How Charlotte CRE Leaders are adapting to shifting market trends
Writer: Eleana Teran
December 2024 —As the commercial real estate landscape undergoes significant adjustments, sectors are finding ways to adapt to new economic pressures and evolving demand.
High vacancy rates and reduced pipelines have defined the industrial market in 3Q24, pointing to a gradual return to equilibrium after the development surge of recent years. Reports from JLL, Cushman & Wakefield, and Lee & Associates signal a cautious, measured approach in industrial real estate, balancing supply and demand as the economy shifts. While absorption has slowed and speculative construction remains active, monthly U.S. imports have seen a strong increase, helping buoy the market and maintaining a steady flow of goods into supply chains.
In the multifamily housing sector, markets like Charlotte and other Sun Belt cities are showing signs of stabilization as high interest rates temper new construction. Despite a surplus of apartments in several fast-growing regions, CBRE notes that robust renter demand continues to outpace supply, which could drive positive rent growth in 2025.
At the same time, Charlotte is emerging as a prominent player in data center construction, with projects fueled by the demands of cloud and AI providers. CBRE’s recent findings indicate that Charlotte’s preleased data center space has grown more than 15 times the previous high in 1H16, setting the region up as a major data center hub.
Industry leaders such as Ryan Doherty, principal and practice leader of Progressive Companies, Steve Smith, executive vice president of the Carolinas Division at McKenney’s, Inc., David Bixler, Charlotte office principal at S&ME, and Mike Iosue, director of business development at EM Structural, shared insights on how their sectors are adapting to these dynamics, highlighting strategic diversification, emerging growth opportunities, and the potential challenges ahead.
Ryan Doherty, principal and practice leader of Progressive Companies
While some of our markets are strong others have slowed down. For us, we have focused on diversifying our service offerings and have focused on community, civic projects, workplace, science and industry, and higher education to provide a good balance.
Sectors that I would say are still struggling are multifamily housing and retail as they rely heavily on external investment, which is challenging due to high construction costs making margins much tighter. These challenges might persist in the near term, but things will level out and we expect interest rates will come down a bit more over the coming year or so. The age old saying of the “retail apocalypse” is not true, but instead retail is shifting and changing. The same goes for multifamily housing. But in this region of Charlotte, we are somewhat insulated from these issues due to the growth being experienced.
Steve Smith, executive vice president of the Carolinas Division at McKenney’s, Inc.
There is no question that healthcare is definitely active. We’re also starting to see a strong resurgence in data centers and high-tech construction, driven by AI and the digitized world. While there hasn’t been much data center construction in the local market recently, it’s picking up around Charlotte. We’re in discussions with clients about expanding their presence or locating new facilities.
Industrial construction, particularly manufacturing and pharmaceuticals, has been steady, with substantial growth in the last 12 to 24 months in South Carolina and parts of North Carolina. Commercial space is still down, with shuffling of tenant occupancy and interior movements, but major new construction remains constrained.
Public-private partnerships, including projects from county and municipal governments, are also seeing investment. This likely stems from remaining COVID funding being allocated to infrastructure and amenities like libraries and schools.
David Bixler, Charlotte office principal at S&ME
There is unlimited potential. The market continues to grow, especially in Charlotte and the entire Southeast. Many people are moving to the area, and there is still a lot of land available for development. I recently attended an Economic Development Council meeting where we discussed pursuing life sciences in this market. At the coast, the widening of the port in Charleston and the new interstate for intermodal facilities are significant developments. The opportunities are strong, but we face challenges in finding good people to fill roles. Many midlevel professionals are either well-entrenched in their current positions or have left the industry, possibly influenced by the pandemic. It has become difficult to find qualified applicants for open positions, which is a challenge we must manage moving forward.
The energy sector remains strong, particularly in solar and transmission lines. While there’s some pushback on data centers from municipalities due to their power demands, this opens opportunities for small modular reactors, which are self-sufficient nuclear facilities. Data centers may start using these to operate off the grid.
Mike Iosue, director of business development at EM Structural
I would define the current economic environment as “unusually unpredictable.” Post-COVID logistics have normalized, but construction supply costs remain significantly higher than pre-COVID levels. Although these costs aren’t fluctuating as wildly as before, labor costs have remained extremely high. Several years of unusually high demand have pushed the costs of all phases of construction increasingly higher.
We see about 150 people moving to Charlotte daily, creating a high demand for housing, but we also see an increased supply of multifamily housing developments delivering, resulting from design work done back in 2021 and 2022. While this supply is being absorbed quickly, recent studies showed Charlotte may have as much as a four-year supply of apartments in 2024. Factors like rising interest rates, inflation, and an election year add layers of uncertainty as to how much design opportunity we’ll see in the near future.
To make matters more interesting, we’ve seen many projects in the last 12 months stall at the design development phase. If the Federal Reserve significantly drops interest rates, it could suddenly make these projects financially viable, leading developers to push forward. This could create a challenging scenario for those in design and contracting, as pent up demand would create a new surge.
For more information visit:
https://www.weareprogressive.com/
https://www.mckenneys.com/
https://www.smeinc.com/
https://www.emstructural.com/
