Ann-Stewart Patterson,
CBRE | Raleigh
Although, the Raleigh-Durham MSA is a smaller industrial market in the region, it’s been ranked No. 1 by Forbes as the Best Place for Business and No. 2 for the Fastest Growing Large U.S. City from 2010-2030 by the United Nations Population Division. Companies continue to announce corporate relocations and expansions and unemployment is lower than the national average at 4.5 percent in October. EDM America relocated its $150 million headquarters operation to Raleigh from Pennsylvania. Argos Therapeutics announced an expansion project in Durham — a $57 million bio-manufacturing plant.
The area has also seen an influx of third-party logistics companies, moving companies and suppliers for the home building industry opening new locations and consolidating to larger blocks of space. As user demand continues, there is a strong desire by investors to become a part of our market or expand their current footprint.
Institutional, private and public capital groups all made large investments in the Raleigh-Durham market last year. Liberty Property Trust purchased five buildings totaling over 700,000 square feet from Crown Realty, while simultaneously closing on 35 acres of industrial land in the RTP/I-40 submarket.
Speculative Construction
Liberty plans to build speculative Class A industrial space on the 35-acre tract of land in 2015. Liberty Ridge will consist of four buildings ranging from 63,000 square feet to 136,500 square feet, totaling 462,000 square feet. This is the first developer in our market to construct speculative Class A industrial space since 2003. A second developer has plans to purchase and develop approximately 1 million square feet in the Eastern Wake County submarket.
Developer confidence to deliver speculative product stems from increasing consumer expectation and demand, substantially higher deal velocity, and continued positive absorption in the Raleigh-Durham market. In addition, industrial land is becoming scarce and existing land prices are cheaper relative to other markets. In 2014, over 6 million square feet of industrial product traded totaling more than $450 million.
The RTP/I-40 submarket is the largest industrial submarket in Raleigh-Durham and houses companies supplying to research and development firms located within the Research Triangle Park. This will hold true for the future, however, there is a desire for owners and developers to be in the East Wake County submarket access to I-95, and the proximity to the ports of Norfolk, Wilmington and Charleston.
Rents Inching Up
Historically, rental rates for Class A industrial space have hovered in the high $4.00 per square foot range, but as the market has seen a solid 12 months of positive net absorption over 650,000 square feet, landlords are holding firm or increasing rental rates. New construction and existing Class A warehouse space are approaching and exceeding $5.00 per square foot with moderate tenant improvement packages. As speculative product is delivered and projected to be pre-leased, companies are starting to consider consolidations and expansions up to first quarter 2016.
Raleigh-Durham’s industrial market is one of the most robust and desirable markets in the Southeast. 2015 is forecasted to be a strong year for leasing as the economy continuously improves, vacancy rates drop, developers engage and companies continue to expand. Momentum in all these facets bolsters Raleigh-Durham as it becomes a key player against other larger markets in the future.
— By Ann-Stewart Patterson, SIOR, Vice President, CBRE | Raleigh. This article originally appeared in the January 2015 issue of Southeast Real Estate Business.