Healthy Absorption Levels in Q3 As Many Wonder When Growth Will Slow

Key Takeaways

  • Third quarter 2018 ended strong with 560,931 square feet of positive absorption. Vacancy rates slightly dipped as a result, with the overall vacancy rate for the entire Charlotte office market reaching 10% and Class A vacancy rate capping at 12%.

  • New developments experienced a successful quarter with some sizable deals executed. Global Payments Inc. signed a 75,743 square foot lease at Toringdon 7 (Q3 2019 completion). The RailYard (Q2 2019 completion) leased 40,000 square feet to WeWork and The Refinery (Q4 2018 completion) landed their first tenant since breaking round, Serendipity Labs, which took 22,694 square feet.

  • Rental rates have steadily increased over the last ten years and the third quarter of 2018 was no exception. Average CBD rates ended at $32.96 PSF, while Suburban rates averaged $24.68 PSF.

  • Subsequent to the record breaking Q2 2018 sale of 615 S. College, (now known as Regions 615), we saw the second highest investment sale on a per square foot basis in Q3 2018. The acquisition of 500 E. Morehead Street by Zurich Alternative Asset Management for $88,500,000 or $473 PSF was the most notable investment sale of Q3 2018.

Q3 2018 Charlotte Office Market Summary

Expect vacancy rates to dip in the fourth quarter of 2018 as new deliveries cotinue to be absorbed. While there are a handful of projects delivering in the fourth quarter, absorption is likely to keep pace as companies push for occupancy by year end. Anticipate average CBD rates to eclipse $33 PSF and average Suburban rates to reach $25 PSF by the end of 2018.

Charlotte continues to be recognized for its robust economy and growing population. A new study conducted by WalletHub ranking the nations fastest growing cities, put Charlotte in the #4 spot among large cities. High construction activity and positive absorption will continue, but global economic concerns may impact local decision making as we close out 2018 and move into 2019. Trade tariffs and rising interest rates will undoubtedly have an effect on the real estate industry and many wonder how this will impact Charlotte directly as a result. For now we expect continued rent growth and inbound investment to keep the Charlotte office market relatively strong into 2019, but with a close eye on domestic and global trends.