Is Charlotte's office tower building boom over?

Charlotte’s office tower construction boom is over, and it looks like the pandemic might be to blame. Last year, developers started construction on 1.3 million square feet of office space in the Charlotte region. That’s the lowest figure in almost a decade according to real estate data firm CoStar Group. For more, we turn to Tony Mecia of the Charlotte Ledger Business Newsletter for our segment BizWorthy.

Marshall Terry: OK, Tony, so what's going on here? Charlotte's population is growing and we keep hearing announcements about companies relocating here. So where is everybody going to work, or are they still working at home?

Tony Mecia: It's a good question, Marshall. You know, I think we've become accustomed in the last few years to seeing a lot of cranes in uptown and South End building office towers and residential towers. But if you look at the numbers, it's really slowing down a little bit as it relates to office. There are only two skyscrapers now being built — one uptown, one in South End — and that's a slower pace than it was a few years ago. I've talked to a number of office developers and they say things, in many cases, are on hold at the moment because of high interest rates and high construction costs, economic uncertainty. And then, of course, you still have this question of, you know, where are people going to work? Where are they working? And you have these hybrid and remote work arrangements in which people maybe aren't in the office five days a week, maybe they're in only three days a week. And so companies are saying, well, maybe we don't need all the space that we used to have. And in a period of economic uncertainty, maybe we're not going to add the number of workers that we thought we were going to. So a number of things going on really at the same time.

Terry: Well, do you have a sense of what's more to blame for the slowdown? Is it more the changing work environment, or is it more the escalating construction costs?

Mecia: Yeah, you know, it's a little bit of both. I think people are working more at home and so companies are really starting to question what kind of space they need in their offices — and also how that space is laid out. So that's part of it. You do have higher construction costs, you have high interest rates. That's making financing for these deals very difficult. And the developers say that, in many cases, new office projects just "don't pencil" — that's the real estate lingo term for meaning they don't make financial sense. If your costs are a lot higher and you're not sure whether you can pass those costs along when the building is complete in a couple of years, really it's sort of a lot of question marks. And so, in times of economic uncertainty, you have people holding off on new projects.

Terry: The uptown booster group Center City Partners recently released its annual State of the Center City report, which is like the State of the Union address for uptown. How is this slowdown affecting the view of Center City's future?

Mecia: Well, I talked with Michael Smith who is the CEO of Charlotte Center City Partners. They're very upbeat about the future. They sort of take the long view a little bit. I asked them a little bit about some of these trends, about some of these slowdowns. And they said, well, you need to look at everything that's been announced, and yes, maybe it won't be built immediately, but if it's built in the next decade, it's going to be quite a decade. The 2020s are going to be quite a big decade if these projects eventually come to fruition. It's not just office, you know, residential, a lot of retail projects, mixed-use, all sorts of things. So they're upbeat about the prospects. And they say that Charlotte is competing very well against its peers — cities like Nashville; Austin, Texas; Atlanta ... that compared to those places, there are more people coming back to the office. And they say that there are a number of projects in the Center City and in South End that are coming down the line, and they're very helpful.

Terry: Well, moving over to malls now, they've been struggling since well before COVID-19. It looks like Northlake Mall is going to be in receivership for a while more. What's the latest there? And do you think that the recent shootings at that mall are hurting its efforts to recover?

Mecia: Yeah, malls have generally had a tough time. I think, as it relates to Northlake Mall, I think a lot of people are starting to look at that and say maybe this looks sort of like an epicenter type of situation where you have retailers who are leaving. You have a mall that's in receivership, you have a few high-profile shootings, crime. It's not a good space to be for a mall. The Charlotte Observer had a nice article this week that pointed out that the mall is only about 75% full, which is a lower occupancy rate than a lot of malls. There are some that are doing well. Some of the higher-end-type malls like SouthPark and Birkdale Village — those tend to be doing a little bit better. But for ones that are maybe not in that tier, it's certainly a little bit of a tougher time.

Terry: All right. Shifting gears now, the Ledger on Monday reported Mecklenburg County commissioners voted to give the C.W. Williams Community Health Center in West Charlotte $2.1 million in COVID relief money despite questions about the center's financial management. What kind of questions?

Mecia: Yeah, there've been a number of audits over the last few years that pointed to troubles with the health clinic's financial controls. The clinic said it had brought in a new chief financial officer, that it was turning some of that around. These are allegations that were first reported in the fall by WBTV. But commissioners a couple of weeks ago approved $2.1 million in COVID relief money for the clinic. And they apparently didn't know that there were these financial questions that were still lingering. So we talked to a number of former employees there who said that they were shocked that the county would provide a grant to a clinic under which there were some financial questions. So the county is taking a hard look at that. They say they're not actually going to award the money until they're convinced that things are all in order. At the county commissioners meeting this week, Marshall, the chief operating officer of the clinic said that the clinic has not been informed of any investigation and that if it is told that it is under investigation, it will, of course, cooperate.

Terry: Finally, Tony, you report that earning elite status on American Airlines is becoming even more elite. How so?

Mecia: As someone who is not an elite traveler -- I don't know whether you are Marshall, but I sort of look at ... You're not? OK. Well, American Airlines is changing how it handles its elite travelers and how you can qualify for the elite program. It used to be you could reach that lower-level tier to qualify for upgrades by having 30,000 loyalty points, American calls them — it's how much money you spend with the airline. They're now upping that lowest level to 40,000. So it's going to be a little bit harder to get some of those upgrades to first class.

Terry: Well, I'll just stick with coach. I guess I'll see you back there as well. Thanks, Tony.

Support for WFAE's BizWorthy comes from UNC Charlotte's Belk College of Business, Sharon View Federal Credit Union and our listeners.