Charlotte commercial real estate forecast: Rising demand, rising - | WBTV Charlotte

Charlotte commercial real estate forecast: Rising demand, rising rents

Cranes tower overhead as construction continues at uptown's newest office and hotel tower at the 300 South Tryon construction site on Tuesday, August 25, 2015. David T. Foster III | The Charlotte Observer) Cranes tower overhead as construction continues at uptown's newest office and hotel tower at the 300 South Tryon construction site on Tuesday, August 25, 2015. David T. Foster III | The Charlotte Observer)
CHARLOTTE, NC (Ely Portillo/The Charlotte Observer) -

Charlotte’s real estate market is expected to keep booming in 2016, according to a new report by real estate brokerage CBRE, but with rising demand comes a potential downside for tenants of all kinds: Rising rent.

If CBRE’s 2016 outlook for commercial real estate in Charlotte were summed up in one word, it could be “strong.” That word appears 10 times in the firm’s summary of its 2016 Charlotte forecast, released Tuesday.

Tenants will likely pay more for office, retail and industrial space, CBRE said. The brokerage firm also expects rates to continue rising for apartments, where average rent reached $1,000for the first time this year.

Rising demand is powering investment in every sector, with both acquisitions and new developments increasing. In addition to Charlotte’s growing population, CBRE noted that large institutional investors are increasingly looking to smaller markets as New York and other top-tier real estate markets get even pricier.

“Charlotte is benefiting from a lengthy and steady economic recovery,” CBRE wrote. “Charlotte is poised to benefit from consistent population and private-sector job growth, industry relocation and expansion within residential markets.”

Here’s what CBRE is forecasting for four major commercial real estate sectors:

Office: With vacancy rates falling and demand increasing, the stage is set for higher rents. That’s attracting investors, who are both buying existing office buildings and building new towers in uptown, SouthPark, Midtown and Ballantyne. CBRE noted that tenants seem willing to pay more for office space in uptown and South End, with ready access to light rail and other amenities.

“More capital will continue to flow into Charlotte,” CBRE predicted.

Multifamily: Charlotte’s record apartment boom is readily apparent, with 12,300 units under construction and even more planned. That’s prompted some to worry about overbuilding. But the new supply hasn’t forced rents down yet, and CBRE predicts Charlotte’s increasing population will keep apartments in demand and push rents even higher.

“In the next two years, the total number of units absorbed will outpace the new supply,” CBRE wrote. Rents are expected to go up another 18 percent in the next five years.

[Related: Built to last? Apartment boom raises questions]

Retail: All of those new apartments are creating opportunities to add more retail to booming areas, such as South End and NoDa – the new residents need somewhere to shop. And the demand for more retail space is exceeding the amount of space being built, which is pushing rents higher.

“Absorption of retail space is far exceeding new supply, allowing landlords to get aggressive and lift asking rates,” CBRE wrote. Attractive retail centers for investors include grocery-anchored developments in established neighborhoods (Harris Teeter and Publix are both anchoring new developments in South End, for example), and growth markets along the Union County line and the Interstate 77 corridor.

Industrial: Charlotte’s central location makes it attractive to logistics and distribution companies, CBRE said, and a lack of new supply has made warehouse space increasingly expensive.

“The lack of availability for tenants is allowing landlords more leverage at the negotiating table, pushing asking rates to a record high,” the company wrote. More warehouse space is in development, but CBRE is still forecasting rent to rise for the next two years.

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