A lot more office, housing and hotel rooms are coming to Charlotte's center city, even in a long cycle that's been marked by overall strong performance across all real estate sectors.
That's according to the 2018 State of the Center City, an annual report by Charlotte Center City Partners that analyzes growth and development in Charlotte's urban core during the previous year as well as what's expected next. Data in the report examined uptown, South End and a portion of midtown.
Some of the key numbers from 2017: 1.4 million square feet of office space, 1,847 apartments and 713 hotel rooms opened in the center city.
Looking ahead, there's currently 5.1 million square feet of office space planned or under construction in center city in addition to 840,000 square feet of retail, 8,363 housing units and 2,276 hotel rooms.
Michael Smith, president and CEO of CCCP, said it's notable that there's growth across multiple real estate sectors — not strictly confined to just offices or apartments, for instance. He said that's likely because of pent-up demand and that the current development cycle has been marked by a cultural and demographic shift to the urban core, much more than in previous cycles in Charlotte.
Here's a look at a few key takeaways from the 2018 State of the Center City:
Although office development started fairly late in this cycle, Charlotte's center city is on track to deliver about as much new office space as the past few cycles.
"If we’re able to deliver 5 million to 7 million square feet (of office) per decade, it positions us to be able to respond," Smith said. "In the ‘80s, the ‘90s, the aughts, (development) was all bank-driven ... every three or four years, they would build a new tower, take half of it and then we’d have that inventory."
New office construction in this cycle is more developer- and institutional capital-driven. But buildings like 300 South Tryon and 615 South College that have been built by developers and investors have had strong demand and pre-leasing, Smith noted.
"I think that shows well for our market, which should help with asset values as some of these buildings are traded among institutional investors and, hopefully, this becomes our cycle where we prove our viability to institutional investors," he said. "Every cycle comes to an end; we just want them coming back for the next cycle."
The Blue Line that opened in 2007 has spurred billions in development along the rail line, with most of that new construction in South End being apartments. More recently, the neighborhood is seeing more density and mixture of uses being built — 500,000 square feet of office is planned or under construction.
"I think that the office market in South End is one that we’ve been anticipating for awhile, particularly from 277 down to the Camden/Tryon split," Smith said. "We believe that portion will develop much more like the CBD but it will have its unique South End and Gold District flair."
He cited Beacon Partners' RailYard project, under construction now, which includes 300,000 square feet of office space and 30,000 square feet of retail space. Smith said that project will be the new standard rather than the exception for office development in South End.
With nearly 2,000 new apartments opening in Charlotte's center city last year, 2017 was the busiest year to date for downtown's multifamily market.
Today, there are about 30,000 people living in center city, a growth of 600% since 1998. Much of that can be attributed to the urban apartment boom that's been a key theme nationally in this development cycle.
But because of high demand and quick absorption in the multifamily market here, rental rates are skyrocketing. The average monthly rent in center city is now $1,640, according to the report.
"If I were to identify anything that we need to be concerned about right now, it’s probably the affordability side of things," Smith said. "We don’t have a San Francisco, New York City, Washington kind of crisis, but we’re moving in the wrong direction and we’re going to push the lion’s share of our workforce into commute patterns that are unsustainable."
He said a report will soon be released detailing the findings of a task force, comprised of experts in affordable housing, that gives recommendations on new ways the private sector can build or preserve affordable units.
Smith noted that a lot of naturally occurring affordable housing in or near the CBD is being razed for new, oftentimes expensive, housing — or apartment owners embark on renovations at older properties that ultimately bump rents up 30% to 40%.
"We’ve got to find ways to preserve those long-term," he said.
Hotels continue to see demand in center city, with several projects having wrapped up in 2017 — the Kimpton Tryon Park Hotel, SpringHill Suites by Marriott Charlotte Uptown and Embassy Suites by Hilton Charlotte Uptown among them — but several more are underway or planned.
The occupancy rate in Charotte's center city is at 72%, according to the CCCP report, and more than 2,000 rooms are proposed or being built now. More than 800 rooms are anticipated to be added to the market in 2018.
"The average daily rates continue to climb yet when you look at what is paid in Nashville and in Austin, we’re still a relative value," Smith said.
There's been buzz recently about whether a convention center hotel, which contains between 800 and 1,000 rooms, is in Charlotte's near future. Such a hotel would cost hundreds of millions and likely require some type of public investment.
Smith said building a convention center hotel is a "best practice" for cities hoping to be a destination and necessary to compete with other major cities.
"When you look at the research, what’s proven out is that (a convention center hotel) raises all boats," he said. "It is actually in the best interest of other hotel operators because the entire market’s (revenue per available room) rises after that kind of a move."
Every development project along Stonewall Street — which encompasses nearly $3 billion in real estate activity — includes some amount of street-level retail, including uptown's first full-sized grocery store, Whole Foods Market, which is opening later this year near Stonewall and Caldwell streets.
In South End, Asana Partners has acquired several buildings in what's being called the Design District — in close proximity to and including the Design Center of the Carolinas — and Edens is redeveloping Atherton Mill. Both firms are investing significant capital into renovating and adding new retail space.
"The front part of this interest of retailers is being led by ... food and beverage and entertainment," Smith said, adding that soft-goods retail will come after retail has become more established. "As I’ve talked to developers and retail consultants in the past, retailers want to locate to places where their customers are already shopping."
Owners of older office buildings in uptown have also spent significant capital in refitting ground-floor lobbies into new restaurant and retail spaces, driving tenant activity and ultimately pushing per-square-foot rental rates.
There are lots of corporate prospects "poking around in the market," Smith said, adding that while House Bill 2 — a controversial state law enacted from March 2016-17 and credited with stalled economic development efforts — was hard on inbound activity, it's important for Charlotte to be intentional about telling its story.
Charlotte was not a finalist city for Amazon's second headquarters, which promises 50,000 jobs and $5 billion in economic development over the next decade. Twenty cities made a short list for the project, including Raleigh. The Charlotte region not being on the list was "surprising and disappointing," Smith said, adding that he thought Charlotte would have been in the top 10.
"When you looked at what was on that list of the things that Amazon valued, I thought it lined up really well with the things that we’ve prioritized and invested in over the last few decades," he said.
He added that the process of pursuing Amazon HQ2 was a "worthwhile exercise" to figure out why Charlotte didn't compete as well as other cities and to think about what the region needs to concentrate on and invest in looking ahead.
Charlotte Business Journal