NAI Carolantic Realty Reports an Uptrending Market
RALEIGH, NC – January 22, 2015– Nearly 1,800 of the region’s top business, government and community leaders gathered inside Raleigh’s PNC Arena last night to attend the 30th Annual Triangle Commercial Real Estate Conference, hosted by NAI Carolantic Realty. The conference is considered the authoritative “state of the market” report on the Triangle’s real estate sector and the general health of the region's overall economy. (Activity in the commercial real estate sector provides the most credible indicator of the business sector’s intentions—Expand? Hold course? Retrench? It’s equally accurate at reflecting the overall confidence of investors. For these two reasons, it’s a crucial bellwether for the overall economy.)
Here’s a topline on what they heard:
The Triangle’s local economy can expect growth and expansion in 2015.
- The commercial real estate market is improving in all product categories—and that more growth can be expected in 2015.
- The office and multipurpose markets have construction underway in all submarkets totaling approximately 2.9 million square feet.
- This is one of the biggest construction years since 2004.
- Approximately 4.5 million square feet were absorbed by the office, multipurpose and shopping center markets helping keep vacancy at healthy levels.
- Shopping centers maintained a 4% vacancy and have over 500,000 square feet under construction.
- Downtown Raleigh is doing well with job growth, apartment and office construction, as well as retail growth. However, the Downtown Raleigh office submarket saw a rise in vacancy to a ten-year high due to minimal net absorption. “This will be a submarket to watch,” said Jimmy Barnes, SIOR, President of NAI Carolantic.
- Land prices are rising fast.
In keeping with the conference’s 2015 theme, Defining Moments, Steve Stroud, SIOR, and Chairman of NAI Carolantic, asked attendees to scan a QR code on their program card to answer several questions, including:
What local issue kept them up at night?
Will they be hiring more people in 2015?
What did they consider the most defining moment in the Triangle over the last 30 years?
Over 75% of the respondents said they would be hiring more employees in 2015.
Government regulations, finding talent and retaining talent were the top three local business issues that concerned attendees.
Asked if they were to invest in the Triangle commercial real estate market, what product types would be most appealing: Office, Industrial/Warehouse and Apartments were the top three selections.
Twenty-eight percent of the attendees selected the development of I-540 as one of the most defining moments in the Triangle over the past 30 years. Second was the re-opening of Fayetteville St. Mall, followed by the expansion of RDU Airport.
“In 1985—when we started this conference—solid information about properties and markets was difficult to get and considered a trade secret,” Stroud said.
“We looked at that status quo and thought, ‘You know what? If the Triangle is ever going to fulfill its potential, we ALL have to be working with a complete set of playing cards. Our competitors included. Because this is bigger than any of us. Even if it costs us business, the best way to grow the place we love is to share what we know.’ So that’s what we did.
“Today we shared information on over 255 million square feet of space—ten times what we presented 30 years ago. That’s what happens when you consider the greater good. We’re proud of what we’ve done and we’re very proud of the Triangle.”
Following Stroud’s comments, he introduced Jay Olshonsky, President of NAI Global, the world’s largest commercial real estate network, who spoke about the expanding capabilities and expertise of NAI Global professionals. Olshonsky noted there are now more than 6,700 professionals in over 375 offices worldwide ready to help clients with their real estate needs.
Barnes took center stage after Olshonsky to review the past year’s commercial real estate landscape and offered NAI Carolantic’s forecast for 2015. “We expect continued strong demand by investors for income producing properties. As much as $150 billion dollars is going into second-tier markets like the Triangle. Live, work & play mixed-use development properties as well as industrial and office properties continue to be attractive. Overall, we expect 2015 to be another good year in commercial real estate,” said Barnes.
NAI Carolantic’s survey and analysis showed that, in a market of over 255 million square feet of office, multipurpose and shopping center space, approximately 25 million square feet remained vacant at year-end. “Office market vacancy dropped one point from 2013 to end 2014 at a healthy 13%. The Multipurpose market remained at 11% again in 2014. Shopping Centers retained a healthy low of 4% with just over 500,000 square feet under construction. Overall, 4.4 million square feet were absorbed. Approximately 3.4 million square feet of office, multipurpose and shopping center space are now under construction for the first quarter of 2015. The apartment market continues its robust growth, but we do not anticipate absorption to keep up with supply forcing vacancy to hit double digits by the end of 2015,” said Barnes.
Following Barnes’ presentation, he introduced invited guest speaker Dr. Peter Linneman, NAI Global Economist, CEO of the American Land Funds as well as the founding principal of Linneman Associates. He is Professor Emeritus of Real Estate at the Wharton School of Business, the University of Pennsylvania where he served for 32 years. He holds both Masters and Doctorate degrees in Economics from the University of Chicago. The third edition of his book, Real Estate Finance and Investments: Risks and Opportunities, has been adopted at over 80 leading universities. His quarterly report called The Linneman Letter forecasts employment growth and examines how macroeconomic factors influence real estate markets.
Linneman provided insight into the national economy's recovery process, as well as offered his outlook for 2015. He expects GDP to be up by 2.4% with 2.8 million new jobs. He also thought there would be improving rents and occupancy with increased development activity. However, Dr. Linneman said, “In real estate, we still need face to face communication skills, top quality writing skills, a great work ethic, negotiation skills and judgment about what all the data means. Property level expertise along with integrity is critical for business success.”
Returning to the stage, Barnes gave some closing remarks and invited everyone to attend the cocktail reception. Sponsors for the NAI Carolantic Conference included Bobbitt Design Build; Celito.net; Dixon Hughes Goodman LLP; JDavis Architects, PLLC; Manning, Fulton & Skinner, P.A.; TriSure; Tryon Title; Wells Fargo and Withers & Ravenel, Inc.
2015 Forecast and Category Summaries:
Highlights of Mr. Barnes’ commercial real estate presentation:
2015 Investor Outlook for Land
All product category values are trending upward
Western Wake continues to have high demand for residential land creating a lack of inventory
CBD infill, mixed-use sites are reaching prices of $100 psf or more
Business owners are reconsidering buying and building, rather than leasing
Land for speculative development is back in play
Continued investment opportunities for raw land on the fringes of the Triangle
Residential development begins in Lee and Chatham Counties – demand to follow for retail and office land
2015 Investor Outlook for Income Property
Much of the same…Continued strong demand
Money continues to flow into the Triangle market (as much as $150 Billion into 2nd-tier markets like the Triangle)
Class A properties remain scarce
Value-add opportunities still exist (have to do your work and know the market)
Minimal distressed properties available
Ground-up development provides opportunities, especially in the multipurpose/industrial sector
Live, work & play mixed-use development properties continue to be in favor
Good time to sell and good time to lock down interest rates
Summary: NAI Carolantic’s research showed area-wide vacancy in the office category dropped from 14% in 2013 to 13% in 2014. Shopping center vacancy remained the same at 4% and the multipurpose category also remained the same at 11%. The multipurpose category includes warehouse, industrial and flex space. The office category expects 2.2 million square feet to be constructed in 2015, and multipurpose looks for 682,000 square feet of new construction. Shopping centers have 489,000 square feet underway with most being built in the Cary/Morrisville/Apex submarket.
Absorption was positive in all the categories during 2014. The office market improved from 1% in 2013 to 2% in 2014. The multipurpose category dropped slightly from 3% in 2013 to 2% in 2014 but still strong with over 2 million square feet absorbed. The shopping center category remained the same for 2014 at 1%.
Multipurpose: The Durham-Chapel Hill submarket had the highest vacancy for warehouse/industrial space during 2014 at 14%. This was a slight improvement over 2013 which was 15%. Despite the vacancies, no submarket had negative absorption. Vacancy in the RTP submarket was up from 9% in 2013 to 11% in 2014. Overall, with approximately 682,000 square feet of new construction underway, we expect absorption will remain positive into 2015.
Office: As in the past several years, the Research Triangle submarket had the highest office vacancy at 19%, however this was a drop from the 22% reported in 2013. This equates to almost 3 million square feet of vacancy. Downtown Raleigh had the next highest vacancy at 12%, an increase over a reported 7% in 2013. Absorption in the overall office market did improve slightly to 2% in 2014 over the 1% reported in 2013. Approximately 2.2 million square feet of office space are under construction with most taking place in the Suburban Raleigh submarket with North Hills Tower Two and The Wade.
Shopping Centers: The South Raleigh-Garner-Fuquay Varina submarket experienced the highest vacancy in 2014 at 7%, jumping from the 3% reported in 2013. However, one of the biggest stories was the East Raleigh submarket which dropped from 11% vacancy to 6% in 2014. The Cary/Morrisville area expects to have the most new construction in2015 with just over 300,000 square feet. Overall absorption stayed the same in 2014 at 1%. Construction will be steady as this category will continue to improve. As we reported in early 2014, absorption did keep up with construction which helped keep overall vacancy at 4%.
Single-Family Housing: The NAI Carolantic’s Housing Momentum Index considers the annual new and pre-owned sales volume, subtracting year-end Multiple Listing Service inventory to track sales momentum. Again in 2014, the Momentum Index rose with the increase in activity. Over 20,000 units were sold and inventory dropped to just under 3,600 units…its lowest point since 2000. According to Barnes, construction activity will increase in 2015 especially in outlying areas where water and sewer are available.
Multi-Family Market: The apartment market was very active in 2014 with over 3,000 units added causing vacancy to increase to 7.7%. This was an increase over the 6% reported in 2013. Over 7,500 units are under construction with an additional 7,600 proposed according to Karnes Research Company. Barnes predicts vacancy will go to double digits in 2015 stating that demand will not keep up with supply. Special thanks were given to the Triangle Apartment Association and Karnes Research Company for providing information on the apartment market.
Hotel Market: According to the Greater Raleigh Convention and Visitors Bureau, there has been an increased interest in building new hotels in the Raleigh area. Hotel occupancy in Wake County for 2013 was 69.1% an improvement over the 64.6% in 2013. The average daily rate rose slightly to $91.49, the highest level over the past ten years. During 2014, one hotel was built in Wake County, adding 130 rooms. Five more hotels are due to open in 2015 to add an additional 574 rooms.
Durham County also had 2 hotels to open in 2014 adding 292 rooms. According to Shelly Green, President & CEO of the Durham Convention & Visitors Bureau, six more hotels are scheduled to open in 2015 adding another 628 rooms.
About NAI Carolantic
NAI Carolantic has played crucial backstage roles in the Triangle’s defining moments—from the creation of the PNC Arena and the Carolina Hurricanes to the re-opening of Raleigh’s Fayetteville Street to the development Crossroads Mall—to name only a few.
For more than 40 years, NAI Carolantic has been the leader in Triangle commercial real estate, and our annual commercial real estate conference has established us as the region’s most authoritative source of verifiable market data on commercial real estate.
While our region’s economic development units and chambers of commerce work tirelessly to make the Triangle a preferred destination for businesses and workers, NAI Carolantic ensures that interested parties can access the market intelligence and real-time data to make smart decisions, and provides unmatched guidance and service to landlords, investors, tenants and shareholders.
NAI Carolantic is the area’s leading commercial real estate firm with seventeen brokers, a full-service property management division, as well as an experienced marketing and research division. Established in 1972, NAI Carolantic is a member firm of NAI Global, the world’s premier network of commercial real estate firms and one of the largest real estate service providers worldwide. NAI has over 6,700 real estate professionals in over 375 offices around the world with regional management, global infrastructure, best practices and technology to provide clients with consistent, quality results.