At the close of 2016, over 1.9 million square feet of office space was absorbed in the Raleigh-Durham market and overall vacancy increased by one percentage point from 10 percent to 11 percent. Activity was strong and can partially be attributed to a very active suburban Raleigh submarket that absorbed over 1.1 million square feet. Vacancy in this submarket ended the year at 10 percent, down from a high of 17 percent in 2010.
It was also an active construction year for Raleigh-Durham, with developers completing over 1.3 million square feet of new office space. There is currently another 2.7 million square feet of new projects underway, and an additional 2 million square feet of proposed projects.
Jimmy Barnes, NAI Carolantic
Downtown Durham, an approximately 4.5 million-square-foot market, has multiple office projects underway, including:
The Chesterfield: Renovation on the 286,000-square-foot building should be completed soon with the first tenants moving in in July 2017. The project, being developed by Wexford Science + Technology, is approximately 75 percent leased.
One City Center: The mixed-use, 432,000-square-foot project has 130,000 rentable square feet of office space and should open in late 2017. The office component is 50 percent preleased.
Activity in downtown Durham has been driven by a historically low vacancy rate. At year-end, vacancy was 5 percent with over 260,000 square feet absorbed.
Construction completions in suburban Raleigh during 2016 were just under 1 million square feet.
Projects completed include:
Kane Realty’s North Hills Tower II: Anchored by Bank of America, the building totals 314,000 rentable square feet.
Kane Realty’s Midtown Plaza at North Hills: Anchored by Allscripts and SunTrust Bank, the building totals 330,000 rentable square feet.
Craig Davis Properties’ Centennial Campus-Technology & Innovation: The project totals 105,000 rentable square feet.
With over 1 million square feet of positive absorption, developers have an additional 296,000 square feet underway in the following projects:
Dominion Realty Partners’ The Wade IV: 105,000 rentable square feet of speculative construction
Heritage Properties’ The Legacy at Brier Creek: 116,000 rentable square feet with 30 percent preleased
Triple Crown Properties’ 3515 Glenwood: Nearing completion, the 75,000 rentable square foot building will be anchored by Bank of North Carolina.
The Research Triangle office submarket also performed well in 2016 with 385,000 rentable square feet of absorption leading to another year of 16 percent vacancy. This continues to be one of the lowest rates in 10 years.
Absorption in this submarket was led by several large lease deals, including UNC Healthcare leasing 182,000 rentable square feet at Perimeter Park in space previously occupied by Lenovo; Central Park West had 76,000 rentable square feet absorbed; and Park Office Center had 60,000 rentable square feet of absorption.
Office developers have recognized the record improvement in the Research Triangle submarket and accordingly, have approximately 425,000 square feet under construction in the following projects:
Strategic Capital Partners’ Forty/540: 200,000 rentable square feet of speculative office space
American Real Estate Partners’ 2545 Meridian: 75,500 rentable square feet with 50,000 rentable square feet pre-leased in this project
Tri Properties’ Imperial Center/Churchill Hall: 150,000 rentable square feet of speculative office space
The Cary submarket also experienced good activity maintaining single-digit vacancy at 9 percent — still one of the lowest in 10 years. This 10 million-square-foot market continued its five-year run of positive absorption. Highwoods Properties, taking advantage of the low vacancy, started speculative construction on CentreGreen Three, a 165,000-square-foot office building on the prominent Weston Parkway.
Expectations are high for continued growth and activity in 2017. Wake County continues to see strong economic growth across the life sciences, information technology, advanced manufacturing and cleantech sectors. In 2015-16, Wake County celebrated 66 project announcements totaling 4,573 jobs and generating $247.9 million in investment, according to Adrienne Cole, executive director of Wake County Economic Development.
Wake County reports a rapidly growing population with an average addition of 63 people per day. The unemployment rate is under 4.5 percent, and the workforce is driven by three tier-one research universities: North Carolina State University, Duke University and University of North Carolina-Chapel Hill.
The Triangle region continues to get positive, national recognition in accolades, and although caution must be exercised as we analyze the amount of new construction underway, the combination of positive absorption, population growth, a talented workforce, quality of life and development infrastructure indicate continued growth for the Raleigh/Durham office market.
— By Jimmy Barnes, SIOR, President, NAI Carolantic. This article originally appeared in the January 2017 issue of Southeast Real Estate Business.