MARKETBEAT
Raleigh-Durham
Office Q4 2016
Economy
TRIANGLE OFFICE
Economic Indicators
Q4 15
Q4 16
885,767
906,150
Triangle Unemployment
4.8%
4.1%
U.S. Unemployment
5.0%
4.8%
Triangle Labor Force
Market Indicators (Overall, All Classes)
Q4 15
Q4 16
Overall Vacancy
13.4%
14.5%
Class A Vacancy
8.4%
7.9%
Net Absorption
238,292
194,187
Under Construction
1.2 M
2.03 M
Average Asking Rent
$21.73
$22.78
12-Month
Forecast
12-Month
Forecast
*Stats not reflective of U.S. Overview
Overall Net Absorption/Asking Rent
Market Overview
4-QTR TRAILING AVERAGE
575
$22.8
475
$22.4
375
$22.0
275
$21.6
175
$21.2
75
$20.8
-25
$20.4
2012
2013
2014
Net Absorption, '000s
2015
2016
Asking Rent, $ PSF
Overall Vacancy
20%
18%
5 year average
16%
14%
12%
10%
8%
2012
2013
Source: TBJ Space
2014
Headwinds generated by geopolitical events over the past year created
periods of economic turbulence across the globe, but a strong tailwind
fueled soft global economic growth in 2016. US market pundits’ views
that a Trump Presidency would reduce regulation and push a largely
pro-business agenda generated a year-end boost, and position the U.S.
property markets to perform well as we head into 2017. In fact, the
Cushman & Wakefield forecasting team recently adjusted their two-year
economic outlook upwards. Our team also noted that while the incoming
administration is generally viewed as business friendly, uncertainty
lingers in the methods by which proposed policies will be executed.
Promising GDP growth in the second half of 2016 (2.5-3.0% annualized)
and acceleration in national wage growth (2.9% YoY) fuel measured
optimism in the property markets. Local job growth of 2.9% over the
past year continues to outpace national growth of 1.6%, and drove the
unemployment rate to fall 70 bps to 4.1%. Fundamentals have remained
intact locally, prompting Raleigh-Durham’s recognition as the No. 7
market to watch (out of 87) on ULI’s annual Emerging Trends Report.
2015
2016
Market-wide total net absorption of 194,187 SF in Q4 was made up
primarily of Class A expansion, and was supplemented by 37,378 SF
within Class B/C assets. Growth in the quarter was fueled by gains in
Cary, West Raleigh, and Orange County, allowing market-wide growth
to approach the average Q4 result of 213,172 SF over the past six
years. Over the past year, Class A expansion of 855,352 SF fell shy of
impressive numbers in 2014 and 2015, but exceeded each year
stretching back to 2008. Vacancy among Class A assets sits near the
historic low at 7.9%, while the overall vacancy rate hovers at 14.5%.
2016 total net absorption of 731,711 SF is less than half of the observed
values in 2015 and 2014, but taking the numbers at face value can be
misleading. Perceived stunted overall growth can be attributed to
several factors (the effects of the controversial NC House Bill 2, a pause
for recalibration after a frenzied local M&A period, uncertainty over the
Presidential election), most of which are difficult to quantify in terms of
their true impact.
Bullish arguments would contend that over the past year, 1.8 MSF of
single tenant, corporate-campus style buildings came onto the market
for lease. Without this space, market-wide vacancy would have fallen to
11.1%, and overall absorption would have exceeded 1MSF. The
available space and statistics are deceptive to the average tenant, to
whom these campuses are largely irrelevant and highly specialized.
Class A availabilities, in large part, are quickly back-filled, and large
blocks of Class A space remain scarce. This has challenged tenant
management teams, especially those who do not sit locally, as many
have struggled to adapt to a market that requires faster decisions on
real estate and requires strategic planning well in advance to secure
relocation or expansion space and avoid business disruption.
www.cushmanwakefield.com
MARKETBEAT
Raleigh-Durham
Office Q4 2016
Despite lower levels of recorded absorption, healthy activity and a
robust list of active tenants in the market is serving to sustain
optimism for 2017. A lack of new supply in the upcycle has
contributed to market-wide elevated asking rents, which have
surged 4.8% since Q4 2015. As has become the norm, Downtown
Durham and Six Forks lead the region with the highest overall
average rates at $26.15 and $25.38, respectively. Projects under
construction amount to 2,012,667 SF, and are 49% preleased.
1,035,301 SF expected to deliver in the first half of 2017 is 65%
preleased following Q4 deals done at The Chesterfield (Nutanix,
70,000 SF) and Forty540 (Align Technologies, 60,000 SF). This
number is approaching the occupancy average of large office
deliveries from 2014-present, which were approximately 72%
leased at the end of the quarter they came onto the market, a data
point we have been watching very closely. Future development is
flush with the promise of skyline-altering projects; most notably,
555 Mangum in Durham and Tower 4 at North Hills in Raleigh.
Investment Sales
2016 was the first year since the downturn where pricing grew at a
faster rate in second tier cities compared to first tier cities. While a
slew of external factors ranging from rising interest rates to lending
standards will have an impact on investment sales over the next
year, Cushman & Wakefield projects secondary markets and
suburban office to benefit from further cap rate compression and
NOI growth. Raleigh-Durham investment sales came in at
$149,300,000 in Q4 2016, which was the lowest Q4 total since
2013. The Q4 result brought total volume on the year to $721
million, which was shy of an explosive 2015 but exceeds both of
the preceding years (2014 and 2013). The largest transactions of
the quarter came in the form of portfolio sales, with the highest
priced individual asset, Hock Plaza II, trading for $29.8 million or
$344 psf. In the last few months, 50% of the prospects C&W’s
Capital Markets team visits with is a new-to-market player, which
supports the continuing trend of new developers and capital to the
region.
Class A Vacancy – Major Submarkets
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Cumulative Monthly Investment Sales Volume, $ Millions
2016 TOTAL VOLUME EXCEEDED BOTH 2014 AND 2013
1600
1400
1200
1000
800
600
400
200
0
J
F
M
A
2016
M
J
2015
J
A
2014
S
O
N
2013
Construction Overview
PROJECTS DELIVERING IN THE FIRST HALF OF 2017 ARE 65% PRELEASED
800,000
$40
$35
Outlook
•
•
•
As new construction nears it’s delivery date, interest from
tenants is likely to increase. Many projects requiring
substantial preleases represent timelines that greatly
reduce the prospective tenants who will consider them.
Raleigh-Durham’s position as a premier secondary market
will continue to appeal to investors who are being priced out
or struggling to find value in major markets.
Tenants and landlords should continue stay informed of
impending legislation that may affect their business, and
adjust their real estate strategy accordingly.
Source: TBJ Space
D
600,000
$30
$25
400,000
$20
$15
200,000
$10
$5
0
1Q
2017
2Q
2017
3Q
2017
4Q
2017
1Q
2018
SF Delivering
586,988
448,313
543,725
76,446
357,195
SF preleased
364,660
309,006
146,215
56,446
118,068
Avg. Rate
$29.72
$32.97
$30.40
$26.50
$33.59
$-
www.cushmanwakefield.com
MARKETBEAT
Raleigh-Durham
Office Q4 2016
AVERAGE ASKING
RENT CLASS
A+B+C*
AVERAGE
ASKING RENT
CLASS A*
167,157
$22.83
$23.88
5,159
414,195
$26.15
$29.29
27,351
20,653
227,000
$25.16
$26.23
11.14%
(5,479)
57,613
-
$19.99
$22.58
534,822
39.97%
28,881
84,182
-
$15.93
N/A
148,865
9.94%
41,810
12,618
156,000
$25.20
$26.32
(93,093)
274,446
$21.34
$23.49
TOTAL BLDGS
INVENTORY
DIRECT
VACANT
VACANCY
RATE
Q4 2016 NET
ABSORPTION
4 QTR NET
ABSORPTION
Cary
127
6,295,493
588,879
9.35%
70,675
59,796
Downtown Durham
64
3,577,952
173,478
4.85%
(463)
Downtown Raleigh
59
4,406,185
534,313
12.13%
Falls of Neuse
75
3,036,595
338,293
North Durham
34
1,337,952
Orange County
35
1,497,161
MAJOR SUBMARKETS
RTP/I-40 Corridor
166
13,121,468
3,566,910
27.18%
16,920
UNDER
CONSTRUCTION
Six Forks
62
3,607,410
358,682
9.94%
(12,517)
264,773
329,313
$25.38
$28.30
South Durham
40
1,864,351
194,351
10.42%
8,418
(11,648)
-
$21.51
$24.94
US 1/Capital Boulevard
48
2,390,522
247,150
10.34%
(41,311)
(60,620)
-
$20.54
$23.61
US 70/Glenwood Avenue
68
3,683,833
229,722
6.24%
3,726
117,579
190,500
$23.03
$25.07
West Raleigh
90
5,759,808
454,381
7.89%
46,258
233,098
254,059
$24.27
$25.27
TOTALS
868
50,578,730
7,369,846
14.57%
184,269
690,110
2,012,667
$22.78
$25.10
TOTAL
BLDGS
INVENTORY
DIRECT
VACANT
VACANCY
RATE
Q4 2016 NET
ABSORPTION
4 QTR NET
ABSORPTION
Class A
375
33,081,173
2,605,932
7.88%
156,809
855,352
2,012,667
$25.10
Class B
460
16,859,563
4,622,336
27.42%
32,156
-152,303
-
$18.97
Class C
94
2,273,032
322,189
14.17%
5,222
31,662
-
$15.95
SUMMARY BY CLASS
UNDER
AVERAGE ASKING RENT DIRECT*
CONSTRUCTION
*Rental rates reflect full service (gross) asking $psf/year
Stats table entries are not reflective of U.S. Overview
Key Lease Transactions Q4 2016
PROPERTY
SF
TENANT
TRANSACTION TYPE
SUBMARKET
The Chesterfield
70,000
Nutanix
New Lease
Downtown Durham
Forty 540
60,000
Align Technologies
New Lease
RTP/I-40
305 Gregson
60,000
ABB
New Lease
Cary
Park West
26,000
Informatica
Renewal
RTP/I-40
Situs III
25,000
Circle K
New Lease
West Raleigh
Capital Club Building
17,832
HQ Raleigh
New Lease
Downtown Raleigh
Key Sales Transactions Q4 2016
PROPERTY
SF
SELLER/BUYER
PRICE / PRICE PSF
SUBMARKET
Quadrangle V, IV, III, II
263,474
Property Reserve Inc / Dilweg Cos.
$41,500,000 / $158
South Durham
SouthCourt at South Square
131,976
Torchlight Loan Services / Gemini Rosemont JV Burrell Group
$17,500,000 / $133
South Durham
111,639
Crown West Realty / EPIC
$23,000,000 / $206
Cary
Hock Plaza II
84,600
Brickman Associates / HTA
$29,800,000 / $344
Downtown Durham
Capital Club Building
55,522
Richard E Byrd III / Roebling Investment Company
$7,400,000 / $133
Downtown Raleigh
400 Regency Forest Drive + Dev. Site
Source: TBJ Space
www.cushmanwakefield.com
MARKETBEAT
Raleigh-Durham
Office Q4 2016
OFFICE SUBMARKETS
Raleigh / Durham
1. Orange County
2. North Durham
3. Downtown Durham
4. South Durham
5. RTP / I-40 Corridor
6. Cary
7. Southern Wake County
8. Eastern Wake County
9. West Raleigh
10. US 70 / Glenwood
11. Six Forks Road
12. Falls of Neuse Road
13. US 1 / Capital Blvd
14. Downtown Raleigh
About Cushman & Wakefield
Cushman & Wakefield is a global leader in commercial real estate services, helping clients transform the way
people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and
global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield
is among the largest commercial real estate services firms in the world with revenues of $5 billion across core
services of agency leasing, asset services, capital markets, facilities services (branded C&W Services), global
occupier services, investment management (branded DTZ Investors), tenant representation and valuations &
advisory. To learn more, visit www.cushmanwakefield.com or follow @Cushwake on Twitter.
Source: TBJ Space
Daniel Flynn
Research Analyst
3015 Carrington Mill Blvd, Suite 410
Morrisville, NC 27560
Tel: +1 919 789 4255
Fax: +1 919 789 0268
[email protected]
www.cushmanwakefield.com