Demand Weak for 'B' Office in a Tight 'A' Uptown Market

CHARLOTTE-With a vacancy rate of about 3% in the 8.7 million-sf class A uptown office market, property owners of class B assets assumed their time was coming to fill empty premises. But that isn’t happening despite lower rents and an abundance of class B product.

Brokers say expanding companies Uptown may have to consider class B space or look elsewhere. Carolinas Real Data Inc. feels the tight class A market will continue as it has for the past four years. The construction of the 46-floor, 950,000-sf Hearst Tower will do little to put more available class A space on the market. The office tower, still under construction, is already leased up with the exception of 35,000 sf.

Tenants able to find class A space in this market are paying from $25 per sf to $30 per sf. For companies that don’t need all the amenities that go along with prime real estate, there is an abundance of class B space going for $18 per sf to $21 per sf. According to Gary Chesson of Trinity Partners, the inventory of class B space is only going to increase. He notes that a number of renovated properties are being returned to the market as class B.

For example, on South Tryon, renovations have been completed on the former Southern National building. Also on South Tryon, the former Home Federal Building is being renovated and will be coming back on the market as class B due to a lack of amenities. Renovations are also under way for the former BB&T Center on South Tryon.

There are some vacancies in the 212 South Tryon Plaza building. On North Tryon the new Odell Building has vacancies, but brokers say it doesn’t qualify as class A space because it’s too far from Uptown. Because there is limited demand for class B space, owners are starting to increase broker commissions for Uptown class B space. Chesson predicts a $2 per sf drop in average rent. He thinks the next couple of years will be tough for owners of this space.

Steve Garrett with Charlotte-based Grubb & Ellis/Bissell Patrick agrees there will continue to be sluggish demand for class B office space Uptown. He says the high cost of desirable space plus the lack of parking is driving many people away from that part of the city.