Bank of America’s 50-story headquarters, Charlotte’s tallest building when it was completed in 1993, was to be joined by a similarly sized home for Wachovia.
But the economic convulsions of late 2008 intervened. Almost overnight, Wachovia became a subsidiary of Wells Fargo, based in San Francisco. Its unfinished tower, including three museums and a theater at its base, was briefly christened the Wells Fargo Cultural Center.
Wells Fargo then negotiated a deal with Duke Energy to give the utility about 500,000 square feet of space on 21 floors in the building, which was finished last year and is now known as the Duke Energy Center. The lease, and the construction of two other new buildings in the city’s central business district, known as Uptown, point to a more diversified future for the city.
One of the other tenants in the tower is Cassidy Turley, the city’s fourth-largest property management firm. Maxwell Hanks, a senior vice president, said Charlotte has had to adjust to a new array of realities: a 13.5 percent office vacancy rate, nearly three million square feet of vacant space and a banking-based economy that was diversifying rapidly into military and energy.
“I find myself in the psychology business these days — of managing expectations for both landlords and tenants,” Mr. Hanks said in his office on the 34th floor. “The market has changed. There’s more supply, weaker demand and greater vacancy. But there are more concessions too.”
The Duke Energy Center — or the Tower of Power as some call it — has 1.3 million square feet over 48 stories and is now 97 percent occupied. The Duke name has transformed it into a symbol not only of Charlotte’s ability to weather a severe financial downturn, but also of a regional economy that is moving beyond banking and into other industries.
“The city fathers took a body blow in 2008,” said Tom Shiel, the communications manager of Duke Energy. “They took an eight count, then asked what they could do to prevent that from ever happening again.”
They began by focusing on industry sectors that had been recruited in previous years and were growing, like military contracting and aerospace. One contractor, Goodrich, had established its headquarters in Charlotte in 1999, while General Dynamics, which is based in Virginia, moved executive offices for its armament and technical products division here in 2004. Last year, BAE Systems of Britain, whose United States unit is based in Arlington, Va., committed to opening a human resources and finance center in Charlotte, creating 176 jobs.
Also on their radar screen was the energy sector. Already, the Shaw Group and Areva were among about 50 such companies clustered in and around the city. Then last June, Babcock & Wilcox, the energy engineering company based in Lynchburg, Va., moved its headquarters and 130 jobs here. More significantly Duke Energy is now poised to lay claim to the title of the nation’s largest electric utility, pending approval of its $13.7 billion acquisition, not including debt, of Progress Energy of Raleigh, N.C. Recently, Duke’s chief executive, James E. Rogers, told The Financial Times that the deal would put the company in a stronger position for further consolidation.
“Usually when you go to a major city, all the tall buildings are the banks,” said Clark Gillespy, vice president of economic development at Duke Energy. “I’ve never been to a city where it’s the energy company. Here, it’s because Rogers has driven a stake in the ground and said it’s the energy sector that’s going to lead us out of this recession.”
That may take a while. Vacancy rates have been steadily increasing since a low of 2.5 percent in 2008, rising this year by almost a full percentage point over 2010’s rate of 12.7 percent. The last time Charlotte was bumping this long and low across the bottom was 1993. Then, two bank chief executives, Hugh McColl of NationsBank and Edward E. Crutchfield of First Union, set out on a nationwide tear of acquisitions that eventually formed Bank of America and Wachovia, respectively the nation’s largest and fourth-largest banks. “They really got traction back then,” Mr. Hanks said. “It took about 24 months from that downturn to get back to single digits.”
But in 1993, Uptown Charlotte consisted of just 10 million square feet of commercial space. In 2011, it covers 22 million, much of that available because banks are giving up third-party space and heading back to buildings they own. That leaves a lot of empty offices — about 2.8 million square feet — much of it Class A space.
Mr. Hanks said the Duke Energy Center was one of two new buildings he would characterize as “Super-A” space — because it was LEED platinum certified by the United States Green Building Council and dominated the city skyline. The other is the recently completed 32-story Bank of America Center, now 95 percent under lease. Nearby is the new Nascar Plaza office tower, with 230,000 of its total 390,000 square feet available — all of it Class A space and much of it contiguous.
Effective leasing rates are estimated at 15 to 25 percent lower than they were four years ago. The remaining Super-A space — a little under 100,000 square feet between the two high-rises — can be had for $28 to $34 a square foot, Mr. Hanks said. The Uptown area has 1.6 million square feet of Class A space commanding $23 to $28 a square foot, and 1.1 million square feet of Class B space that runs $18 to $23 a square foot.
Charlotte’s changes will be on display to the world in September 2012, when the Democratic Party holds its convention here. It is expected to bring in 35,000 visitors and generate $150 million.
Mr. Hanks predicted that companies would like what they saw during the convention. “It will be enticing for a top-tier company to come in and reboot in a New South city,” he said. “With the convention in 2012, companies will come in, like it and stay.”
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