SOUTHEAST SNAPSHOT, AUGUST 2004

Raleigh/Durham Office Market

Gary Lyons, CCIM
Senior Advisor
Sperry Van Ness/AIM Realty Advisors
Office development in Raleigh/ Durham, North Carolina, is beginning to pick up as office absorption improves. “However, as a result of the tremendous run-up in vacancies that began in 2001, office development is still far below the past 10-year average,” notes Gary Lyons, senior advisor with Sperry Van Ness/AIM Realty Advisors. As of the end of 2003, the area only had three major office projects underway: Progress Energy, Venture Center IV and Hock Plaza (please see chart at right for more information).

From an absorption perspective, there are three submarkets that have rebounded — U.S. 70/Glenwood, Eastern Wake County and northern Durham. In the past 12 months we have seen the following changes in the U.S. 70/Glenwood, Eastern Wake County and Northern Durham submarkets (please see chart at right for more information).

In contrast, over the past 12 months, Cary gave back 117,680 square feet (2.61 percent), the Research Triangle Park (RTP)/Interstate 40 corridor gave back 611,507 square feet (6.88 percent) and central Durham gave back 82,487 square feet (5.58 percent).

“The Progress Energy building, which is under construction in downtown Raleigh, is part of a much larger redevelopment of significant portions of our central business district,” says Lyons. “We are seeing a revitalization of the downtown core with the redevelopment of the old Belk building and discussion regarding the construction of a new five-star hotel and convention center.”

There is no single concentrated area of office development. “Because of the excess supply that has accumulated over the past 3 years, we are seeing very little speculative construction,” Lyons comments.

Most of the construction is build-to-suit-related activity as a result of successful pre-leasing. The Raleigh CBD is active as are portions of the I-40/Highway 55 corridor near RTP in Durham as well as near Duke University in Durham (additional medical space). In general, the projects are much smaller than they were in the late 1990s when many large Class A office buildings were put up.

Class A rents range from $16.50 to $23.50 per square foot; however, the vast majority are between $18 and $20 per square foot.

At the end of 2003, Class A vacancies ranged from a low of 6.3 percent in downtown Raleigh to a high of 24.7 percent in Cary. The RTP/I-40 corridor, which had been one of the strongest markets in the ’90s, was a close second in vacancy at 23.4 percent. Most submarkets, however, were between 10 and 16 percent.

“The Interstate 540 corridor around Glenwood Avenue near the Raleigh-Durham International Airport (RDU) should be a very good one for office development,” says Lyons. “I can envision significant office space beginning to develop around the Briar Creek planned-unit development (PUD) near RDU and RTP, as well as Wakefield in north Raleigh near Wake Forest. Both of these PUDs have been highly successful in terms of roof top additions and retail development. The CBD should continue to experience steady development since it is the tightest submarket.”

The RDU office market was hit harder during the recent recession than at any time during the past 20 years. Many factors came into play, but the single biggest impact came from the implosion of the high-tech sector. Raleigh/Durham shed tens of thousands of jobs at AT&T, Nortel, IBM, Lucent, Alcatel and even Cisco. In fact, Cisco has five or six large office buildings sitting vacant, just waiting for an upturn in the company’s hiring.


©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.




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