FEATURE ARTICLE, DECEMBER 2005

Raleigh, North Carolina

Overall office and industrial market absorption in the Triangle area of North Carolina is accelerating and leasing activity has been steadily improving this year, with more expected in 2006.

The office market still shows high vacancy rates in many submarkets, but is finally improving after 5 years of struggle. For example, Interstate 40/RTP and South Durham show vacancy rates in the low 20 percent range, while other submarkets are faring better, with rates in the low teens, and even some single-digit rates in a few submarkets.

RBC Centura Bank and Capital Bank recently committed to moving their headquarters to downtown Raleigh. RBC Centura's move will not be until 2008. The company may occupy up to 200,000 square feet in a new building they are expected to own; the site and the developer have not been formally named yet. Capital Bank will occupy approximately 50,000 square feet in 333 Corporate Plaza. Also, Regions Bank has committed to 35,000 square feet in a new building to be built by Grubb Properties on Glenwood Avenue in Raleigh.

The American Tobacco Historic District in downtown Durham is one of the largest redevelopments in the Southeast. Major tenants in the district include Duke University with 150,000 square feet of space and Smith Breeden Associates with 35,000 square feet. McKinney Silver and GlaxoSmithKline have also leased space totaling 150,000 square feet. And Motricity is moving its headquarters into 70,000 square feet of space in the historic Hill Building in mid-2006.

The industrial market experienced a negative absorption of almost 1 million square feet in the last quarter of 2004. However, since that time, industrial properties have shown positive absorption every quarter of this year.

Silver Line Windows purchased and moved into a 434,000-square-foot warehouse at TriCenter at the end of last year. The company recently purchased an adjacent 200,000-square-foot warehouse, representing the largest block of industrial space taken off the market this year. In addition, the 476,000-square-foot, former AP Parts building has been sold and The Godfrey Group leased 131,000 square feet of space in the former Solectron Building at 4012 South Miami Boulevard.

Retail, which has had explosive growth during the past 5 years, is the one property type that is faring better than all others.   With the addition of two new regional malls, the Streets of Southpoint in south Durham and Triangle Towne Center in north Raleigh, and the completion of many new power centers in the Triangle area, total new retail space has reached almost 9 million square feet built in the last 5 years. Another approximately 2 million square feet of retail is currently under construction, due entirely to the massive growth of residential areas in the fringes of the Triangle area, an area whose population grows at a compounded rate of more than 4 percent per year.

Some submarkets are experiencing more activity than others. American Asset Corporation is continuing to build new office and retail space in Brier Creek in west Raleigh. In Durham, 330,000 square feet of office was completed earlier this year by Hock Construction and 200,000 square feet is currently under construction in the Duke University and Duke Medical Center area.   Also, Tri Properties is developing Palladian Corporate Center, a speculative 105,000-square-foot office project, in Durham. The new Interstate 540 Outer Beltline is spawning developments along its access points in Wake County.

In addition, the medical sectors have seen dramatic growth at major hospital complexes serving the region. Rex Hospital, Wake Med and the major teaching hospitals associated with Duke University and the University of North Carolina are all adding space for the growing research and development demand.

Trends to expect in the upcoming year include more owner-occupant building development of condominiums for office, medical, retail and flex users, as well as conversions of existing facilities; the migration of Northeastern Baby Boomers to live closer to their children in this area, sparking seniors-oriented residential development; and many more mixed-use developments. Pavilion East at Lakeview is a good example of the last trend. The proposed 270,000-square-foot mid-rise mixed-use development, located across from Duke University, will offer retail and office space for sale or lease and luxury loft homes, all in two buildings on a small site.

— Jim Anthony is CEO of Raleigh, North Carolina-based Anthony & Company.

The Raleigh metropolitan retail market is considered part of the Triangle with its sister cities of Chapel Hill and Durham. From a retail development standpoint, the region is thriving with a positive absorption rate of nearly 200,000 square feet and a 5.8 percent vacancy rate. New projects are planned in all corners of the region with major enterprises focusing on emerging trade areas patterned along road improvements and explosive residential growth. The Raleigh market is situated just northeast of central North Carolina and has capitalized upon its thriving business community and extensive quality of life features such as: several of the nation's top universities within a 3-hour drive, ideal employment opportunities with an average of 1.3 percent annual job growth rate and a thriving arts community. These favorable conditions have created a climate that is prosperous for residential and commercial growth.

Three retail developments in the Raleigh region stand out as relatively recent by-products of the Triangle's dynamic growth: Brier Creek Commons to the northwest, the refurbishment of North Hills Mall in central Raleigh, and Poyner Place to the northeast.

Brier Creek Commons, a 910,000-square-foot regional power center, is located along Highway 70, Interstate 540 and adjacent to Raleigh Durham International Airport and Research Triangle Park, the largest research park in the United States. The Commons is a lifestyle hybrid capitalizing on the 2,000-acre mixed-use Brier Creek project developed and owned by Charlotte, North Carolina-based American Asset Corporation. The Commons' final phase was delivered in October and has a 99 percent occupancy rate on delivered buildings. Tenants include Target, Dicks, Barnes & Noble and Regal Cinemas.

Kane Realty has redeveloped one of the Southeast's oldest malls. North Hills, originally constructed in 1967, is a 790,000-square-foot center situated within the Raleigh interstate beltline. With the final phase to be completed this fall, the center is a dynamic project offering an eclectic blend of restaurants, local high-end retail boutiques, anchors like Target and JC Penney, and a 14-screen Regal Cinema. By responding to the demand for mixing commercial and residential real estate, Kane has created an affluent midtown district with shopping and residences in a streetscape environment.

A unique project to the Raleigh area has emerged with the development of the Triangle Town Center. Crosland's Poyner Place, capitalizing on the existing shopping destination and affluent customers traveling from North Raleigh, offers a village setting with visibility to the adjacent Saks and associated mall traffic. Situated on 102 acres and consisting of more than 470,000 square feet, Poyner Place, which came on line last fall, is anchored by SuperTarget, Old Navy, Cost Plus World Market and Pier 1 Imports. With the anticipated extension of Interstate 540 as well as the continual increase in residential growth, Poyner Place is certainly making its mark on the urban retail market.

Raleigh-Durham is an expanding retail development area. Brier Creek Commons, North Hills and Poyner Place illustrate the demand for retailers, services and residential developers to fuse together, enhancing the lives of those working and living nearby.

— Rob Hicks is executive vice president of American Asset Corporation.

©2005 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.