With a strong economy led by government, education, and health care, the Raleigh-Durham/Research Triangle area consistently ranks among the nation’s best economies. That’s why the area’s real estate markets will continue to improve as jobs and the population continue to grow, says L. Andrew Holland, senior vice president of Middle Market Real Estate in the Raleigh, North Carolina, office of Wells Fargo Bank.
“Wells Fargo views the Triangle and eastern North Carolina as good real estate markets, and is actively pursuing commercial real estate loans in the area,” he adds. “The Triangle is receiving a significant amount of positive press in the national media and a number of developers from other markets continue to come here to develop or purchase properties.”
The multifamily sector has improved significantly and the Class A warehouse segment has also shown some improvement. “The office and flex sectors will continue to struggle in the near term,” says Holland. “We are reviewing several proposed multifamily projects and we are seeing some targeted expansion in retail, especially with single-tenant buildings such as drugstores.”
The Raleigh market will experience further healing over the next 12 to 18 months, adds Michael E. Harris, executive vice president and chief operating officer of Highwoods Properties. “With seemingly improving economic conditions and activity, the general prediction is that the office market should see positive net office absorption during 2011,” he says. “Large office vacancy blocks—50,000 square feet [4,650 sq m] or more—of Class A space have dwindled significantly, but there still are enough large Class A vacancies available, which will continue to deter spec development.”
Harris, who is a member of ULI’s Industrial & Office Park Development Council, adds that some areas of activity and bright spots in the market include financial services, health care, biopharma, clinical research, and technology. “Since announcing their decision to stay in Wake County, there has been a lot of buzz about Red Hat’s 350,000-square-foot [32,550-sq-m] build-to-suit opportunity. Where and when they land is unknown at this time,” he says.
The Raleigh area is also experiencing an uptick in the retail sector, says Austin Williams, retail vice president at Crosland, LLC, a diversified real estate firm based in the Southeast. Williams notes that the retail vacancy in the area has just fallen below the 8 percent mark—to 7.8 percent—for the first time since 2009, according to the Karnes Research Report.
“While there remains a pervasive slackness in the market and many tenants continue to struggle, the dearth of new retail development is supporting a slow but sustainable recovery,” says Williams. “Retailers who want to be in the Triangle are finding attractive first positions in the marketplace, and those that are already here and doing well are able to shore up additional positions at a great value.”
Overall, there was more than 800,000 square feet (74,400 sq m) of active retail development underway in the first quarter of 2011. “This is a positive sign that fundamentals have improved,” Williams continues. “Nearly all projects underway were conceived well before the market downturn, and have been on hold and retrenching for several years. These are not speculative in nature; rather, they are driven by formal retailer commitments. They will not flood the currently fragile market with fresh vacancy; instead, they will bolster the recovery with new, stable product occupied at market rents.”