SOUTHEAST SNAPSHOT, DECEMBER 2006

Raleigh, North Carolina Retail Market

The old adage cites that retail follows rooftops. In downtown Raleigh, the saying could be revised to include the promise of rooftops. Such is the situation where the potential for nearly 3,000 new residential units has translated into expanding street-level commercial activity. 

Downtown Raleigh is an approximately 110-square block area that includes the central business district (CBD) and the surrounding commercial core. The city is currently in the fourth year of an aggressive downtown revitalization effort that includes about $300 million of public investment topped by more than $1.7 billion in private investment. The predominant development mode is mixed-use and typified by retail space topped with a combination of office space and residential units. The downtown retail market is comprised of five major activity centers, including Fayetteville Street, Moore Square, Glenwood South, Seaboard Station, and the Warehouse District. There is about 1.75 million square feet of retail space across downtown Raleigh and a retail vacancy rate of only 3.7 percent. The figure’s significance is galvanized when compared to the Triangle’s 6.4 percent vacancy rate for retail space.

This year, 26 new street-level businesses have opened in downtown Raleigh. The newcomers include 19 new bars and restaurants, two art galleries, two soft goods retailers, two salons, and a grocery store. Of these 24 new retailers, only one, Pharaoh’s, is a regional chain. Each of the 23 other retailers are entrepreneurial business ventures, including the grocer.

Capital City Grocery chose downtown Raleigh because of its growing residential and employment bases. The grocer leased 14,000 square feet of space at Seaboard station and opened to the public in October. Seaboard Station, developed by Gregory & Parker and leased by Trammel Crow, is a combination of remodeled warehouse space coupled with new construction. About 86 percent of the project’s 90,000 square feet of retail space is leased, and other than grocery; the retail mix includes three restaurants, two boutique clothiers, a 14,000-square-foot Ace Hardware and a 17,000-square-foot health club, which will open later this fall. Currently, 700 residential units exist within a quarter-mile of Seaboard Station, and another 650 units are currently in the planning stages within the same radius.

In central downtown Raleigh, the city of Raleigh recently completed one of the most high-profile public projects of recent memory, the Fayetteville Street Renaissance. The reinvention of the street was intended to breathe new life into the buildings that lined a struggling pedestrian mall. The transformation from a pedestrian mall back into a street also reopened a vista that showcases a clean line of sight between two of Raleigh’s most treasured buildings, the Progress Energy Center for the Performing Arts and the historic North Carolina State Capitol building.

Before breaking ground on the Fayetteville Street Renaissance project in March 2005, there were 27 street-level spaces planned or available in the Fayetteville Street District, 17 of which were located along Fayetteville Street proper. Thirteen of the 27 total spaces have new businesses either already open, planned, or under construction. The 13 new businesses constitute a net absorption of 52,445 square feet of street-level space within the Fayetteville Street District. Seven of the 13 new businesses will be located on Fayetteville Street, and those seven businesses include five restaurants and cafes, an art gallery, and a real estate office. Of the 110,594 total square feet of space available at the time of the Fayetteville Street Renaissance groundbreaking, more than 47 percent (52,445 square feet) of the space is now leased. Only one of the 13 new street-level businesses is a national brand, the UPS Store.

Downtown Raleigh’s status as an employment center is also a large driver of its retail market. There is currently 4.3 million square feet of commercial office space, 5.6 million square feet of governmental office space, and 1 million square feet of office space being developed in downtown. The Fayetteville Street District doubles as downtown’s CBD, and the city’s skyline will soon welcome a number of new entries, including a $100 million, 33-story mixed-use project developed by Highwoods Properties and Dominion Partners that will be the American headquarters for RBC Centura Bank; a $70 million, 400-room, 4-star Marriott hotel; a $215 million, 500,000-square-foot convention center; an $80 million boutique hotel; and a $130 million mixed-use project that combines 200,000 square feet of Class A office space with 150 for-sale condominiums atop 50,000 square feet of street-level retail space.

A new trend in downtown retailing is the emergence of retail condominiums. Relatively lower interest rates have made the prospect of purchasing retail space attractive to some retailers. The trend is copasetic with some of the developers in downtown Raleigh that prefer not playing the role of landlord. At least five of the new projects under development in downtown Raleigh will include retail condos.

— Kristopher Larson is the deputy director of the Downtown Raleigh Alliance in Raleigh, North Carolina.