1q’172013 q1 q2 q3 q4 2014 q1 q2 q3 q4 2015 q1 q2 q3 q4 2016 q1 q2 q3 q4 2017 q1 class a class b...

Charlotte Office Market Report1Q’17

Charlotte’s 4.4% Unemployment Rate is below 2016 levels and matches national average.Charlotte’s Local Economy

Charlotte’s economy continues to motor ahead at a brisk pace after producing better-than-average GDP and job growth in 2016. Positive trends in employment and spending have contributed to a bullish outlook for area businesses.

The unemployment rate in Mecklenburg County fell to 4.4% during the first quarter, being slightly better than the national average. The local figure represented an improvement from 5.3% the prior year. The number of people employed here continues to rise at a faster rate than the country as a whole.

Meanwhile, the county’s average home price in early 2017 climbed 7% from the previous year to $263,200, according to the Charlotte Chamber. Monthly retail sales volume hit $2.2 billion early in the quarter, which was the highest figure in more than five years.

Charlotte Market Overview

Office vacancy rates remained pretty steady during the first quarter at 9.4%, essentially the same rate as reported at the end of 2016. Rates remain well below those seen over the past 4 years when figures approached 14%.

The biggest transaction during the quarter was the $1 billion-plus sale of Ballantyne Corporate Park to New York-based investment firm Northwood Investors. Northwood bought the property from The Bissell Cos. It was the largest single real estate deal in Charlotte’s history. Ballantyne Corporate Park covers around 535 acres and 4.5 million square feet of office space, as well as four hotels, a golf course, and hundreds of acres of undeveloped land.

A couple of smaller deals also drew attention during the quarter. One was Anchor Health Properties’ $23 million acquisition of 300 and 330 Billingsley Road, a pair of medical office buildings totaling 92,000 square feet. The buildings were sold by a joint venture between Insite Properties and Alex Brown Realty. Tenants include Carolinas HealthCare System, Novant Health, Randolph Internal Medicine, Carolina Digestive Health Associates, CarolinasMedical Center Behavioral Health Center, Legacy Heart Care and Novant Health Neurology Specialists.

Another deal involved Charlotte East, a 10-building office park off Albemarle Road with 510,000 square feet of office space. It was purchased for $26 million by Nova Capital Partners. Nova bought the property from Charlotte East LLC.

Charlotte, Mecklenburg County2017 1Q

Total Number of Buildings 3,226

Total Square Feet 83,141,807

Average Asking Rates $23.04

Overall Vacancy 9.4%

Net Absorption 50,330 SF

Deliveries 606,002 SF

Under Construction 2,043,613 SF

Charlotte, North Carolina

1Q 2017OFFICE Market Report

5%6%7%8%9%

10%11%12%13%14%

10.5% Average Vacancy Rate

Vacancy Rates

$14.00$15.00$16.00$17.00$18.00$19.00$20.00$21.00$22.00$23.00$24.00

-100,0000

100,000200,000300,000400,000500,000600,000700,000800,000

Absorption (RSF) / Asking Rates

2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%11.0%12.0%13.0%14.0%

Charlotte UnEmployment Rate

Avg. Asking Rate Absorption SF

Copyright: NAI Southern Real Estate 2017Sources: CoStar, NAI Southern Real Estate

1Q16 vs. 1Q17

DELIVERIES ASKINGRATES

VACANCYRATE

NETABSORPTION

The largest lease signing during the quarter was We Work’s 51,547-square-foot deal at 615 South College Street in the Central Business District (CBD). Other large transactions included the 25,252-square-foot lease deal signed by DAK Americas at Quail Plaza in South Charlotte; and a 24,837-square-foot lease signed by BDO USA at 615 South College Street in the CBD.The number of deals continued to decline, however. A total of 169 leasing deals were signed during the first quarter. That was down from 177 the previous quarter and represented the lowest total in nearly nine years.

Only two deliveries were reported in the Charlotte market during the quarter. The biggest was at 615 South College Street, which boasts 375,002 square feet and was 38% occupied at the end of Q1. The other delivery was Southpark’s Capitol Towers-North Office Tower, a 236,250-square-foot building. It was unoccupied at the quarter’s end.

Net absorption for the quarter was positive 51,718 square feet. That compares to negative-39,598 square feet during the 2016 fourth quarter and positive 256,054 square feet during the 2016 first quarter.

Average first-quarter rents reached $23.04 per square foot, which was the highest figure in at least a decade. The Q1 number was up from $22.82 the previous quarter and $22.78 the previous year.

Fourteen buildings were under construction during the quarter, totaling about 1.7 million square feet of office space. It was the first time in nearly two years that the total fell below 2 million square feet.

Among the new projects announced during the quarter was a five-story office building, called the Refinery at 1213 West Morehead, that will have 105,000 square feet of office space. The property is a fully-funded joint venture with Northridge Capital LLC.

Central Business DistrictCharlotte’s Central Business District accounted for several of the first quarter’s biggest lease signings. In addition to the We Work and BDO USA deals, top signings included US Bank National Association’s 21,210-square-foot lease at South Tryon Square. Other large CBD lease deals were for 17,119 square feet at 525 North Tryon Street, and 10,079 square feet at 400 South Tryon Street. Meanwhile, Bank of America renewed its lease at 525 North Tryon Street for 194,000 square feet. BofA occupies more than seven floors in the building. The CBD’s vacancy rate stood at 10.2% at the end of the first quarter.

Airport The Airport submarket was one of Charlotte’s busiest during the first quarter, with eight of the area’s top lease signings. The biggest of these was a 23,654-square-foot deal signed at Whitehall Corporate Center V by an unnamed tenant. A pair of big leases were signed at Three Parkway Plaza in the Airport submarket, one for 12,518 square feet and the other for 10,711 square feet.

South CharlotteThe Quail Plaza deal signed by DAK Americas was the largest lease signing in South Charlotte during the first quarter, at 25,252 square feet. The second biggest signing was for 17,200 square feet at 6331 Carmel Road.

South Charlotte’s Arboretum Office Park will get a facelift following Childress Klein’s announcement that it will redevelop part of the

$13$15$16$18$19$21$22$24$25$27$28

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Class A Class B Class C



park. The firm filed a petition to rezone three parcels to accommodate mixed-use development. As part of the plan, Childress Klein will redevelop a 5.4-acre parcel at the intersection of Pineville-Matthews and Providence roads to build three new buildings totaling 90,000 square feet.

SouthparkThe Southpark submarket’s top lease signing during Q1 was for 10,743 square feet at 4401 Barclay Downs Drive. Another top deal was a 6,202-square-foot lease signing by Lincoln Derr at 20 Capitol Towers-South Tower. Southpark’s vacancy rate was 13.5% at the end of the quarter.

Outlook The combination of fewer deals and slowly rising vacancy rates could be a sign of sluggishness in Charlotte’s office market, as the supply of buildings begins to catch up with demand. The main short-term risk is that rental rates will move lower, particularly if new supply comes on the market. Another risk is that institutional investors might be less willing to finance projects.

On the plus side, the overall business environment remains positive. A recent survey of business owners – conducted by SunTrust and reported on in the Charlotte Business Journal – reflected a generally bullish attitude about the national and local economies.

According to the survey, about 85% of Charlotte business owners surveyed say they are ready to achieve their financial plans and goals over the next five years. That’s higher than the national average of 77%. About 93% of Charlotte business owners say the current financial well-being of their companies is strong.

Asking Rates by Building Class

$9 $11 $13 $15 $17 $19 $21 $23 $25 $27 $29 $31

Plaza Midwood / NodaEast Charlotte

MatthewsPark Road

Northwest CharlotteNortheast/I-77

South CharlotteAirport

UniversityCotswold

Midtown-SouthEndMidtown-Randolph

South/485SouthPark

CBD

Averaged* Rates by Submarket




Total SFTotal #

of BuildingsTotal

Available SFVacancyRate %

NetAbsorption

DeliveriesUnder

ConstructionEnd of 1Q

Average Rental Rate

Class A 36,260,362 230 6,382,798 12.3 -902 606,002 1,992,613 $26.72

Class B 34,122,554 1,226 2,884,136 8.5 59,021 0 51,000 $18.95

Class C 12,758,632 1,768 734,413 3.8 -7,789 0 0 $16.79

CBD 20,785,684 121 2,889,938 8.1% 168,360 0 1,013,461 $29.38

SouthPark 5,709,355 100 928,111 13.4% (26,477) 231,000 0 $26.97

South/485 6,777,996 169 843,735 12.0% (6,824) 0 194,000 $26.45

Midtown-Randolph 3,436,509 251 269,679 3.1% 10,334 0 101,960 $26.23

Midtown-SouthEnd 5,875,487 392 471,342 3.8% 10,956 0 242,192 $25.77

Cotswold 450,104 37 13,229 3.1% (3,209) 0 0 $23.31

University 8,384,785 152 1,007,938 9.5% 2,798 0 0 $20.25

Airport 12,044,597 263 2,079,477 12.0% (101,188) 0 256,000 $20.11

South Charlotte 2,747,375 172 337,957 10.4% (2,199) 0 0 $20.04

Northeast/I-77 5,667,350 385 571,077 7.5% 8,108 0 6,000 $19.54

Northwest Charlotte 1,309,712 191 105,161 4.9% 5,092 0 0 $18.83

Park Road 2,494,142 166 579,015 20.7% 1,985 0 0 $16.62

Matthews 2,784,866 236 470,842 16.1% (9,758) 0 0 $15.54

East Charlotte 2,968,313 316 370,509 7.0% 1,242 0 30,000 $14.49

Plaza Midwood / Noda 1,705,532 275 43,488 16.0% (8,890) 0 200,000 $12.41

Class A, B & C OfficeSubmarket Statistics

Notable Lease TransactionsBuilding Submarket SF Qtr Tenant Name

1 615 S College St CBD 51,547 1st We Work

2 Quail Plaza South Charlotte 25,252 1st DAK Americas

3 615 S College St CBD 24,837 1st BDO USA, LLP

4 Whitehall Corporate Center V Airport 23,654 1st N/A

5 South Tryon Square CBD 21,210 1st US Bank National Association

6 1100 S Tryon St Midtown/Southend 17,746 1st Blu E Cigs

7 6331 Carmel Rd South Charlotte 17,200 1st -

8 525 N Tryon St CBD 17,119 1st -

9 Two Harris Corners Northeast/I-77 14,404 1st -

10 Three Parkway Plaza Airport 12,518 1st -

11 4401 Barclay Downs Dr SouthPark 10,743 1st -

12 Three Parkway Plaza Airport 10,711 1st -

13 400 South Tryon CBD 10,079 1st -

14 The Davie Building South Charlotte 9,890 1st Sono Bella

15 14166 Steele Creek Rd Airport 7,900 1st Sports Med Properties, LLC

16 Whitehall Corporate Center III Airport 7,758 1st -

17 CMC-Steele Creek Airport 7,645 1st -

18 7504 E Independence Blvd Matthews 6,931 1st -

19 Carmel Executive Park 1 South Charlotte 6,518 1st -

20 Capitol Towers - South O�ce Tower SouthPark 6,202 1st Lincoln Harris

21 131 Providence Rd Midtown/Randolph 6,000 1st -

22 Whitehall Corporate Center II Airport 5,836 1st -




Notable Lease TransactionsBuilding Submarket SF 2017 Qtr Tenant Name

23 Seven Water Ridge Airport 5,690 1st -

24 11325 N Community House Rd South/485 5,485 1st -

25 4401 Barclay Downs Dr SouthPark 5,321 1st -

26 Brixham Green One South/485 5,259 1st -

27 The Linville Building Northeast/I-77 5,258 1st -

28 6201 Fairview Rd SouthPark 5,073 1st -

29 137 Professional Park Dr Iredell County 4,937 1st -

30 The Linville Building Northeast/I-77 4,926 1st -

31 1201 Staford St Union County 4,900 1st -

32 Grinnell Water Works Midtown/Southend 4,619 1st M2 Men’s Ministries

33 Morrison Bldg SouthPark 4,594 1st -

34 Roxborough Bldg SouthPark 4,592 1st -

35 2303 W Morehead St Midtown/Southend 4,548 1st -

36 220 N Ames St Matthews 4,500 1st -

37 Trade & Tryon CBD 4,500 1st -

38 Carillon Tower CBD 4,488 1st -

39 The Shoppes at Birkdale Crossing Northeast/I-77 4,367 1st -

40 3125 Springbank Ln South Charlotte 4,233 1st Integrative Rheumatology

Major Sales Transactions: 2016 through 1Q 2017Building(s) Price SF Seller Buyer

Ballantyne Corporate Park Portfolio $1,100,000,000 + 4,500,000+ The Bissell Companies Northwood Properties

One Wells Fargo Center $284,000,000 1,018,120 Starwood Capital Group Vision Properties

Carillon Tower $147,000,000 476,308 Hines KBS REIT III

Water Ridge Office Park $115,000,000 845,059 Goldman Sachs New York Life Real Estate Investors

Trade & Tryon $71,600,000 337,483 The Dilweg Companies Lincoln

South Tryon Square $69,500,000 237,186 LP Aims RE / Mayfield Gentry Goldman Sachs

1800 Innovation Pt $67,097,393 247,834 Childress Klein 90 North Real Estate Partners LP

SouthPark Center $46,500,000 238,018 The Dilweg Companies Continental Capital Partners, LLC

1800 Camden Road $42,500,000 185,469 Ram Realty Services Asana Partners

5605 Carnegie Blvd $40,150,000 139,858 Bissell Companies AEW Capital Management

Esplanade at SouthPark $38,000,000 197,199 HighBrook Investment Advisors LRC Properties

2801 W Tyvola Road $37,951,000 292,098 Inland Private Capital Corp Samuel Jacobson


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Office Submarkets1 CBD2 Midtown-Randolph3 Midtown-Southend4 Park Road5 SouthPark6 Cotswold7 South Charlotte8 South / 4859 Matthews10 Mint Hill11 Plaza Midwood / NoDa12 University13 Northeast I-7714 Northwest Charlotte15 Airport

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NAI Southern Real Estate4201 Congress StreetCharlot te, NC 28209

704-375-1000www.srenc.com

Scott [email protected]

704-632-7604

Vince [email protected]

704-632-7635

Mike [email protected]

704-632-7633

Mar tin [email protected]

704-632-7619

Caldwell [email protected]

704-632-7630

NAI Southern Real Estate-Charlotte, NC. We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty, or representation about it. No part of this document is to be reproduced without our written permission. This document has been prepared and issued by NAI Southern Real Estate on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. NAI Southern Real Estate or its affiliates does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions provided herein. Any expressions of opinions are subject to change without notice. This document does not constitute an offer or an invitation to invest, lease, rent, purchase or conduct any real estate activity, business activity, or personal activity based upon its data or purpose. No party should treat any of the contents herein as advice.


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