SOUTHEAST SNAPSHOT, DECEMBER 2004

Raleigh-Durham Industrial Market

Elizabeth Raiford
Director of Marketing and Research
Grubb & Ellis|Thomas Linderman Graham
Industrial development in Raleigh-Durham, North Carolina, remains minimal. Most developers have wisely been holding off on speculative construction for the last 3 years.

“Conditions in the Raleigh-Durham industrial market remain incredibly soft, but the bleeding of space and resulting increases in vacancies have slowed dramatically since 2003,” says Elizabeth Raiford, director of marketing and research with Grubb & Ellis|Thomas Linderman Graham.

The market has been moving sideways for the last few quarters. Activity has picked up somewhat, but most new leases have been offset with new vacancies. Traditional industrial space is faring worse than flex space, which typically is used as office space in this market.

There have been few large tenants seeking space in the market in 2004. The majority of deals have been signed with tenants needing 10,000 to 40,000 square feet. The few large tenants that have sought space in recent months have typically opted to build or purchase rather than lease. “For some older facilities, we are beginning to see a trend of buildings being redeveloped or adapted for alternative uses, such as sports and entertainment complexes or churches,” Raiford says.

While recent development has been minimal, the majority of speculative construction that has occurred has taken place in southeastern Wake County. The construction of industrial and flex space at Walnut Creek and Greenfield North is significant because it represents two rare instances in which developers were willing to build in the face of soaring vacancies. Lower land prices and a nearby booming population (and therefore employment base) have caught the attention of developers. Both projects have been relatively successful in attracting tenants. Industrial development will remain slow for the foreseeable future, but what does occur is likely to happen in southeastern Wake.

Land prices are substantially less in southeastern Wake County than those in the Triangle’s traditional industrial hubs (Research Triangle Park and Capital Boulevard in Raleigh). The pharmaceutical and high-tech companies that are opting to build their own space, however, are doing so in and around Research Triangle Park. Being in this area places them in or near the largest research park in the United States. Companies that have recently announced plans to build space in order to enter or expand in the market include Merck, which purchased land in Durham County to build a 250,000-square-foot vaccine manufacturing facility, and semiconductor maker Cree, which plans to expand on its own Research Triangle Park campus.

Asking rates for traditional industrial space are falling between $2.50 and $4.50 per square foot, triple net. “These rates, however, are highly negotiable, and concessions are widespread,” Raiford notes. Asking rates for flex space are ranging between $8 and $10 per square foot, triple net.

Vacancy for traditional industrial space fell for the first time since 2002, ending the third quarter at 28.6 percent. Absorption was also positive for the first time since 2002 at 132,643 square feet. The activity was not enough, however, to bring year-to-date absorption into the black. It stands at negative 218,870 square feet. It is interesting, however, to compare these figures with those from 2003. Vacancy has increased by just 1.4 percentage points so far in 2004. In 2003, vacancy rose by 6.2 percentage points as the market witnessed more than 1.2 million square feet of negative absorption. Thus, while the numbers for 2003 are not pretty, they do represent an improvement over the previous year.

As previously mentioned, the flex sector has fared somewhat better, and as an alternative to traditional office space, it stands to rebound more quickly than warehouse/manufacturing space. Vacancy fell slightly in the third quarter and currently stands at 22.3 percent. The decrease came in tandem with positive absorption of approximately 200,000 square feet, bringing the year-to-date total to 241,000 square feet.

For the near future, Raiford suggests keeping an eye on Research Triangle Park. “It is the engine that drives the region’s economy and is also the area’s largest industrial submarket,” she explains. “Both Research Triangle Park’s office and industrial submarkets have been Raleigh-Durham’s hardest hit. Industrial vacancy here stands above 30 percent. Once we begin to see significant improvement in Research Triangle Park, we will know that a sustained recovery has truly taken hold.”

Southeastern Wake County will also be important to watch as affordable land prices are expected to continue driving more development in that direction. Duke Realty began bringing Walnut Creek on line as a speculative project in 2001. It completed another building in the park in the second quarter in spite of soft leasing conditions, bringing the total park to 428,000 square feet. The last building came on line with 44,000 square feet pre-leased. The 122,000-square-foot Greenfield North was also constructed on a speculative basis in 2004. Pergo recently leased 61,000 square feet.

While U.S. industrial vacancy has fallen below 10 percent, Raleigh-Durham holds the dubious distinction of being the softest industrial market in the nation. It is important to note, however, that unlike its neighboring markets in Greensboro, Charlotte and Richmond, Raleigh-Durham is not a traditional distribution hub. Rather, the region has a small, rather undeveloped market (totaling just 34.6 million square feet of warehouse and flex space) that relies heavily upon a service economy and will depend on a rebound in the tech sector for a significant recovery to take hold. The news is not all bad, however. The region is gaining traction in luring new industry to the area, including biotech, pharmaceutical, high-tech and medical device manufacturing companies. “We are also beginning to see signs of improvement in the local tech sector with major players such as IBM, Cisco and Ericsson adding jobs,” says Raiford. With three major research universities within close proximity of each other and robust population growth, Raleigh-Durham is ripe with talented workers. Combined with a world-renowned research park and a high quality of life, the long-term outlook for the region is bright.



©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.




Search Property Listings


Requirements for
News Sections



City Highlights and Snapshots


Editorial Calendar



Today's Real Estate News