Q3 Office Space Report: Charlotte

Charlotte is a major financial center in the Eastern United States, and its office space market had a strong quarter, with positive net absorption and falling vacancy rates. 

Charlotte added relatively few new units this quarter, and asking rates remained relatively stagnant. However, several new high-profile construction projects signal a positive horizon for investors. 

Rising interest rates may delay the financing of new projects, though key submarkets are still experiencing decent growth. Charlotte’s office space market will orient itself around high-quality Class A office space for large tenants. 

General Area Overview and Demographics

Charlotte is the most populated city in North Carolina and has a total population of over 900,000 as of 2022. 

The median age is 34, and the median household income is $65,359. Charlotte is one of the most important economic and cultural centers in the American South and has historically been one of the area’s fastest-growing metros. The city is known for its museums, performing art culture, and numerous annual festivals and events. 

Charlotte is located near Lake Norman, the largest artificial lake in the state, and features a humid subtropical climate with hot summers and mild winters. Charlotte is the second-largest banking center in the US and boasts an impressive financial sector. 

Charlotte is currently home to over 190 neighborhoods ranging from Downtown and Biddleville to North Davis and Eastover. The dominant religion is Protestant Christianity, and the city also has the largest Jewish population in the Carolina states. 

Summary of Charlotte Office Space Performance in Q3 2022

Charlotte’s office space market managed to have its first quarter of positive absorption since Q2 2021 with a total of 516,000 square feet. However, the city continues to see increasing subleasing activity thanks to the spread of remote work. Flexible working arrangements have become a desirable employee benefit, meaning companies have less need for office space. 

That being said, unemployment rates are low at 3.72%, and the city added over one million square feet of units since the end of Q1 2022. The increase in supply is less than the increase of Q2 2022, but Q3 2022 saw higher net absorption at 516,493 square feet. 

Vacancy rates decreased by 0.4% from 13.6% in Q2 2022 to 13.2% at the end of Q3 2022. Total vacancies are still higher than their pre-pandemic low, but there seems to be a general trend of reduced vacancy rates over the latter half of 2022. 

What Are Office Space Rents Like in Charlotte?

Overall, lease asking rates remained the same as last quarter at $32.70 per square foot in Q2 2022 and Q3 2022. However, these rates are slightly up from $31.81 at the end of Q4 2021. Class A office properties had an average leasing rate of slightly over $35.00 per square foot, while Class B office space had an average leasing rate of about $28.00. 

Overall, average market rents haven’t had much positive or negative change since the end of Q4 2021. Class B office space showed the most increase, while Class A office space remained mostly flat. Property markets in Charlotte showing the highest average asking rates include CBD (Central Business District), Highway 51, Park Road, South End, and SouthPark.

Purchase & Leasing Activity

Charlotte had several property sales last quarter and a high amount of leasing activity. Specifically, the CBD market saw three of the five highest-value leases, while the Airport submarket had the highest rate of net absorption. 

Notably, the city saw a large increase in subleasing activity, thanks to the established work-from-home culture permeating most industries. Subleasing activity for Class A and Class B properties increased slightly, but subleasing for Class C properties increased substantially from less than 200,000 units in Q2 2022 to over 400,000 units in Q3 2022. 

This high leasing activity reflects the fact that employees have more leverage to negotiate for flexible remote work scheduling. For example, managed healthcare provider Centene canceled its plans for new properties in the University submarket due to a decreased demand for new office construction. 

Notable Office Space Deals in Charlotte in Q3 2022

Several notable office deals took place in Q3 2022, including:

• Charlotte FC’s 51,650-square-foot lease in the Matthews submarket;
• Brookdale Group’s $79.9 million purchase for 230,790 square feet in the SouthPark market; and
• GIC’s $29 million and $17 million purchases for 222,247 and 155,579 square feet in the Airport West and University submarkets. 

Other important leases include Spot Freight’s and Atlantic Coast Conferences 48,077 and 27,553 square foot leases at the Bank of America Tower in the CBD submarket. 

New Office Space Development Activity in Charlotte in Q3 2022

As of the end of Q3 2022, Charlotte had 4.5 million square feet of new office space under construction, down from 5.38 million square feet in Q2 2022. The projected total for new construction completed in 2023 is 1.4 million square feet. 

Below is a table showing a brief overview of notable construction projects for office space in Charlotte. 

Market Forecast for Charlotte’s Office Space Market in 2023

Overall, 2022 has been a successful year for the Charlotte office space market. The high net absorption is likely to continue into 2023 as employees return to the office and developers complete several highly anticipated projects. 

However, recent interest rate hikes could affect new construction activity as financers might hesitate to provide funding. Even so, many of Charlotte’s submarkets, such as CBD and Airport West, continue to show signs of growth amid demand for high-quality office space.  

Takeaways for Office Space Investors

Charlotte shows strong leasing activity and ample new construction despite unfavorable economic conditions and high-interest rates. Investors should be most concerned with the relatively stagnant rental prices and potential delays in construction projects due to decreased demand for office space. 

Investors should focus on high-quality office space that can draw high leasing rates from employees returning to the office. Investors should also consider the possibility of subleasing to meet companies’ flexible work schedules. 

As always, do your research and due diligence before investing in Charlotte office space.