The race to land office tenants is heating up in Charlotte, and two of the city’s top office markets – uptown and Ballantyne – increasingly look like competitors, some say.
Ballantyne Corporate Park, which 15 years ago was pasture, is building the largest speculative office building in the country. In December it landed the corporate headquarters of Infinisource, an employee-benefits firm that’s moving here from Michigan and is adding more than 160 jobs.
Uptown notched a big win in November when it landed the corporate headquarters for Chiquita Brands International, which Ballantyne had also been courting.
Most real estate brokers downplay the idea of competition between uptown and Ballantyne, saying the entire area benefits if new companies come or existing ones add space.
But the two markets, which once attracted different types of tenants, may find themselves wooing the same companies more often.
Here’s why: As banks have shrunk their real estate footprint, uptown finds itself with more available space than five years ago. In Ballantyne, rents have recovered faster than elsewhere in the city, narrowing the price gap with uptown. Meanwhile, the pool of potential tenants relocating from elsewhere is still smaller than before the recession.
“It used to be fairly easy for the Charlotte Chamber to direct inbound deals (to one market or another),” said consultant and commercial real estate broker John Culbertson of Cardinal Real Estate Partners LLC. “Now, there is more of a gentleman’s tug-of-war that occurs when a large deal like Chiquita comes in.”
Such competition can be good for the economy because it increases the chance that an outside company moves to Charlotte, experts say.
A healthy office market is important because it drives developers to build, which in turn fuels construction spending and creates jobs. Profitable commercial buildings are more valuable, boosting the commercial tax base.
In contrast, empty office towers weigh on an economy, scaring away prospective tenants. Low occupancy translates into fewer workers to support restaurants and other services. Property values fall.
Brokers say they are seeing signs of a possible rebound in the overall Charlotte office market. But it remains soft, with an average vacancy rate of 18.4 percent at the end of last year, according to research by Karnes, a real estate research firm. Brokers like to see vacancy rates of about 10 percent.
With relocations still relatively few, that leaves office parks trying to woo companies when their leases expire.
“We’re all fighting over the same tenant base. There’s no net job creation yet,” said Gary Chesson, a partner with Trinity Capital Advisors, which owns Ally Center and NASCAR Plaza in uptown. “We’re all just trying to steal from each other.”
Drive out Johnston Road, and you’ll see evidence of The Bissell Cos.’ aspirations: the new headquarters of SPX Corp., set for completion later this year, two speculative 10-story buildings with more than 550,000 Class A office space, and other projects. It’s all a testament to the developer’s bullishness, deep pockets and leasing success.
“We’ve seen robust growth throughout the entire recession,” Bissell president and CEO Ned Curran said. “Our leasing activity has been pretty strong. We feel pretty good.”
Barry Fabyan, senior vice president of leasing, said buildings are filling up, in part because Bissell is willing to work with tenants concerned about the uncertain economy.
“Tenants are clearly forced to look at having flexibility built into leases today,” he said. “We are trying to work with them, to help with an exit strategy.”
Of the park’s 3.5 million square feet of completed office space, 450,000 square feet are available for lease – not including about 170,000 square feet that AXA Equitable Life Insurance Co. is set to vacate.
The financial services company announced this month it will leave Ballantyne after 14 years and move into the renovated Innovation Park in University City. Average rents there are $5 a square foot cheaper than those in the southeastern submarket, according to Karnes.
Ballantyne Corporate Park was built in the mid-1990s on land owned by the Harris family, the same people who developed the bustling South Park area.
The Harris family wanted to attract major corporate tenants, having narrowly missed landing Sears Roebuck & Co. Developer H.C. “Smoky” Bissell, who was married to Harris’ late sister, Sara, headed the office project.
Zoned for nearly 7 million square feet of office space, Ballantyne Corporate Park offers hotels, restaurants, a spa and golf course. Two years ago, it won the prestigious International Suburban Office Park of the Year award from The Building Owners and Managers Association.
Rents in the submarket have recovered faster than those across the region – growing by $3.69 between 2001 and 2011 versus $1.09 for the overall Charlotte market, according to Karnes.
“Tenants are willing to pay more to be there,” said real estate analyst Frank Warren of Warren & Associates in Charlotte.
The greater Ballantyne community, which includes a country club, Ballantyne Village retail center and homes, has grown so much it is often referred to as a city within a city. A Mecklenburg County commissioner recently brought up the idea that the suburb should split from the city of Charlotte.
Changes in other areas
Ballantyne’s success has cost other areas.
In the 1990s, most newcomers leased office space in the southwest market, wanting to be near the airport and the Charlotte Coliseum, then home to the popular Charlotte Hornets.
Ten years later, tenants were flocking to Ballantyne, which was emerging as the more popular suburban office market choice. The coliseum held its last NBA game in 2005 and was imploded two years later to make way for a mixed-use project that was never built.
During the recession, many tenants in the southwest market downsized or went out of business – boosting vacancy rates to more than 27 percent by the end of 2011, the second-highest in Charlotte.
Still, Culbertson said his firm leased 203,000 square feet of operation center and call center space there during the past year and a half.
Tenants also wanted newer space. The majority of new demand in 2010 and 2011 was for Class A office space, the premium category, according to research by CoStar Group, a real estate analytics firm.
Uptown grabbed most of that – 48 percent, or 1.1 million square feet. Ballantyne landed 27 percent of that demand, or 626,000 square feet, according to CoStar. But because Ballantyne is much smaller, it grabbed proportionately more than its market share.
While vacancy rates are higher in Ballantyne – 19 percent versus 13 percent in uptown – rents have recovered more dramatically. Ballantyne-area rents have exceeded pre-recession peaks, averaging $23.13 a square foot for Class A space, versus a previous high of $21.66, CoStar research shows. Uptown Class A rates remain well off pre-recession highs, averaging $24.40 a square foot compared to $34.26.
In November, Ballantyne lost out to uptown when Cincinnati-based Chiquita chose to relocate its corporate headquarters to the NASCAR Plaza. The company is expected to lease 150,000 square feet and will put its name on the sleek tower, which overlooks Interstate 277.
Despite Ballantyne’s history of attracting new headquarters, many brokers weren’t surprised at the choice, because uptown had the urban feel Chiquita was used to and high visibility for its brand. Curran downplayed his company’s loss, saying while he and his team worked to win the banana king to their turf, they focused more on highlighting Charlotte.
“We had a little bit of fun being what we characterize as runner-up in that contest,” Curran said. “We knew we were in a role as much of being good stewards for the Chamber and winning them to Charlotte, as much as we were for winning them to Ballantyne.”
Charlotte Chamber vice president of economic development Kati Hynes, who led the recruitment of Chiquita to Charlotte, said Ballantyne and uptown will likely go head-to-head more often in the future.
“It comes down to available space,” Hynes said. “As long as (Ballantyne and uptown) both have available space, they are probably going to be competing against one another more.”
Five years ago, Chiquita couldn’t have come to uptown. There wasn’t enough room.
Back then the center city had the nation’s lowest vacancy rate at 3.1 percent – lower than Manhattan and Boston.
Since then, new skyscrapers such as the Duke Energy Center have opened. Banks have consolidated and laid off workers. Banks are also selling buildings and as new owners enter the market it could lead to more aggressive dealmaking, said Culbertson, the broker and consultant.
An example of how owners are scrambling to lure tenants away from one another: In November, SCOR Global Life Americas, formerly known as Transamerica Reinsurance Co., said it was moving from its namesake Transamerica Square building to the Bank of America Plaza at 101 S. Tryon St., owned by Behringer Harvard.
“They made it seem like the place to be,” said Chesson of Trinity Capital, sister company to Trinity Partners, which marketed the space.
Veteran uptown broker Anne Vulcano said while the center city may compete more strongly for a few larger prospects, “generally tenants are predisposed to one type of environment or another.” She said she doesn’t see that changing.
“Just as a homeowner might see themselves in a specific type of house or neighborhood, tenants also have a ‘vision’ of their office space,” said Vulcano, first vice president with CBRE Group Inc.
Some tenants, for example, will prefer to occupy a “trophy tower,” or crave the high visibility available only in uptown, said Champion, the CoStar analyst.
“As the economic recovery gains traction, there will be less competitiveness between the two of them. Tenants will land where they would have otherwise,” Champion said. “Now, you’ll see fighting tooth over nail to get any new occupants they can possibly get.”