Despite shifts toward remote and hybrid work, office rents continue to rise in North Carolina’s Triangle region. Among the 25 largest office markets in the country, Raleigh experienced the second-highest rent growth between 2019 and 2022 — a testament to continued tenant demand.
We’re also seeing renewed interest in trophy assets, where the average asking rent has reached an all-time high of $43.35 per square foot. Additionally, the first quarter showed a 280,000-square-foot increase in total office supply, indicating investor confidence in Raleigh’s resilience.
Compared to rival markets, Raleigh wasn’t overbuilt pre-pandemic. The market doesn’t have millions of square feet of vacant space downtown and is more balanced than its competitors, leaving plenty of opportunity for future growth.
Another indicator of Raleigh’s growth trajectory is the 32 percent year-over-year increase in tours given by JLL’s Office Agency Leasing team this year. Given the current economic headwinds, we know that prospects are taking longer to make decisions about their space. However, we also know they are actively evaluating their options and making long-term plans for their team’s future needs.
At buildings within our portfolio, badge swipes last quarter reached a post-pandemic peak utilization of 68 percent – just 13 percent shy of pre-pandemic peak utilization levels set in second-quarter 2019. As more and more employers set return-to-office mandates, we are optimistic that the holistic strength of Raleigh’s office market will increasingly draw interest and inspire confidence.
Other office trends we are monitoring in Raleigh include:
Flight-to-quality, hybrid work
Similar to other cities throughout the country, Raleigh’s high-quality assets are significantly outperforming the rest of the office market, with new space continuing to lease at a net positive.
We continue to see world-class projects that exemplify the future of work moving forward in the market — such as Hub RTP, a $1.5 billion mixed-use development in Research Triangle Park, and 400H, a 20-story, mixed-use tower in the heart of downtown Raleigh. The first building at Hub RTP, Horseshoe, has broken ground and will be delivered in the first quarter of 2024. 400H is nearing completion and will be delivered later this year.
New offerings like these stand ready to meet the needs of tenants looking for a modern, highly amenitized workplace experience. Office demand is expected to remain subdued through the first half of the year, leading to a gradual recovery. However, with brand-new office products in Raleigh priced lower than competitor markets, Raleigh is well-positioned to win new investment in the months and years to come.
Challenges exist, but it is in the best interest of our communities to draw people back to our downtowns and suburbs by creating places people want to spend time, including the office. Companies in Raleigh are refining their return-to-work strategies as offices continue to be the center of the work ecosystem. Offices reinforce culture and brand, drive collaboration and innovation and enable professional growth. Many businesses are investing in flexible spaces as hybrid work remains critical to attracting and retaining talent in the future.
In Raleigh, we are also seeing velocity in spec suites — both laboratory and office — and right-sized spaces. From our view, as companies navigate a new normal in conjunction with the current economic landscape, they are prioritizing their workplace strategy consisting of taking the space they know they need today and reducing risk by not being responsible for a full build-out.
There are signs of companies reversing course on fully remote strategies and recognizing having a central location where their people want to come (even if only two or three days a week) is better for the business and their employees.
Long-term growth market
Every company in Raleigh, and other cities throughout the United States, is working on finding the right balance for an organization to be successful in the long run, and although we are three years in, this experiment is going to take more time to flush out. Long-term prospects for Raleigh’s office market remain strong and compared to other parts of the country, the Triangle office market is still solid.
Raleigh and Durham are among the fastest-growing cities in the United States, as they were pre-pandemic. Even amid economic headwinds, the Research Triangle has maintained its powerhouse reputation for biotechnology and life sciences. With an impressive pool of talent and pipeline of higher education institutions, as well as affordable cost of living, business-friendly regulatory environment and pleasant climate, the region remains a magnet for new residents and businesses.
Look no further than Meta, parent company of Facebook and Instagram, which will soon open an office at the American Tobacco Campus, joining tech giants like Google, Microsoft, Epic Games and Apple in expanding their presence in the Triangle.
Despite short-term turbulence, Raleigh will continue to benefit from strong in-migration and all of the characteristics that make it a great place to live and do business.
— By Kimarie Ankenbrand, Managing Director of JLL Raleigh. This article was originally published in the June 2023 issue of Southeast Real Estate Business.