Demand for Office Space Remains
Strong In Downtown Charlotte

These are heady times for Charlotte, N.C.'s commercial real-estate market, which is holding strong against the impact of a nationwide crunch in the financial sector. Although the metropolitan area's banking-centered economy can't escape the pinch entirely, its crowded downtown office towers make landlords in most other cities envious.

With 2.6% of its downtown office space available to lease, the Queen City's third-quarter vacancy rate was the country's lowest, according to a nationwide survey of central business districts by CB Richard Ellis. While vacancies in the area's suburban offices were 17.1%, downtown Charlotte outshined midtown Manhattan, which posted the second-lowest office vacancy in the quarter, 4.9%.

It also helps that while the region has its share of retail power centers and development is pushing into surrounding counties, the city is slowing the sprawl that has left other fast-growing Sunbelt cities, such as Atlanta, grappling with traffic congestion and other problems.

This month, the first segment of the city's new light-rail line will open, and retail and residential development is sprouting around it. Meanwhile, office buildings and museums are rising on former parking lots or land once considered the outer edges of the urban core, known locally as Uptown. They include the Nascar Hall of Fame, designed by the architectural firm of Pei Cobb Freed & Partners, which also created the Rock and Roll Hall of Fame and Museum in Cleveland.

"We're beginning to see a lot of depth to the city," said Bob Bertges, director of corporate real estate for Wachovia Corp. The Charlotte-based bank is building one of the city's most ambitious projects, a 48-story office tower that will be part of a development including arts venues and a new home for the Afro-American Cultural Center.

Wachovia will move its headquarters into the building, which should be completed in 2009, and Charlotte-based Duke Energy Corp. will rent space, Mr. Bertges said. Tenants are lined up for nearly all of the space in the building, he said.

The developers are taking cues from an economy that has been expanding since 2004. The metropolitan area's above-average job growth and swelling population of about 1.6 million people are expected to help consume much of the millions of square feet of offices, stores and apartments under construction.

There are some clouds on the horizon, though. Turmoil in financial markets could slow demand, as that sector and insurance account for about 30% of the office-using employment base in the Charlotte metro area, according to Property & Portfolio Research, a Boston-based real-estate research company. Both big Charlotte-based banks, Wachovia and Bank of America Corp., recently announced job cuts.

Although metro-area rents are rising across the commercial sectors, vacancy rates in retail, already above average, and industrial are beginning to climb on new supply, PPR says. Retail-store construction is particularly robust, as developers are attracted by the metro area's total retail sales per capita, excluding autos, of $6,058 for the 12-month period ended in the third quarter. That is nearly double the national level, $3,241, PPR says.

Still, many economists are predicting a moderate slowing of expansion rather than an abrupt halt. John Connaughton, an economics professor at the University of North Carolina at Charlotte, says he believes the region will continue to perk along.

Charlotte isn't burdened by an oversupply of new construction, he says, and the economy includes a variety of strong sectors, such as health care and energy.

"People think of this as a banking center, but there's a lot more going on," Mr. Connaughton said.

Email your comments to rjeditor@dowjones.com.