Embed Size (px)
Citation preview
Research & Forecast Report
RALEIGH-DURHAM | OFFICE Q3 2016
Emily Bostic Research Associate | Raleigh-Durham
Key Takeaways > In response to an increasingly tight office market, tenants, both local and national, are eager for the 2 million + square feet of new office space that is currently under construction to deliver in the Triangle. National and local commercial real estate developers have become more assertive as increasing demand for Class A office space has outpaced much of the Raleigh-Durham market’s supply. With the large amount of space that is under construction and another 1.7M proposed, tenants are looking to finally have a place to land.
> Office demand continues to drive vacancies to record lows throughout the Triangle market and year-to-date vacancies have been on the decline since 2011. Vacancy rates were reported at 7.2%, resulting in 1.4% decrease from the third quarter of 2015. Vacancy rates in the Triangle’s suburban market fell to 7.7%, a 1.5% decrease from a year ago, which indicates that tenant demand is not only strong in CBD markets, but similarly strong across all suburban markets. ↑
> Limited Class A leasing opportunities with high costs of new construction will continue to increase average rental rates in the Triangle. Overall average Class A rents are reportedly $24.90 PSF and CBD Class A rents reached $28.20 PSF in the third quarter.
Market OverviewAs of August 2016, the Triangle unemployment rate was reported at 4.4%, 0.5% lower than the national unemployment rate. Wake County added 2,795 jobs (in 14 new companies and 28 expanding companies) adding a total investment of $224,100,000 from January 1, 2016 to September 30, 2016. Raleigh was recently named #3 Best City for Jobs and the #2 Hottest Spot for Tech Jobs in September’s Forbes magazine. Raleigh is home to over 500 startup companies and in the last three years alone, startups in Raleigh have raised over $300 million in Venture Capital investment.
Tenants Waiting to Land in Triangle’s 2M+ SF of Anticipated New Supply
Summary Statistics Q3 2016 Regional Office Market
Triangle Region
Triangle CBD
Triangle Suburban
Existing Inventory (Square Feet) 81,351,968 12,322,127 69,029,841
Vacancy Rate 7.2% 4.8% 7.7%
Change From Q3 2015 ↑-1.4% -0.5% -1.5%
Absorption YTD (Square Feet) 1,293,306 69,467 1,223,839
Under Construction (Millions Square Feet) 2.0 701,000 1.3
Construction Deliveries(Square Feet)
26,000 0 26,000
Asking Rents Average Quoted $21.35 $26.40 $20.90
Change from Q3 2015 $0.86 $1.68 ↑$0.96
Class A Rents $24.90 $28.20 $24.42
Market IndicatorsRelative to prior period
Raleigh-Durham Q3 2015
Raleigh-Durham Q3 2016
VACANCY
NET ABSORPTION
CONSTRUCTION
RENTAL RATE
2 Raleigh-Durham Research Report | Q3 2016 | Office Market | Colliers International
Absorption & Leasing Activity > During the third quarter of 2016, the Triangle’s positive year-to-date net absorption totaled 1,284,531 square feet. The West Raleigh submarket gained momentum in the third quarter, obtaining the most positive net absorption with 103,408 SF absorbed. The Cary submarket reported strong absorption numbers at the close of the quarter with 72,784 SF of positive net absorption.
> The West Raleigh submarket reported the most positive net absorption in the Class A Triangle market at 96,652 square feet.The overall Class A suburban sector in Raleigh-Durham reported the highest year-to-date absorption with over 660,000 square feet of positive net absorption.
> One of the largest deals of the quarter was the 57,000 square foot lease signed by MED-EL at Meridian Business Park in the South Durham submarket. The building at 2645 Meridian Parkway is currently under construction and will deliver 76,446 SF of Class B space in the third quarter of next year.
Vacancy & Availability > The Triangle market’s vacancy rate remained low at 7.2% for the third quarter, resulting in 0.5% drop in percentage points from the second quarter of 2016. Year-to-date vacancy in the Triangle market has dropped to 7.1%, declining 5.5% since 2010.
> With over 2.6M total square feet of vacant space, the Triangle’s overall Class A vacancy was 7.6% in the third quarter. This represents a 0.9% percent decrease in Class A vacancy from the third quarter of 2015.
> At Two Hannover Square in Downtown Raleigh, the staffing agency TinkBird, moved out of 16,000 square feet and BB&T relocated to the fifth floor of the building resulting in a total of 22,225 square feet of negative absorption.
Rental Rates > Triangle office rents continue their upward trend as the third quarter ended and the close of 2016 approaches. As the overall vacancy in Downtown Durham and Downtown Raleigh continues its decline, the market will further tighten and rents will subsequently increase. The average rental rate in Downtown Raleigh reached $27.14 per square foot during the third quarter. The average rental rate in Downtown Durham reached $25.56 per square foot during the third quarter.
> The average gross rental rate for the Triangle market was reported at $21.35 per square foot during the third quarter, with no significant increase from the previous second quarter. Overall rents in the Triangle did increase $0.86 from the third quarter of 2015.
> The largest increase in average Triangle rents was observed in the Class A sector where the overall average rent jumped to $24.90 per square foot. This represents a $0.74 increase from the recorded rents at the close of the third quarter of 2015. Downtown Durham reported the highest Class A rents of any Triangle submarket peaking at $31.05 per square foot.
Class CVac. Rate = 3.3%
Class A Rates
Source: Colliers Research, CoStar Group
8.4%
8.4%
3.2%
8.4%
8.4%
$$23.
55
$24.
97
$24.
80
$17.
80
$17.
96
$18.
21
$15.
96
$15.
98
$16.
85
Historical Vacancy & Absorption
Overall Triangle Rental Rates (psf) by Class
Class A Class B Class C
Q3 2015 Q2 2016 Q3 2016
$24.
16$2
4.78
$24.
90
$17.
64$1
8.25
$18.
30
$16.
37$1
6.85
$17.
05
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2010 2011 2012 2013 2014 2015 YTD
Net Absorption SF Total Vacant Percent Total
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2010 2011 2012 2013 2014 2015 YTD
Leasing Activity SF Total Moving Average
Historical Leasing Activity
3 Raleigh-Durham Research Report | Q3 2016 | Office Market | Colliers International
OVERALL SUBMARKET COMPARISONS | RALEIGH-DURHAMEXISTING INVENTORY (SF)
DIRECT VACANCY (SF)
SUBLET VACANCY (SF)
TOTAL VACANCY (SF)
VACANCY PERCENTAGE (%)
YTD NET ABSORPTION (SF)
NEW DELIVERIES (SF)
UNDER CONSTRUCTION (SF)
AVERAGE RENTAL RATE
SUBMARKET NAMECary 11,430,018 676,095 43,387 719,482 6.3 72,784 0 189,060 $21.20
Downtown Durham 4,958,592 78,178 0 78,178 1.6 (1,889) 0 434,000 $25.56
Downtown Raleigh 7,363,535 473,884 38,618 512,502 7.0 (5,349) 0 267,000 $27.14
Glenwood | Creedmoor 3,499,862 158,802 2,473 161,275 4.6 27,569 0 14,307 $20.79
North Durham 1,824,925 507,250 0 507,250 27.8 18,157 0 0 $15.08
Northeast Wake County 612,655 12,353 0 12,353 2.0 4,163 0 0 $16.50
Orange County 3,347,488 190,082 6,144 196,226 5.9 9,305 26,000 158,284 $26.29
RTP | I-40 19,260,182 1,659,665 168,923 1,828,588 9.5 34,490 0 205,000 $19.79
Six Forks | Falls of Neuse 9,331,074 638,636 146,062 784,698 8.4 37,685 0 329,214 $23.36
South Durham 5,233,844 224,465 2,895 227,360 4.3 55,874 0 76,446 $21.83
Southern Wake County 2,193,919 114,467 0 114,467 5.2 30,739 0 0 $16.77
US 1 | Capital Blvd. 3,009,337 179,020 0 179,020 5.9 27,617 0 52,000 $17.97
West Raleigh 9,286,537 516,955 41,717 558,672 6.0 103,408 0 355,226 $24.09
MARKET TOTALS 81,351,968 5,429,852 450,219 5,880,071 7.2 1,284,531 26,000 2,080,537 $21.35
CLASS A SUBMARKET COMPARISONS | RALEIGH-DURHAMEXISTING INVENTORY (SF)
DIRECT VACANCY (SF)
SUBLET VACANCY (SF)
TOTAL VACANCY (SF)
VACANCY PERCENTAGE (%)
YTD NET ABSORPTION(SF)
NEW DELIVERIES (SF)
UNDER CONSTRUCTION (SF)
AVERAGE RENTAL RATE
SUBMARKET NAMECary 4,915,743 349,514 28,554 378,068 7.7 10,803 0 166,000 $22.95
Downtown Durham 2,394,518 17,590 0 17,590 0.7 7,299 0 434,000 $31.05
Downtown Raleigh 3,857,878 389,154 38,618 427,772 11.1 (1,149) 0 267,000 $28.15
Glenwood | Creedmoor 1,274,101 56,925 0 56,925 4.6 8,649 0 0 $24.46
Orange County 1,283,791 83,291 1,260 84,551 6.6 12,498 26,000 158,284 $28.59
RTP | I-40 6,990,551 558,246 151,271 709,517 10.1 51,555 0 205,000 $22.32
Six Forks | Falls of Neuse 3,775,231 317,884 129,638 447,522 11.9 24,422 0 329,214 $26.87
South Durham 2,369,977 84,373 2,895 87,268 3.7 46,461 0 0 $23.71
Southern Wake County 435,710 0 0 0 0.0 0 0 0 $17.50
US 1 | Capital Blvd. 1,042,294 70,241 0 70,241 6.7 8,361 0 0 $20.54
West Raleigh 4,586,082 293,838 34,888 328,726 7.2 96,652 0 203,570 $25.47
MARKET TOTALS 34,900,402 2,281,779 387,124 2,668,903 7.6 720,349 26,000 1,914,724 $24.90 *NOTE: North Durham and NE Wake County submarkets do not have any Class A inventory.
Q3 16 Vacant Space by Type
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
Market Average Class A Average
Average Rental Rates (psf) by Submarket
Class A Class B Class C
CLASS C252,596 SF
VCY RATE = 3.2%
CLASS B2,958,572 SF
VCY RATE = 7.7%
CLASS A2,668,903 SF
VCY RATE = 7.6%
SELECT YTD DEVELOPMENT ACTIVITY PROPERTY SUBMARKET SIZE (SF) PRE-LEASED % QUOTED RATE BUILDING CLASS STATUS DELIV DATE
Midtown Plaza Six Forks Falls of Neuse 329,214 83% $33.95 A Under Construction Q2 17The Chesterfield Downtown Durham 284,000 44% Negotiable A Under Construction Q4 17The Dillon Downtown Raleigh 267,000 6% Negotiable A Under Construction Q1 18Tower IV at North Hills 6 Forks Falls of Neuse 450,000 0% $34.95 A Proposed 2018Charter Square North Downtown Raleigh 287,669 0% Withheld A Proposed 2018555 Mangum Downtown Durham 240,500 4.7% Withheld A Proposed 2018
4 Raleigh-Durham Research Report | Q3 2016 | Office Market | Colliers International
Construction & Investment Activity > At the close of the third quarter, office deliveries totaled 26,000 SF in one building and an additional 2,080,537 million square feet is currently under construction. With several highly anticipated projects underway, including Gateway Center and the Dillon, Downtown Raleigh and Downtown Durham have a combined 701,000 total square feet under construction at the close of the third quarter. . Class A office deliveries in the Triangle totaled 26,000 SF and over 1.3 million square feet of space under construction.
> The Triangle experienced strong pre-leasing percentages during the third quarter of 2016. Of the 2,080,537 square feet that is under construction, 45% of that inventory that is pre-leased. At Midtown Plaza in North Hills, the third quarter pre-leasing percentage is up to 83.0% after Allscripts signed on to occupy over 200,000 square feet.
> The most notable office transaction of the third quarter was the sale of Charter Square in Downtown Raleigh. The 243,106 SF property portfolio sold for $78,400,000 at $322.49 per square foot in September. The property was sold to Highwoods Properties from Dominion Realty Partners at a 7.6% pro forma cap rate. Highwoods Properties stated that $5.1 million in building improvements are planned for stabilization of the asset. Charter Square is a newly constructed Class A building that was approximately 70% leased at the time of sale.
NOTABLE YTD SALES ACTIVITY PROPERTY SUBMARKET SALES MONTH SALES PRICE SIZE (SF) PRICE / SF CAP RATE
(%) BUYER
Charter Square Downtown Raleigh September $78,400,000 243,106 $322.49 NA Highwoods Properties Bradford & Berrington Center RTP | I-40 April $46,000,000 224,779 $204.64 NA Crown Realty Toshiba RTP | I-40 January $35,500,000 200,846 $176.75 6.1 GC Essential Asset (REIT)* Regency Forest Cary June $35,225,000 207,347 $169.88 6.5 True North Management Group Trinity Place West Raleigh July $23,500,000 111,762 $210.27 NA Origin Captial Partners Triangle Business Center RTP | I-40 June $20,150,000 270,833 $74.40 NA Alidade Capital
*NOTE: Part of an 11 property portfolio sale.
Q3 16 | Class A Investment Sales Activity per Submarket
6.00%
6.20%
6.40%
6.60%
6.80%
7.00%
7.20%
7.40%
7.60%
7.80%
8.00%
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
YTD Sales Volume (in millions) Cap Rate
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2010 2011 2012 2013 2014 2015 YTD
Deliveries SF Under Construction SF Net Absorption Total
Historical Deliveries, Construction & Absorption
DOWNTOWN DURHAM AMERICAN TOBACCO CAMPUS
5 Raleigh-Durham Research Report | Q3 2016 | Office Market | Colliers International
DURHAM
RALEIGHCARY
GREENSBORO
BURLINGTON
Greenville
CHAPEL HILL
Asheboro
Goldsboro
Sanford
Garner
ApexWilson
Wake Forest
Smith�eld
Fuquay-Varina
Clayton
Reidsville
Holly Springs
Henderson
Graham
Tarboro
Morrisville
Carrboro540
44040
40
40
164
1
540
40
85
85
264
70
147
501
64DU
RHAM
CO.
WAK
E CO
.
ORAN
GE C
O.
DURH
AM C
O.
CHAT
HAM
CO.
W
AKE
CO.
WAKE CO
..
JOHNSO
N CO.
GRANVILLE CO. WAKE CO.
FRANKLIN CO. WAKE CO.
RDU International Airport
RESEARCH TRIANGLE
PARK
Orange County
North Durham
South Durham
Downtown Durham
RTP / I-40
Southern Wake County
Northeast Wake County
US 1 / Capital Blvd
Falls of the Neuse Rd
Glenwood/Creedmoor
Six Forks Rd
Downtown Raleigh
TRIANGLE SUBMARKET MAP
Cary
West Raleigh
East Raleigh
METHODOLOGYMETHODOLOGY
The Raleigh-Durham Office reports calculate statistics using CoStar Group and Colliers International Raleigh-Durham’s database of existing and under construction properties at market and submarket levels. Included in the pool of data are Class A, B, and C office properties of 10,000+ SF.
Copyright © 2015 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
About Colliers InternationalColliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals’ Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm.
colliers.com
502 offices in 67 countries on 6 continentsUnited States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108
$2.3billion in annual revenue
1.7billion square feet under management
16,300professionals and staff
OFFICE SERVICES | CONTACT:Kathy GigacDirector of Leasing | Raleigh+1 919 582 [email protected]
Baxter Walker Senior Vice President | Raleigh +1 919 582 [email protected]
Thomas Kenna Associate | Raleigh +1 919 582 [email protected]
Martie SerianniSenior Vice President | Raleigh+1 919 582 [email protected]
Lindsey CalverleyAssociate | Raleigh +1 919 582 [email protected]
REGIONAL AUTHOR:Emily W. Bostic | Research Associate +1 919 582 [email protected]
