A fast-growing economy and a diversified industrial base have become key selling points for business owners and investors looking to establish their presence in North Carolina, which in 2022 was listed as the number 1 state for business in America.
The state has a long history of attracting large business deals, from the development of the Research Triangle Park area back in 1995 to the deal with electronic car manufacturer VinFast, which resulted in a $2bn dollar investment.
Other factors that contribute to the state's solid economy and resilient business scene are a superb credit rating, a healthy fiscal balance, and some of the best job growth rates in the United States. Also worth mentioning is North Carolina's ranking as the second best state for access to capital, and NC has the sixth highest levels of venture capital investment.
There are more than 230,000 registered businesses in the state, and new business creation levels have been at record highs since 2021.
Once driven by textile and tobacco manufacturing, the state's economy is now an accurate representation of North Carolina's future-forward spirit. It has notable strengths in sectors that will drive long-term growth, including pharma, biotechnology, information technology, and cleantech.
Other sectors bearing significant weight in the local economy and on the health of the commercial real estate market include defense, food manufacturing, corporate headquarters, and business services.
Office Market in North Carolina
The North Carolina office property market is most active in the state's two largest cities: Raleigh-Durham and Charlotte.
Office Space in Raleigh-Durham
The Raleigh-Durham office market benefits from unemployment rates well below the national average, the migration of a skilled population, and the growth of large office-using sectors, including life sciences and technology.
Five-year trends evidence a steady and substantial increase in asking rates, which have gone from averages of $23 / psf in 2018 to more than $30 in late 2022. Currently, the priciest offices are in both CBDs (Raleigh and Durham), although rent increases are also starting to be evident in Six Forks, the I-40 Corridor, and along Falls of Neuse, which are seeing a noticeable amount of new and better-quality commercial real estate deliveries.
Vacancy rates have remained rather stable since 2018, and the current average is just under 13%, although areas like Six Forks and Wake County are approaching record low vacancies.
Outside of corporate lease renewals, the most sought-after offices are below 10,000 square feet. The tendency to downsize while improving amenities is still the norm in the short term, which is expected to widen the gap in performance between Class A and Class B offices.
Office Space in Charlotte
Finance, banking, technology, and education companies are behind the most recent office leasing activity in this market. Demand is high for best-in-class offices in Charlotte's CBD and in Uptown, followed by South End and Midtown.
Steady rent and vacancy rate increases have been the main theme during the past five years. Current asking rates average $35 / psf for Class A offices and $28 for Class B units, and they’re expected to rise further into the high $40s range with the delivery of new commercial real estate product over the next couple of years.
Overall, Charlotte's office market performance is expected to remain on track due to the strength of the local finance and tech sectors.
Industrial Market in North Carolina
With the expansion of logistics and distribution firms, the Raleigh-Durham area has become a particularly tight market where industrial space is in short supply. Recently, manufacturing has taken over as the main driver of activity in this industrial property market, with multi-billion dollar investments that continued all the way down to late 2022.
Also driving activity in this market is the expansion of the local life sciences sector, which often requires large amounts of industrial lab space that has only become available through the conversion of traditional flex space.
As a result, during the last five years, vacancy rates have dropped substantially from 10% to 4%. Overall, this is an extremely tight market, with many areas at 0% vacancy.
During the same period, rental rates increased, going from around $5 / psf in 2018 to the current average of nearly $20 / psf in late 2022.
Future expansion will be mostly centered around eastern Wake County, which will also lead the way in rental value growth.
In Charlotte, the industrial property market has benefited from several manufacturing projects with large-scale space requirements. Activity levels are at a five-year record high, and are led by lease and sale transactions in southwest Charlotte and in Gaston County.
The supply to demand ratio has fluctuated since 2018, but as of 2022 it had stabilized with absorption surpassing deliveries. Virtually every sub-market in Charlotte has projects under construction.
Current vacancy rates are at a five-year low dropping below 2%, asking rents are on their way to $8 / psf, and they're already exceeding that average in East Charlotte and Cabarrus County.
Tax Breaks, Business Incentives and Support
The North Carolina government offers a varied range of incentive schemes and tax credits whose objective is to help the state establish itself as a leading business destination. Many incentives are operated on a tier system, whereby each county is given a rating that reflects their level of economic dynamism. More details can be found here.
Some programs of interest to local businesses include:
- The One North Carolina Fund, a discretionary program that provides support with the costs of construction or real estate improvement projects that create jobs and have a measurable economic impact.
- Job Development Investment Grants to help with the costs of establishing or expanding business facilities in the state.
- Tax exemptions for operations in manufacturing, fulfillment facilities, R&D activities, software publishing, and biotechnology.
There are also zone-based incentives, involving businesses located in Foreign Trade Zones, Historically Underutilized Business Zones, and Federal Opportunity Zones.
Further details are available from the North Carolina's Economic Development Partnership.