FEATURE ARTICLE, DECEMBER 2004

2005 Outlook

Raleigh, North Carolina

Employment is key in order for the Raleigh market to improve in 2005. Employment will be driven by the high quality of life in the area. We have the appropriate properties. We have the educated workforce. The economic environment is dynamic. We have every property type available and a sophisticated and diverse workforce in a truly unique environment framed by state and local government presence and incredible research and educational centers.

Billie Redmond Principal Coldwell Banker Commercial Trademark Properties

At Coldwell Banker Commercial Trademark Properties, we believe that there will be continued strong redevelopment interest in 2005. Instead of new building construction, look for redevelopment of infill properties. The risk in this type of project is often mitigated by a “proven” location. In most instances, the area is surrounded by residential, with good traffic patterns and the overall value of the property is greatly enhanced by rehabbing the property. This effort gives the property a new face and new life that benefits the entire area. There continues to be a strong market pull toward mixed-use projects that provide choices of types of housing (clustered or non-clustered), spaces to work, recreation and leisure activities, and retail or service components. Our elected officials have demonstrated a strong determination to focus on transit-related challenges, and a mixed-use project often allows a different solution to moving people during different activities and at different times of the day.

The submarkets of Apex, Garner and Wake Forest have experienced strong growth in 2004. In 2005, we look for these same submarkets to continue, as well as Holly Springs and Cary, where we have seen renewed activity.

Look for more residential in Durham, Wake and Johnston counties. We will see a push to outlying areas for residential and, of course, commercial will follow this growth. The cost of land and the cost of infrastructure are fueling this growth and push building to outlying areas.

Interstate 540 is creating new opportunities to live, work and play in previously thinly developed areas. This development will follow fairly predictable paths as new roadway and traffic patterns develop.

Our market improved dramatically in 2004. We still have some weak corridors such as the office areas, due to corporate contractions (downsizing) and properties that were built on spec. These speculative buildings came on line when the market was starting to turn. Look for continued transaction improvement in raw land development, infill redevelopment, and income producing investment categories in the coming year.

At Coldwell Banker Commercial Trademark Properties, we have seen tremendous improvement in the sublease inventory as of the end of the third quarter. At the present time, available inventory is approximately 1.6 million square feet — which is almost half of what was available 2 years ago.

Small- to mid-size business relocations and expansions — particularly from outside our immediate area — are filling vacated space. We are ripe for big users to come into our area, as we have reasonable available inventory in almost all property types, an educated and exceptional workforce, and a wonderful quality of life, particularly in the Research Triangle Park corridor where vacant office and flex space is most abundant.

Retail leasing has been consistent and strong. Office leasing has improved but is still at a 16 percent overall vacancy rate throughout the market. As always, there are several corridors with very low vacancy rates and others have strong inventory available.

Warehouses and industrial continue to be extremely slow. The big box market has affected this activity and we simply have not had new, large big box organizations to backfill what has been lost. At the present time, we are seeing a 30 percent vacancy rate in the warehouse and industrial area. We are continuing to see a mix of concessions for credit-worthy tenants in all submarket areas including approximately 1 month free rent per year of term, turn-key tenant improvements and below-market rates. Most Class A landlords are giving more free rent and maintaining rental rates to protect or enhance values. The Class B office owners are dropping rents to get deals consummated. With the slowdown in construction over the past 3 years, we are seeing more tenants very interested in build-to-suits.

— Billie Redmond, principal, Coldwell Banker Commercial Trademark Properties

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