SOUTHEAST SNAPSHOT, MAY 2009

Raleigh/Durham Retail Market

The recession has affected commercial retail development in the Raleigh/Durham area like it has all over the Southeast. Shoppers aren’t buying, so lenders aren’t lending and developers can’t develop, so retailers are either staying put or going out of business. The minimal retail activity found in the area is fueled by finishing up last year’s leftovers.

“Developers are only developing what was on the books,” says Joaquin Canals of Raleigh-based NAI Carolantic. “Because of major retailers taking a wait and see attitude and lenders not lending, new development has ground to a halt.”

Jack Kimball, principal of Raleighbased Kimball & Co.-TCN Worldwide, says that of the 19.17 million square feet of retail in the Raleigh/Durham market, 5.45 percent is vacant. The West Raleigh region is faring the best, boasting a 3.3 percent vacancy rate and a quoted rental price of $22.05 per square foot.

“Vacancy rates slightly declined last year and now seem to be leveling off as we look to the rest of 2009,” Kimball says. “Tenants are also taking advantage of these times, some by restructuring their current leases and some by taking the opportunity to look for new spaces to expand or relocate.” A large drop off in development and consumer confidence doesn’t signal the end for every retailer in the Triangle region. In fact, tenants who offer what are seen as essential services are a shining light amidst the doom and gloom and are feeling better about moving forward in the current economy.

“Certain tenants will fare much better than others,” Canals says. “Businesses that are recession proof, such as hair cutters and discounters, and businesses that saw this coming and adjusted will be in a much better position to survive.”

Kimball adds that outlet centers are experiencing low vacancy rates. Canals says that for the market to rebound, tenants need to once again feel that sales are on the uptick and commercial real estate is stable.

“Retailers have to have some clarity about the economic future,” he says. “There is very little clarity today, and retailers are sitting on the sidelines minding the store.”

Downtown Retail Thrives

In Raleigh, the heart of the city is the place to be for commercial real estate. According to Jack Kimball of Kimball & Co.-TCN Worldwide, $3 billion worth of private and public projects are in various stages of completion or are about to break ground downtown. Combined, the recently-finished mixed-use projects RBC Plaza, 222 Glenwood and West at North have added more than 50,000 square feet of retail space into the submarket. “During 2008 alone, more than $655 million was invested in mixed-use private sector developments as well as public sector infrastructure projects and civic facilities,” he says. “More than $200 million is being invested in projects already under construction in early 2009.”

Fostering this growth is the Downtown Raleigh Alliance’s Retail Strategy and Implementation Program, which aims to bring new retailers downtown while encouraging existing tenants to stay put. This is accomplished through market assessments and competition analysis aimed at highlighting downtown’s retail landscape. On top of the program, downtown Raleigh’s residential base is projected to expand by 20,000 people in the next 4 years.

“The built-in demand for downtown retail is projected to increase by 64 percent to $366.5 million by 2010, which indicates a clear opportunity for additional retailers in downtown,” Kimball says. “The current unmet consumer demand has been approximated at about $32 million dollars annually.”

©2009 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.