Commercial Real Estate and Office Space Market in North Carolina
North Carolina has a solid economy that relies on the service sector and in high-value industries that include biotechnology, advanced engineering, and energy production. The state is home to first-class research and development facilities, mostly in what is known as the Research Triangle Park area, whose establishment back in 1995 played a crucial role in the fast economic development of the Old North state (1). 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 has been listed as one of the best locations for business in the United States, and ranks among the country's top 10 areas for future development (2). This report explores the impact that these events have had on the local commercial real estate market, as well as its most recent performance.
Office Space Market
The North Carolina office property market is most active in the state's two largest cities: Raleigh and Charlotte. Durham is often considered part of the Raleigh office market, with both areas constituting the Greater Raleigh area. The local office real estate market has been displaying a strong performance since 2013, mainly driven by the expansion of high-value sectors like pharmaceutical, biotechnology, and the life sciences. This is one of the best-rated labor markets in the United States, and as such, demand for high-quality office space has been steadily growing. Data released by Cushman & Wakefield confirms a decrease in vacancy rates across the Metro area (currently at their lowest since late 2007), as well as a moderate increase in direct asking rents, which now average $20.29 / sq ft. The Raleigh-Durham office market is also characterised by a preference for long-term leases (usually ranging between 7 and 10 years) and by a high volume of developments under construction and of investment activity. Top-of-the-range asking rates average $24.63 in the CBD and are also higher-than-average in West Raleigh ($22.19) and in Glenwood ($22.82) (3).
The Charlotte office market also shows signs of growth and has in fact lower vacancy rates that the state's capital (9.5 per cent). Demand is particularly high along Highway 51 and the I-85 corridor, especially among insurance and finance firms. Average rental values are $26.44 / sq ft in Charlotte's CBD and $24.56 for Highway 51 properties (4). Another important focus of real estate activity is centered around the so-called Piedmont Triad region, an area located some 70 miles to the west of Raleigh. This area comprises medium-sized urban centers like Greensboro, Burlington, and High Point, and is home to more than 24 million square feet of office floor space, as well as to nearly 75 million square feet of industrial space. Piedmont Triad is slowly establishing itself as an alternative business location, as the recent decline in vacancy rates shows (currently under 13 per cent) (5).
Retail and Industrial Space Markets
Thanks to the expansion of logistics and distribution firms, the Raleigh-Durham area has become a particularly tight market where industrial space is in short supply (6.4 per cent vacancy rates during Q2 2015). Warehousing space is in high demand and commands average rental values of $4.52 / sq ft / year. Flex industrial space is in short supply in Durham and along the I-40 (6).
Retail properties in Charlotte benefit from increased demand following a robust start of the year. Vacancy rates are impressively low at 5.4 per cent, and investors are showing increased interest in areas like South Park, which is one of the most up-and-coming retail destinations in the state. Downtown properties command average prices of $25.61 / sq ft (7). In the Piedmont Triad area, industrial space is at a premium, as the most recent dataset indicates that in early 2015 there was virtually no Class A space available for properties in excess of 75,000 square feet. This is mostly a landlord's market where large distribution floorplates are the most sought-after type of space.
Tax Breaks, Business Incentives and Support
The local government offers a varied range of incentive schemes and tax credits whose objective is to help North Carolina establish itself as a leading business destination. Some examples include:
- One North Carolina Fund, a discretionary program that provides support with the costs of construction or real estate improvement projects (8).
- Duty and excise tax exemptions for companies based in one of North Carolina's 4 foreign trade zones (9).
- Industrial Revenue Bonds are available to eligible manufacturing firms across North Carolina and provide financial assistance with the acquisition or industrial properties and specialised equipment (10).
(7) http://www.colliers.com/-/media/files/united states/markets/north carolina/charlotte/q1 2015 market report - retail.pdf