SOUTHEAST SNAPSHOT, MAY 2005

Raleigh-Durham Office Market

Jimmy Barnes, SIOR President NAI Carolantic Realty, Inc.

The majority of development is taking place in North Raleigh for several reasons. First, the completion of Interstate 540 to the north has provided convenience for the submarket, as an explosion of retail and residential development along U.S. Highway 70 and I-540 has provided a catalyst for office property demand. In addition, vacancy in this submarket has dropped below 14 percent and positive absorption continues to take place.

Overall, the market statistics are looking positive, as vacancy has dropped across the board for the first time in 3 years, and the market experienced positive absorption in all submarkets for the first time in 3 years. Vacancy currently stands at 16 percent overall, despite being 23 percent in the RTP submarket and 21 percent in the Cary submarket. Fortunately for both of these areas, they are retaining positive absorption, and since no new developments are planned in either submarket, they are provided with a chance for recovery.

Currently, several significant projects are impacting the market. Located at I-540 and U.S. Highway 70 in north Raleigh, the Brier Creek Corporate Center encompasses 90,000 square feet of new Class A office space. American Asset Corporation is constructing this project, which is its first office development in the area. At Rex Hospital, the Rex Medical Building has been developed, and it features 103,500 square feet. In addition, Russell Gay & Associates has announced another building at Brier Creek that includes 30,000 square feet.

Other projects that are under construction include Phase II at the Palisades in West Raleigh. Lichtin, a prominent local developer, is constructing this project, which will encompass 80,000 square feet. At 1001 Wade Ave. near downtown, The Occidental Life office building is undergoing redevelopment, and it features 60,000 square feet with 40,000 square feet pre-leased. Lastly, the North Hills Office Development includes a plan for 100,000 square feet on the site of the recently redeveloped North Hills at the Beltline and Six Forks Road.

An interesting trend we are now seeing is small condo office projects. These provide users the opportunity to purchase in lieu of leasing. With current market rental rates for Class A office space range from $16.50 to $19.50 per square foot, condo ownership is an attractive option for small businesses.

As far as office leasing is concerned, there is a trend for tenants to upgrade their current situations. Some bio and tech companies are in the process of rehiring and thus seeking to expand their space. In addition, we continue to have companies looking to relocate into the area. As a result, several large leases have been signed across the Raleigh-Durham office market. MANA, the Number 1 generic agricultural products company, has relocated from New York into 12,000 square feet at Somerset Place, located on Falls of the Neuse Road. In Cary, Crossroads Corporate Park, located at US 1 and I-440, has experienced heavy leasing activity. At their 5625 Dillard Rd. building, also known as Crossroads I, ASCO Firetrol has leased 10,000 square feet, Pharsight has leased 13,000 square feet and Capitol Broadband has leased 5,500 square feet. Wake County Public Schools System, Administrative offices, has leased 75,000 square feet in Crossroads II, located at 110 Corning Rd.

In the future, the Research Triangle Park/Interstate 40 submarket will continue to grow and recover as long as positive absorption trends continue. Across the board, the Raleigh-Durham office market can retain a positive outlook based on the positive trends it  currently is experiencing.

— Jimmy Barnes, SIOR, president, NAI Carolantic Realty, Inc.

©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.