Jan 22, 2024 - Business

South End may be sucking the life out of Uptown offices

The view of 110 East in South End

Construction of 110 East (right) is expected to finish by late March or early April. Photo: Alexandria Sands/Axios

Uptown's cooler, younger neighbor is stealing its prospective office workers.

  • It's unlikely South End, where new office buildings keep opening, will experience the kind of empty cubicles and quiet hallways that buildings in other parts of town do, industry experts tell Axios.
  • "It is one of the anomalies in the entire office market across the country," says James LaBar, senior vice president of economic development for Charlotte Center City Partners.

Why it matters: Employers are more interested in putting down roots in new, state-of-the-art offices than they are in outdated and expensive office space.

  • This ongoing "flight to quality" trend continues to boost South End — but it's hurting Uptown.
  • Overall leasing volume in Charlotte was down about 28% in 2023 compared to the five-year, pre-pandemic average. But South End was up about 35%, according to Chuck McShane, CoStar's Charlotte-based director of market analytics.

Yes, but: No new projects kicked off in the fourth quarter because of market uncertainty and inflation, according to Cushman & Wakefield's latest market report.

  • Charlotte office construction is at a 10-year low, McShane tells me.
  • Most projects underway broke ground before interest rates spiked.

One of the next big proposals is Queensbridge Collective, on the edge of South End. A residential tower is going up first. It's unclear when vertical construction on the next phase — a 35-story, 600,000-square-foot office building — will begin.

  • Interest in the office portion so far has been strong, says Joe Franco, senior vice president with CBRE.

By the numbers: Of 4 million square feet of office space in South End, 15% is vacant, according to CBRE.

Meanwhile, Uptown offices are nearly 21% empty, CBRE reports. The average lease is $35.94 per square foot in Uptown, compared with $44.30 per square foot in South End.

Context: A growing city, Charlotte had one of the tightest vacancy rates in the U.S. right before the pandemic hit. It fell to between 6% and 7%, McShane says.

  • Office construction exploded in South End at a time when Uptown was essentially full. The light rail, apartments and retailers had already made it a popular destination.
  • But as more companies shifted to hybrid or remote work during the pandemic, the older space in the central business district wasn't backfilled. That's weighed on Uptown's liveliness.
  • What's more, prominent employers like Alston & Bird, Grant Thornton and CBRE have moved from Uptown to South End in recent years.

Zoom in: What companies are looking for in their office environment, South End "delivers" on, LaBar tells me.

  • A 23-story glass tower called 110 East, for example, is being built on the light rail platform, close to retail and other amenities. The building could temporarily drive South End's vacancy rate down. But it's what employers are most looking for in a new office, industry insiders tell Axios.
  • Another factor that has helped support a healthy vacancy rate is the staggered delivery of new offices, Franco notes.

Consider The Line, a new 16-story office building with one of Charlotte's busiest breweries on the ground floor, opened in May 2022. It's 71% leased. Foundry Commercial expects to lease the last two available floors within the next six months, partner Meredith Ball says.

  • It signed a to-be-announced tenant just this week. Chicago freight company TTX is relocating to the top of the building.
  • Across all submarkets, leasing activity has improved over the last 12 to 18 months, Ball says. That includes in Uptown.

Reality check: A handful of large buildings may be to blame for pulling the occupancy rate down in Uptown. For example, at least five buildings are more than half empty, according to the city's report.

  • "The story isn't exactly as bad as it sounds when you look at the numbers," Franco says.

The big picture: It's likely some Uptown towers may be converted for other uses, such as housing. South End has demonstrated how crucial a mix of uses is, McShane says.

What's next: Office construction will remain slow.

  • Class A space is expected to become limited because of a development gap, Cushman & Wakefield reports.
  • LaBar says any developer willing to take a risk and be the first to break ground on a new office may hit the "sweet spot."
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