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2020 Charlotte State of Commercial Real Estate Recap

David Smith • 2/5/2020
Charlotte continues to separate itself as a bright spot in the middle of the Southeastern U.S.

Charlotte State of Real Estate

Buoyed by its central location along the Interstate 85 corridor, lower-than-average cost of doing business, historical business leadership in the finance industry paired with more recent growth in the technology and FinTech sectors, and attractiveness to college-educated talent, Charlotte has experienced strong growth in population, jobs and real estate fundamentals.

No doubt there are many questions facing city, business and real estate leaders today. What can we expect from the economy in 2020? Is the real estate market slowing down across the U.S.? How about here in Charlotte? Which trends will drive the future of Charlotte and its real estate market? These questions and many other topics were covered during Charlotte’s 13th Annual Outlook on the Commercial Real Estate Market hosted in January by Katten Law and Cushman & Wakefield.

While the global and U.S. economies have been fraught with uncertainty over the last couple of years, growth has continued to be positive, while muted in some places. The current expectation is that 2020 will offer a soft landing for the U.S. economy, with GDP growth in the 2% range. In a recent research briefing, Oxford Economics echoed this slow, but steady sentiment stating that “world GDP growth will stabilizse in 2020 – but at a very moderate pace.”

In the meantime, Charlotte continues to separate itself as a bright spot in the middle of the Southeastern U.S. Buoyed by its central location along the Interstate 85 corridor, lower-than-average cost of doing business, historical business leadership in the finance industry paired with more recent growth in the technology and FinTech sectors, and attractiveness to college-educated talent, Charlotte has experienced strong growth in population, jobs and real estate fundamentals.

A few key numbers that came up during the event include:

  • 3x: Office-using employment grew three times faster in Charlotte than the national average in 2019. Office-using employmentended the year at 350,000 jobs, up from 334,000 just a year before. Total non-farm employment grew twice as fast as the national average and ended the year at 1.25 million. Charlotte’s job growth put it in the top quintile of all 400+ U.S. MSA’s.
    • Takeaway: Charlotte’s attractiveness to businesses, has been confirmed by recent moves into the area by Honeywell and Truist Bank (the entity created by the merger of BB&T and SunTrust Banks), as well as by announced expansions by other large employers such as Lowe’s, Lending Tree and Microsoft.

     

  • 294,000: During the 2020s Charlotte is forecasted to attract nearly 300,000 new residents moving from other cities across the U.S. This growth is in line with net domestic migration into Charlotte during the previous decade (291,000), which put it in the top 10 of all metropolitan statistical areas (MSAs).
    • Takeaway: Charlotte is one of the major beneficiaries of a Southern migration of workers and families drawn to the affordability, abundance of job prospects, quality of life and pro-growth mindset available in several major cities in the Southern half of the U.S.
  • 14 million: Between 2008 and 2018, 14 million square feet (msf) of Charlotte office space was absorbed. This ranked sixth in the nation and first in the Southeast, above Atlanta (11 msf), Raleigh/Durham (9 msf) and Nashville (7 msf).
    • Takeaway: Charlotte office space has been in high demand during the current expansion, and 2019 was the strongest year yet. Office absorption hit 2.6 msf, which is significantly higher than its 10-year average of 1.0 msf.

  • 751 million: Across the U.S. just over 750 msf of industrial space has been absorbed since the beginning of 2017. This is the second-highest three-year period on record (behind only the 824 msf absorbed between 2014 and 2016). While activity dropped in 2019, total absorption was still over 220 msf.
    • Takeaway: Charlotte’s 2019 industrial absorption was lower than previous years, but still exceeded 1.5 msf. Its proximity to the entire east coast and much of the Midwest is a draw for the distribution and transportation industries. Charlotte’s industrial vacancy rate remains tight, approximately 140 basis points below the 10-year average.

     

  • +30%: In the past five years Charlotte’s average multifamily effective rental rate has increased by 29.7% to $1,150 per month. Over that same time period multifamily inventory has grown by 24% while occupancy rates have remained consistently at or above 95%. At the end of 2019 occupancy was 95.6%, which is 110 basis points above the 10-year average.
    • Takeaway: Strong population growth, partially fueled by domestic net migration, is driving demand for multifamily units around the Charlotte market. Net effective rent growth in 2019 was among the top 10 U.S. markets at 4.4%.


    During the annual event speakers and panelists agreed that Charlotte is in a strong position to attract jobs and people, which makes it a destination of interest for corporate occupiers and real estate investors. Even with softer national economic growth likely in 2020, the outlook for the Charlotte market remains positive. All major property types—office, industrial and multifamily—ended 2019 with abnormally tight vacancy and with strong rent growth stories. This above average trajectory is likely to continue through 2020.

    Sources: Cushman & Wakefield Research; U.S. Bureau of Economic Analysis (BEA); U.S. Census Bureau (BOC); Moody's Analytics Forecasted; RealPage

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