SOUTHEAST SNAPSHOT, SEPTEMBER 2009

Raleigh/Durham Office Market

The Raleigh/Durham office market has been struggling with a nasty absorption rate and humbling vacancy brought on by the recession, but it’s been in this situation before. According to Raleigh-based Grubb & Ellis|Thomas Linderman Graham, the Triangle office market experienced 224,000 square feet of negative absorption in downturn due to Sept. 11.

During the first quarter of this year, however, negative absorption hit the 350,000 square foot mark. The market-wide vacancy rate has risen to 18.1 percent and will likely creep toward 20 percent by year end. Though there is historic precedent for high vacancy and low absorption rates, the Triangle market is poised to reach record-breaking figures in these departments.

It may come as no surprise that the current market heavily favors tenants searching for office space. According to Colliers Pinkard, landlords have recalibrated rental rates, pushing them back to levels last seen in 2005, and up to 1.5 months of free rent is being offered with each year leased. The modest amount of tenants looking for space might benefit from concessions, but they certainly won’t find a lot of just-completed office space. Colliers Pinkard has estimated that approximately 380,000 square feet of office space was delivered in the first quarter of this year, a small number for the area. Only 770,000 square feet of office space is currently coming online.

Jake Jones and William Allen of Grubb & Ellis|Thomas Linderman Graham are currently working on leasing up office space in a project that will bring more than 103,000 square feet onto the market during the third quarter of 2011. The 235,000-square-foot Powerhouse Plaza — which will contain a 134-room hotel, a rooftop restaurant, ground floor retail space and a 403-space parking structure — was approved by the city of Raleigh in 2008; construction will commence early next year. Located at 201 N. Harrington St. in Raleigh, the property is being developed by Williams Realty & Building Company of Raleigh; the local firm Cline Design Associates served as architect.

In Chapel Hill, Durham-based Tri Properties is currently overseeing preleasing efforts for East 54, a mixed-use development located near the University of North Carolina. When complete, the space will include 120,000 square feet of office. Three restaurants, a 130-unit hotel, 200 condominiums and 60,000 square feet of retail space were also called for in initial plans.

— Jon Ross

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