Charlotte June 2022 – Key Take Aways
- David Swenson – York County Economic Development – David is the Director of Economic Involvement for York County. He describes York County very optimistically. The population has grown 25% within the last decade and will continue to as the county moves from the 7th to the 5th largest within the next 5 years. Drawn by high-performance school settings and lower residential taxes than North Carolina’s, the average median age is 38.7, although many retirees are coming in as interested, cash buyers on the Western side. The region is diverse, with change seen mostly in the Hispanic population. In 2010, it was at 4% whereas today it is at 7%. This directly impacts the construction and manufacturing labor force, appealing greatly to new and large companies. Jobs continue to grow, increasing over 2,400 within the last decade. Micro-enterprises comprise most of this, however big business too has grown. Rates are at-market or slightly lower in certain areas for industrial real estate. Rent growth is like Charlotte’s. York County currently has 29 spec buildings with 7.3 million SF, a majority of that going to warehouses. Unfortunately, a low percentage of industrial zone land is shovel ready. Obstacles include competing or joining the private sector. The private sector is risky if their projects don’t allow for other economic opportunity and align with the public sector’s mission. Plenty of office market space due to the pandemic. David concludes with potential challenges York County may face (ex. supply chain impacts and infrastructure and product development), but believes with careful planning, infrastructure, utility, and community will continue to keep pace with expansion.
- Chuck McShane – CoStar Group – Chuck announces a rise in office sublet space after its decline in 2021. Companies are moving into brand new spaces, leaving behind older space. This is apparent with Uptown to South End moves as well as in some suburban areas. Old space will be a challenge to backfill. On industrial side, about 17 million SF of construction in market occurring mostly near the airport, Gaston County, York County and Iredell County. Rent growth is very strong. Talk of Amazon drawing down their space, yet currently nothing placed on market for sublease. The multi-family side is seeing a lot of supply coming online at some point. Chuck is interested in seeing how the interest rate changes affect the tightness of the single-family market and whether that bolsters demand for multi-family space. Rent growth, on asking rent side, is starting to peak, running about 15% year over year throughout all multi-family properties. Retail lease sizes are down but leasing activity in strip centers are doing very well. Rent is coming up, about 9% of rent growth year over year across all retail properties.
- Joe Kinsey – CoStar Group – Joe adds brokers, developers and banks are having more conservative conversations regarding pricing. Using CoStar’s data, forecast interest rate shock scenarios or moderate downside scenarios and how it’s affecting sales price-per-foot and rent, clients are reeducating themselves and therefore revaluating their deals based off the researched data points. Sellers and buyers aren’t seeing eye-to-eye, with some clients banking on future appreciation and not current cap and interest rates. This is causing deals to stall, although many are still being made.
- Russell Hughes – Hughes Realty Advisors – Russell states the buyer and seller disconnect is very real and getting wider. He provides a personal example from a recent $10 million deal, where his buyers pulled out because the uncertainty crept in too aggressively, although the deal made sense from an economic perspective. He believes the cost of funds will have clients rethink deals or pull out entirely until there is more certainty. He hopes material/construction costs will soon lower.
- Gates Grainger – Investors Title Company – Gates asserts the title side is extremely busy, with double and triple the amount of work than there was five years ago. Deals are closing that were committed a long time ago, however some are pushing against deadlines or even on extension. He remains optimistic on the commercial side since clients continue to sign contracts even though they are more wary when ordering titles or spending money. He claims an incredible year for 1031 exchanges, estimating around a 25% uptick.
- Heather Mucci – Novus Architects Inc. – Heather expresses excitement in the return of the hotel industry with the recent spike in travel. She sees a huge uptick in the asking of new build renovations in the hospitality arena space. This space covers platforms such as air travel, conference centers and fun enjoyment facilities, i.e., a pickleball eatery/brewery currently underway in Asheville. Owners are being asked to reinvest in new product on the market industry. Differences in luxury and mid-size hotels will be very apparent with mid-size hotels feeling more like lower-end ones due to inflation. She notes Airbnb was useful during the pandemic but now safety and quality issues are a major concern. Many brands are buying homes and leasing them as more luxurious Airbnb experiences for those that want something less branded than what is found at hotels.
- Ron Rothfuss – Terracon – Ron says Terracon faces a massive backlog in geotechnical work along the I-85 corridor and is booked on several projects for the rest of the year. Industrial is still very active. He’s secured land and permits for a cold storage project in Rock Hill but has yet to crack dirt. He has four, 30-story high-rise projects currently underway in Charlotte. Three of those are being built at the Cabaret/Midnight Diner location where South End/Uptown/East Morehead meet. Healthcare activity has picked up thanks to projects by Atrium and Novant Health. Lead time for drill rigs are approximately 6-8 weeks. NC permitting is currently a sixth month hold up due to labor shortages.
- Neal McElveen – Terracon – Neal expresses Terracon’s continued challenge in finding experienced labor. He emphasizes how busy due diligence; environmental and geo-tech sides are doing. He’s currently focused on multi-family high-rises in Uptown, and the under-design drilling of the Silver Line.
- Zach Kimball – Evergreen Capital Strategies – Zach and his boutique company work to provide the best incentive packages for his clients. Evergreen Capital Strategies work primarily with the underserved middle market space. He sees construction costs halting some projects, consequently making incentives even that more crucial to them. He cautions his clients that incentives will potentially run out and therefore their businesses need to take balanced, big-picture approaches, within the right communities. He argues that South Carolina is very business-friendly and has immense foreign direct investment, especially German. He expects most of the Southeast will be aggressive as far as attracting these companies.
- Pat Pierce – Selwyn Property Group – Pat is involved as a developer in the industrial division for Selwyn Property Group. He’s currently laser-focused on two projects in Rock Hill set to break ground in August. Each building is 120,000 SF apiece and can accommodate clients in need of 30,000 SF and up. He reiterates what other members have previously stated regarding the retrading of deals. Construction costs and rates are still increasing. Contracts with contractors are being signed yet are finding challenges in price-locking, considering vendors don’t yet know what prices will be until products have shipped.
- Jon Phillips – Selwyn Property Group – Jon adds that once prices go up, vendors and manufacturers fight against lowering them back down ever again. He believes prices will level off eventually. He describes a 104,700 SF industrial development building recently finished in Huntersville. Its 184 SF deep and again attracting that 30,000-40,000 SF clientele. It’s approximately 67% leased and will get a TCO on it this week. Selwyn Group has a similar project to this one near the Asheville market as well. The land is under contract and will close in a couple of months. It’s approximately 130,000 SF. He concludes that institutional money is out there but warns may turn out of industrial market.
- Shaun McCutcheon – Zonda Home – Sean is the VP for Zonda Home. He tracks and analyzes 50,000 communities all over the country, 300 of those in and around Charlotte. He notices how interest rates are affecting housing, particularly in the Charlotte and Raleigh areas of the Carolinas. Sales are strong, with the aggressive pricing of 2020 and 2021 dwindling. He doesn’t see any significant impact yet on interest rates. This is because new buyers locked in interest rates 3-6 months ago and if anybody has or were to cancel, builders would be delighted to place back on the market for a higher price. However, he notes interest rates are placing pressure on the resale market. Raleigh has seen an all-time low drop in listings, approximately 40%. He believes the new home market will pick up this slack and remain relatively strong if the job market and consumer confidence hold up.
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