Uptown Charlotte likely to need public funds to help older, high-vacancy office towers
Nearly four years after the start of the COVID-19 pandemic, parts of Charlotte's center city have recovered fully and then some — hotels are full with rising room rates, South End is seeing record office leasing rates for new towers, and there are still thousands of apartments under construction.
But one area is emerging as a particularly troubled spot: Older office towers, which Charlotte Center City Partners CEO Michael Smith calls "vintage."
These are the buildings where vacant floors are clustered, as companies shrink their total square footage to deal with the reality of post-pandemic hybrid work and move to newer buildings with more amenities like well-appointed gyms, ground-floor retail and even golf simulators. Older buildings are left struggling to find tenants — and there might not be enough demand to fill them anytime soon.
"We cannot count on market forces and we can't use the economic development tools that we currently have. It's going to take new effort and new tools," said Smith, speaking in advance of the release of the 2024 State of the Center City report.
Smith pointed to bright spots, like those full hotels, an increased number of sporting events and concerts, hundreds of millions of dollars of renovations coming to the Spectrum Center, and preparations for new large-scale development districts, such as around Bank of America Stadium. But the stubborn fact remains: While uptown and South End are back to roughly 78% of the pre-pandemic number of workers who come there regularly, nearly half of those are on a hybrid schedule.
Smith said Charlotte's downtown, like those of other cities, has been tested more severely in the past few years than at any time since suburban shopping malls and urban expressways hollowed out central business districts in the 1960s and '70s.
"Protests, COVID-related lockdowns altered workplace rhythms, higher capital costs — and it's affected Charlotte," said Smith, ticking off some of the challenges uptown has faced.
While uptown's office vacancy rate of about 21% is higher than it reached even during the Great Recession, it's still lower than some other parts of the city — such as 39% in University City or 31% in Ballantyne. Still, uptown is by far the biggest office market in the city, with almost 27 million square feet of Class A office space. That means even with a lower vacancy rate than some parts of the city, that's still millions of square feet sitting empty.
"The vacancy levels that we're experiencing are not dramatic relative to our peers, but they're dramatic relative to our history ... If we do not address them, it will be an enduring challenge," said Smith. He warned of dire consequences if empty buildings linger, comparing them to a cancer "that could metastasize if not addressed."
Smith echoed comments made last month by former developer Ned Curran, who told a Charlotte City Council committee that some older office buildings "just need to go away" for lack of demand. Smith also sounded a similar tone to Curran and Charlotte's economic development director, Tracy Dodson, who said some public investment into old office buildings is justified by uptown's importance to the city.
Center City Partners recently held a design competition for ideas to reuse old office buildings. Some of the plans architects presented included repurposing some space as apartments, shops and even a childcare center to cater to uptown workers.
James LaBar, Center City Partners' senior vice president of economic development, said such ideas will help. But, he said, there's likely to be too much empty, older office space to completely repurpose.
"We're not going to convert our way out of it, and we're not going to recruit our way out of it," he said.
Smith agreed, saying that if hypothetically there were 10 old buildings that needed to be repurposed, in the end that would be feasible to actually carry out for "something less than five" — with the remainder either re-leased or demolished.
Public subsidies for older buildings could include tax breaks or grants for developers who repurpose them, or even direct payments to underwrite the cost of converting some space or tearing them down.
Here are some other highlights from the 2024 State of the Center City report:
- Office momentum shifts south. The amount of office space in South End has doubled since 2018, and uptown's southern cousin continues to sprout its own skyline. Office lease rates there recently hit $50 per square foot, a record for Charlotte (compare that to $38 per square foot in uptown).
- Thriving hotels. There are about 6,800 hotel rooms in central Charlotte, and that's expected to grow to 8,600 by the end of 2024. That includes new hotels like the InterContinental attached to the Carolina Theatre, the Element Charlotte Uptown and the Moxy Hotel. Average room revenue is up 10% in the past year as well, as travel rebounds and people pour into uptown for events like Luke Combs and Beyonce shows.
- Billions of dollars in construction. The pipeline of projects in development is about $4.2 billion, Smith said. That's down about 40% from the $6.9 billion previous estimate, which Smith said reflects stricter standards for only including projects that are likely to get off the ground. Construction across the city has slowed, reflecting higher interest rates that make it harder to make financing for projects work.
- Public safety perceptions. A string of high-profile shootings dominated headlines coming out of uptown last year, culminating in a New Year's Eve shooting that left five people injured in Romare Bearden Park. Smith said he's working with Charlotte-Mecklenburg Police, other law enforcement agencies and government bodies on new ways to address safety — and the perception of safety. "I'm going to wait to share specifics on that because we're still trying to articulate it," he said.