A recent analysis detailing an on-going crisis for the commercial real estate market in U.S. cities has experts concerned that such predictions could reach their way to the Queen City.
Particularly worrisome is the commercial real estate sector in mid-sized cities like Atlanta, Indianapolis, Washington, D.C., and Minneapolis, who have been grappling with empty office space due to employees not returning to work given the shift from in-person work to hybrid or work from home policies, rising interest rates, inflation, and mortgage default.
It has been noted in the analysis that regarding office delinquency rates, Charlotte’s is at 30%, well above the national average of around 5% according to recent data.
Industry experts have termed the crisis as the ‘Urban Doom Loop.’ However, some with long-standing ties to Charlotte have mixed opinions as to the gravity of the situation.
“For the commercial real estate buildings here, we have very high vacancy rates, and Charlotte is in trouble,” said Professor Yongqiang Chu, Director of the Childress Klein Center for Real Estate at UNC Charlotte in an interview with Carolina Journal.
Causes for the empty office spaces have been attributed to a variety of factors, one of which has been the change in employee work environment.
“Most employers are still using hybrid work models,” said Chu. “Most companies are like 2 to 3 days in person and the rest is work from home, so that reduces tremendously the demand for office space. In Charlotte, many large employers have significantly downsized their office space.”
how to handle empty office space
One proposed solution to the issue with office vacancy has been to repurpose empty buildings to residential use.
“There’s effort in trying to convert some office space to multifamily apartments, but it doesn’t work for all the office buildings and can be very difficult,” Chu explained. “Another thing that I think would help is regulation in terms of the zoning codes and building codes which could help the conversion.”
Despite the doom and gloom predictions posited by others, Chu believes that ‘Urban Doom Loop’ is an inaccurate characterization of Charlotte’s economy overall.
“Not necessarily,” he said when asked if the ‘Urban Doom Loop’ label is appropriate for Charlotte. “One of the things that helps Charlotte is that there are skilled people and companies moving to the area. I’m concerned with the area of uptown Charlotte because not only do we have this downsizing of office space by employers, but there’s also an outflow. A lot of companies are moving away from uptown to places like South End. If you look at the data, the uptown area has the highest vacancy rate right now, whereas South End has the lowest.”
CJ also spoke with Mark Vitner, a retired senior economist with Wells Fargo, who also feels that Charlotte’s economy has fared well despite the issues facing commercial real estate, particularly when it comes to job growth.
“This year will probably be a record year for job growth in Charlotte,” he said. “To put that into perspective, in the south there’s only one metro area that added more jobs in the last year than Charlotte, and that’s Miami-Ft. Lauderdale-West Palm Beach. That colossal metro area is almost the size of the state of North Carolina and it’s 2.5 times larger than Charlotte. Charlotte also added more jobs last year than Atlanta.”
booming job growth
Recent statistics from the Charlotte Regional Business Alliance have indeed shown that Charlotte has outpaced the state of North Carolina and even the entire nation in year over year employment growth.
Compared to other real estate markets, brick and mortar retail has been one area unphased by the downturn with other commercial office space.
“One area that has done much better than people expected was brick and mortar retail,” Vitner told CJ. “There’s very little brick and mortar retail spaces in Charlotte today because people didn’t build a whole lot before the pandemic and since people are working remotely and working from their homes more, they have more time to go shop. So, while the revenues on office properties are likely to go down, some other areas are going to be more positive. Residential properties have been strong as well. Apartments have also done very well.”
As for a resolution to the office space vacancy issue plaguing the 15th largest city in the U.S., Vitner believes that a recession would make people more inclined to return to the office.
“I would think that the properties in Charlotte are going through a tough time in the office market because companies are having a hard time persuading workers to come back to work,” said Vitner. “What will fix that is a recession. We go through a recession and people will realize, ‘You know what, I’m probably going to fare better if I’m in the office and put in a little face time with the boss.’”
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