In the past decade, the performances of real estate and high technology in Raleigh-Durham have become increasingly intertwined. As one of the nation's top five high-technology corridors, the market experienced unprecedented growth and prosperity in all real estate industry segments until the spring of 2000 when tech stocks crashed and a trickle of sublease space turned into a flood.

Fortunately, the downturn does not appear to be as pronounced as first anticipated. When reviewing the activity forecast for the market, most brokers agree that while there has been a slowdown in new development and leasing when compared to the days of dot-com mania, the situation is improving. Brokers are citing increased activity locally, especially in the more traditional, non-technological sectors such as manufacturing, transportation, durable goods and professional services.

A lower cost of living, coupled with a strong employment pool, positions Raleigh as one of the best markets in the country for attracting high-tech tenants in search of talented workers. These dynamics position the area even more favorably in light of a national study conducted by the Information Technology Association of America that determined 900,000 new technology workers would be needed nationally this year, despite layoffs in the dot-com industry.

Always prepared to seize an opportunity, local brokers and chambers of commerce have been strategizing ways to lure high-tech companies away from more glamorous, expensive and energy-deficient west coast venues such as the Silicon Valley. Howard Sadkin, president of Corporate Realty Advisors (CRA) in Raleigh, predicts acceleration in the relocation market in the next nine to 15 months.

Sadkin said that while many companies in the category are taking the time to regroup, they will eventually have to make some difficult decisions. CRA has already seen an increase in queries from high-tech companies looking to move from Silicon Valley.

Industrial

Industrial space in Raleigh remains in high demand. Duke Realty Corporation's industrial portfolio currently boasts 100 percent occupancy. Mixed-use and industrial construction is also on the rise at Duke. Currently the firm is overseeing the construction of four facilities: three in the Walnut Creek Business Park and one at Perimeter Park in the Morrisville area.

The first building at Walnut Creek consists of 65,000 square feet of office and warehouse space. It is scheduled for completion this summer. The second building, to be completed by September 2001, will offer 106,000 square feet of industrial space. Trane Inc., a worldwide distributor of heating, air conditioning and ventilation units will occupy 73,000 square feet. The third Walnut Creek building is a 132,000-square-foot industrial space scheduled for completion by the end of the year. Walnut Creek Business Park will likely appeal to tenants because of its location within the City of Raleigh Development Zone. The Zone offers significant tax-based incentives to qualified corporations. The Perimeter Park facility will feature 86,000 square feet of "flex-and-a-half" space.

Duke is not the only real estate company seeing activity in this market. CRA recently closed a deal with Pergo, Inc., a major distributor of flooring. Pergo, currently headquartered in Raleigh, plans to open a 45,000-square-foot distribution facility in the city later this year.

Panattoni Development Company is also an active developer in the Raleigh-Durham area. The company is currently developing a distribution center and office development in Durham called CenterPoint. The 200-acre site is located less than 1 mile from Research Triangle Park (RTP) and the Raleigh-Durham International Airport. According to Matt Wall of Panattoni, the company has built one 323,000-square-foot cross-dock warehouse that is currently available for lease. Future plans call for one more identical building to be built on the site or expansion of the first building, as well as five separate 90,000-square-foot rear-load warehouses. Office plans call for four, three-story, 82,500-square-foot buildings and one 105,000-square-foot multi-story facility.

Multifamily

The multifamily market is holding steady, according to a recent report from Karnes Research Company. According to Mike Williams, vice president of Karnes Research, the demand for multifamily housing is well above national averages, due mainly to employment migration. Williams says that many residents are choosing apartment living over buying a home because of job security concerns.

Williams says for the last two to three years the RTP area has "dodged the bullet" in the apartment leasing market while other areas have suffered. The U.S. Census Bureau figures indicate that the Raleigh-Durham area was the nation's sixth fastest-growing metropolitan area in the last decade. The region grew 39 percent over the last 10 years. This cycle has played the most prominent role in creating a strong local housing market.

Summit Properties, a local real estate brokerage group that manages 10 properties in the Raleigh area, is currently constructing two new apartment complexes. The first complex scheduled for completion is Summit Crest. It is located west of Raleigh and includes 438 units that are currently being pre-leased. Summit Crest is scheduled for completion in July. The second development, Summit Overlook, is located near the Crabtree Valley Mall and will include 320 units. It is slated for completion in September.

In downtown Raleigh, Florian Companies recently announced the development of The Metropolitan, a $20 million, nine-story, 60-unit condominium building.

Office

Cautious optimism is the phrase of the day in the Raleigh-Durham office market. After record absorptions of 2.4 million square feet in 1999 and 2.5 million square feet in 2000, approximately 1 million square feet of sublease space has deluged the market in the past 12 months.

While the majority of speculative office space developments have been put on hold, absorption rates remain steady. An estimated 2 million square feet has been leased since last summer. Continued signs of activity in the market can be seen in the Research Triangle Park (RTP) and beyond. Colliers Pinkard Raleigh Office vice president Jim Allaire cites an 8 percent local office vacancy rate. Although the market was slow in the beginning of the year, it is recovering, Allaire says. Evidence of this can be found in a deal Colliers signed with Nortel Networks for 300,000 square feet of sublease space in RTP.

Although Duke Realty currently has a few new speculative developments planned in the suburbs, it has pulled back from spec development and will further concentrate on the build-to-suit market in the Raleigh area. With interest rates falling more, clients will begin to consider ownership.

This is not to say that there is no speculative development occurring in the Triangle. Developers are waiting for the "right" deals before they build. An example is the lease Duke signed in May with BE&K Engineering of North Carolina, which provides engineering, construction and maintenance for process-oriented industries and commercial real estate projects. BE&K will take 62 percent of a new 57,000-square-foot office development at Perimeter Park.

Highwoods Properties is currently developing GlenLake, a 100-acre exclusive commercial and residential community in West Raleigh. The office component is master planned on approximately 49 acres, and the remaining 51 acres will be developed as a high-end residential community. GlenLake One is the first building in this urban style development. Slated for completion this fall, the 158,114-square-foot facility will be a six-story, precast concrete and glass building. GlenLake One will be located near landscaped gardens, a lake, covered parking and a fitness trail.

Despite the lull in new development, Duke is seeing good leasing activity in the Triangle area. It recently secured a 52,000-square-foot lease with a large law firm at its Crabtree Overlook office development, as well as a 20,000-square-foot lease to a nursing home management company at its Governor's Village development.

Another example of robust activity in the non-traditional sector can be found in a deal between Duke and Tekelec, the company's largest build-to-suit to date. Tekelec, a supplier of diagnostic and switching systems with headquarters in Calabasas, California, recently began occupying 160,747 square feet of space in Morrisville's Perimeter Park. This is in addition to its current 155,000-square-foot facility that it already leases from Duke. Tekelec and BE&K were both represented by CRA.

Retail

The Triangle is still a hotbed for retail development as well. According to Karnes Research Company, it is predicted that South Durham and Northeast Raleigh/Wake County will lead the way in new shopping center construction this year with new million-plus-square-foot malls under construction in each market. Northwest Wake County is also active with increased speculative activity in and around the large multi-use Brier Creek development at Interstate 540 and US 70.

Evidence of this growth can be found with the new construction of a few major shopping malls in Raleigh and Durham. Triangle Town Center, located on Capital Boulevard in Raleigh, is scheduled for completion in August of 2002. It will include 1.2 million square feet of space. Jacobs Retail Group owns the center.

In Cary's Weston area, Craig Davis Properties (CDP) and Highwoods Properties are coordinating development of 150 acres in five parcels dotted along the long, narrow park that sits in the heart of the Triangle on Cary's northern border. The project will be an urban, high-quality mixed-use project in a place where it will have minimal impact on existing citizens and traffic. The goal is to create a place where you can live, work and play all in the same location. The project will include a wide array of multifamily units - from homes designated as affordable to high-end, urban-style flats and perhaps even penthouse-style units atop a 10- to 20- story tower. In addition to the housing, the project will also include 120,000 square feet of retail and restaurants and more than 600,000 square feet of office space. CDP plans to start by building townhomes, apartments and a gourmet food store on 21 acres that it is buying from Highwoods at the corner of NC 54 and Weston Parkway. CDP will add townhomes, shops, apartments and a school on two more parcels at Evans Road and Sheldon Road.

Also in Cary, W & W Partners is developing Carpenter Village, a new urbanism-style development with office, retail and residential components. The project consists of approximately 330 high-end apartment units and 130 townhomes, 110,000 square feet of retail, 45,000 square feet of office as well as single-family homes.

At the heart of Carpenter Village is Village Market Place, a town center with shops, restaurants and other retail tenants. Mike Hunter of Chase Properties says the company is catering the retail component to more regional and local tenants. At the center of the village is the mall, the last section of retail to be built, and Hunter says that many high-end restaurants have shown interest in this area.

Watermark Companies purchased the land and developed the apartments. All of the apartments and townhomes are designed in a traditional architectural style, with features such as porches and single or double car garages.

Chase Properties is handling commercial sales and leasing. Hunter, Stephen Ward and Kyle Ward of W & W Partners, the developer, are also partners in Chase Properties. Hunter says the development is approximately two-thirds complete, and W & W plans to begin building the commercial portion of the project this summer. The company plans to have the entire project completed in the next two years.

Another significant development under construction is the Streets At Southpoint shopping mall at I-40 and Fayetteville Road. This 1.2 million-square-foot mall will include two levels of shops as well as an outdoor restaurant and theater complex. Urban Shopping Centers Inc. is building the mall and Urban Retail Properties is serving as the leasing broker. Belk, Hecht's, JC Penney, Nordstrom and Sears will serve as anchors for the center. This is Urban Shopping Centers' first development in the Durham area.

Andrew Kelton is senior vice president of Duke Realty Corporations' Raleigh Operations.


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