Office Construction Returns to SouthPark

Posted on March 15, 2013 by - Charlotte, Commercial Property Exchange, KARNES Perspective, Office

After more than five years with no new office construction, the SouthPark submarket in Charlotte appears set to deliver its first new building during 2014. SouthPark, which is the Charlotte Region’s third largest suburban office market with just under 4.25 million square feet, has not seen new office construction since the third quarter of 2007, when the 125,000-square-foot CMC Morrocroft was completed.
South Park Office Construction
SouthPark’s first new office property since CMC Morrocroft will be developed at Sharon Square, a mixed-use project developed by Pappas Properties which includes apartments and retail space anchored by Whole Foods. Pappas Properties plans to build a 105,500-square-foot office building that will be anchored by SunTrust Bank and is scheduled to be complete by mid 2014. SunTrust will consolidate its local operations into approximately 43,500 square feet at the Sharon Square office property.

4Q12 KARNES SouthPark Office Snapshot
Number of Buildings 45
Total Inventory (Sq. Ft.) 4,249,334
Total Vacant (Sq. Ft.) 516,103
Vacancy Rate 12.15%
Average Rent $23.67
Sq. Ft. Under Construction 0
Sq. Ft. Proposed 123,000
Completions 0
Net Absorption 21,211

Office vacancy rates in the SouthPark market averaged 12.1% at the end of 2012, with the Class A vacancy rate at 9.8%. The lack of new supply in SouthPark has allowed office vacancy rates to remain well below the regional average of 17.3% reported by KARNES at the end of 2012. SouthPark reported the third lowest vacancy rate among the 10 suburban Charlotte office submarkets. Cotswold (8.2%) and Midtown (10.7%) reported lower vacancy rates on smaller office inventories.

Office construction in SouthPark averaged 250,000 square feet per year between 1988 and 2007, with a total of 2.3 million square feet of office space completed during the 20-year period. The new office space completed during that period accounts for approximately 55% of SouthPark’s office inventory. New office construction was most pronounced during 1999, when a total of 421,200 square feet of office space was delivered. Demand during 1999, as measured by net absorption, totaled 317,585 square feet and fell short of the new supply. An additional 207,475 square feet of office absorption during 2000, with only 100,000 square feet of new supply, allowed SouthPark’s office vacancy rate to decrease to 3.2% points to 6.8%. In the years following, the SouthPark office vacancy rate continued to rise with the highest rate reported in 2006, when SouthPark reported a 18.4% office vacancy rate. New office construction was relatively minimal between 2001 and 2004, with only 93,348 square feet completed. Supply-side pressure increased during 2005 and 2006, as approximately 379,303 square feet of office space was delivered.

The vacancy rate decreased by 5.1% points during 2007 to 13.3% as only the pre-leased CMC Morrocroft building was completed. The vacancy rate has hovered around 12% since 2007, with a high of 13.0% reported at the end of 2011. With a lack of new office supply, net office demand between 2008 and 2012 totaled 40,923 square feet.