane, CoStar’s Charlotte-based director of market analytics.

• To put that into perspective: The Bank of America Corporate Center in Uptown is 1.2 million square feet.
• Among companies that’ve vacated Uptown space in recent years: Grant Thornton and Robinhood.

There are at least 10 office towers in Uptown that list more than half of their square footage as available for lease, the Charlotte Ledger reported this week.

Overall, vacancy is higher in older, outdated buildings because employers are increasingly seeking out newer, sleek properties walkable to amenities such as entertainment, dining and breweries.

• As a result of this so-called “flight to quality,” an increasing number of employers — from Accenture to the law firm Alston & Bird — have moved their offices from Uptown to South End in recent years.

“We built more brand-new space in Charlotte, and we built it at a time when office use declined,” McShane says, referring to South End. “Right now we don’t have as much demand to backfill the older space.”

Recently, Wells Fargo listed its prominent Uptown property at 301 S. Tryon St., which includes a 30-story office tower built in the early 1970s, an 11-story office building, a plaza and the building atrium.

• Gensler created a tool that assesses office buildings’ compatability “for adaptive reuse, conversion and redevelopment.” Based on a number of factors, from the shape of the 301 S. Tryon tower to its access to transit, the firm concluded that the tower is a strong candidate for conversion.
• CBRE, which is listing the property, hasn’t said anything else about plans for it.

Zoom out: Office vacancies can mean that older properties are faced with insufficient cash flow to pay back their debt, as Gensler noted in a recent report.

• The departure of major commercial tenants costs a city a substantial amount in lost tax revenue.

Between the lines: The older, empty office space is what city leaders are eyeing for other uses.

“This space is interesting to us because it might need to be repurposed or reimagined due to the changes that have occurred (in) office utilization during and after the pandemic,” James LaBar, Center City Partners’ economic development director, tells Axios.

The city is considering three strategies to “reimagine” underused properties in Uptown, LaBar says.

• Repurposing parts of the building. This could include renovating prominent parts of the property, such as the main lobby, to make it more welcoming for tenants and guests. That’s what Crescent Communities did at One Independence Center, spending $25 million to refresh the lobby and retail space.
• Repurposing whole office buildings to become medical facilities, lab space, hotels, higher education or residences.
• Including multiple uses in a new buildings. At the new FNB Bank building for instance, there is office and residential.

“In all likelihood across Charlotte, there’s no silver bullet. There are going to be multiple solutions deployed,” LaBar tells Axios. He declined to specify which office buildings city leaders or developers are eyeing as conversions.

The big picture: The office market nationally will see 13.44 million square feet of space converted to other uses this year, according to CBRE. That’s more than double the 6.37 million square feet of office space that underwent conversions last year.

• In Minneapolis, local developer Sherman Associates has proposed turning the 13-story Northstar Center East tower in downtown into 216 apartments, 20% of which would be set aside as affordable housing, Axios’ Nick Halter reported.
• In downtown San Francisco, where the office vacancy rate is close to 30%, city leaders have proposed measures to make it easier and most cost effective for builders to convert unused office space, Axios’ Emily Harris reported.

Of note: Because many office buildings have large floor plates — a term that refers to the rentable square footage in a building — they are often better suited for tenants in the life sciences area (like laboratories and research and development facilities) than apartments, per CBRE.

Still, while the pandemic accelerated the trend, it isn’t new.

• In downtown Winston-Salem, for instance, the 1920s building that housed the headquarters for the R.J. Reynolds Tobacco Company was repurposed to include a Kimpton hotel in 2015, the Assembly reported. The following year, apartments called The Residences @ the R.J. Reynolds Building opened, along with a bar on the ground floor

“This is really a generational opportunity to reimagine the mixed-use nature of Uptown. As office continues to evolve, some buildings will have to transform along with it,” Barradale says.