SOUTHEAST SNAPSHOT, MAY 2004

Raleigh/Durham Industrial Market

Neal Friedman Managing Director Advantis Real Estate Services/GVA

During the past 2 years, the Raleigh/Durham, North Carolina, industrial market has experienced little new construction in both warehouse and flex sectors, according to Neal Friedman, managing director in the Chapel Hill, North Carolina, office of Atlanta-based Advantis Real Estate Services/GVA. With record-high vacancy rates and negative net absorption, most speculative industrial projects are on indefinite hold. But there is some activity in the market.

“The East Wake submarket, which covers the entire eastern part of the county, has received quite a bit of attention,” Friedman says. For example, Craig Davis Properties is building Greenfield North, a 1.3 million-square-foot warehouse park, on Greenfield Parkway. Craig Davis purchased the land in 2001, but construction was delayed due to a lack of road access and the need for town approvals. In December 2002, Craig Davis announced plans to use the land for a mixed-use project rather than an industrial park. But the company changed its mind when several warehouse tenants interested in relocating to Greenfield North selected nearby Walnut Creek Industrial Park. Construction of the 120,000-square-foot Greenfield North Building One was completed in first quarter 2004. Construction on Building Two is scheduled to begin in the third quarter of this year.

Duke Realty is planning on expanding its Walnut Creek Industrial Park, located off of Poole Road, to approximately 1 million square feet. Construction of the sixth building of a 10-building plan will commence in the second quarter of this year. The facility will be anchored by Scholastic Book Fair, which is leasing 44,000 square feet.

“Traditional manufacturing industries, such as textile, furniture and agribusiness, have not faired well during the recent economic downturn,” Friedman says. Tenants are more likely to be focused on high technology, biotechnology, strategic distribution strategies, light assembly or service. “Warehouses able to accommodate the different space needs of these tenants, such as providing smaller spaces and greater ceiling heights, will be able to land them faster,” he says.

Rental rates in the area can range from $2 per square foot for older Class C product to $10 per square foot in a desired submarket. The high-end rental rates in the Cary submarket are a result of extremely high land costs, restrictive zoning and newer buildings. In most submarkets, average rental rates range from $4 per square foot to $4.50 per square foot.

Direct vacancy rates are approximately 23.2 percent. True vacancy, which includes available sublet space, is 24.2 percent. Direct vacancy rates range from zero percent in Orange and Durham counties to 35.6 percent in the I-40/Research Triangle Park (RTP) submarket.

The I-40/RTP submarket will always be a hot spot since it is the geographic and research center of the Raleigh/ Durham/Chapel Hill market. The distribution and service needs of those companies headquartered in the RTP will continue to make the I-40/RTP submarket a desirable location for all businesses.

“However, migration is occurring in the outskirts of Durham and Wake counties,” Friedman says. Along with an increase in residential development in North Raleigh, North Durham and East/South Wake submarkets, these submarkets have also seen an increase in commercial development.

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