Life Sciences Firms Dominate Activity in Raleigh-Durham’s Industrial Market

by John Nelson

It seems as though we have recently seen significant weekly announcements about investment and job creation by major U.S. companies into the Research Triangle Park region, the area situated between the cities of Raleigh and Durham. For instance, tech titans Apple and Google declared plans to establish major engineering hubs in the region, adding heat to an already dynamic market.

It is common knowledge that the Triangle area is respected for its large, highly educated workforce thanks to top-ranking colleges and universities, including Duke University, North Carolina State University and University of North Carolina at Chapel Hill. Wake Tech, North Carolina’s largest community college, also serves as a vital engine, providing the region’s workforce with STEM candidates. These institutions supply existing and expanding businesses with an impressive talent pool.

Keith Wallace, Merritt Properties

Theses factors, along with a business-friendly economic climate, have grown the Research Triangle into one of the nation’s largest research centers. Although local headlines continue to buzz with real estate business news, the Raleigh-Durham industrial market has witnessed steady real estate investments from life sciences and R&D businesses for decades.

Over the past 24 months, however, demand for life sciences space has had a dramatic impact on traditional flex/light industrial users in response to the COVID-19 pandemic.

First, life sciences-focused real estate developers have been acquiring the area’s limited raw land for lab and R&D developments, as well as existing flex/light industrial assets for planned lab space conversions. The influx of investment by real estate companies like Longfellow Real Estate Partners and King Street Properties, compounded by a demand for pharmaceutical manufacturing space, has added pressure to an already space-constrained industrial and flex market.

Additionally, life sciences companies themselves are purchasing existing flex/light industrial parks that were developed in the 1980s and 1990s, such as Southport Business Park, Eastridge and Triangle Business Center, to be converted into owner-occupied lab and R&D space.

Meanwhile, buildings that are not experiencing lab conversations are still witnessing a high volume of traditional tenant prospects. With lab and R&D developments commanding higher rents due to specific buildout requirements, some small-to-mid-size companies that are not seeking lab or R&D space are being priced out of these “lab parks.”

With land constraints, a lack of inventory and rent growth, there is intense competition among traditional light industrial users for existing space, which is why some are pursuing leasing opportunities in adjacent Triangle submarkets.

The explosive growth of lab-based parks by industry-specific and real estate companies reminds one of Ashburn, Virginia’s data center boom in the late 1990s. With such an enormous concentration of data centers, the area earned the nickname “Data Center Alley.” Similarly, Raleigh-Durham is expected to continue to see local service providers establish new headquarters or regional operations as the market evolves because these businesses provide critical resources to life sciences and high-tech users.

This domino effect will improve the overall industrial sector, create jobs and spur economic growth. Subsequent residential growth will only increase the need for service-based businesses and thus continue to drive the demand for flex space around the market.

— By Keith Wallace, Leasing and Business Development – North Carolina Region, Merritt Properties. This article originally appeared in the June 2021 issue of Southeast Real Estate Business.

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