Triangle office rent continues rise to historic highs
Great article from the Triangle Business Journal on the strength of the regional office market. We have been buying and managing neighborhood retail centers for years - and many of our tenants are more akin to traditional office tenants: financial planners, insurance companies, start-ups, medical practices, tech companies, and law firms.
We are excited to begin acquiring some well-located Class B office buildings in order to provide another means of diversification for our investors and partners. More to come!
From the article:
Looking to rent an office in the Triangle? Get ready to fork over some serious dough.
Office lease rates are continuing their rise to historic highs across the region, surpassing $25 per square foot at the halfway point of 2018.
A year ago, the average rate was a little more than $24 per square foot and as low as $20.50 in 2015.
That is according to a new report from commercial real estate firm JLL, which paints a picture of an office market that continues to see strong interest from tenants even as new buildings come online.
“Part of it just has to do with the pure demand we’re seeing for the Raleigh-Durham market,” JLL Research Analyst Ashley Rogers says.
Across the region, landlords are negotiating with multiple tenants. That creates a “sense of urgency” that contributes to rising rates, according to the report.
The high prices also reflect a new generation of office development in the Triangle, Rogers says. The market, once dominated by standard suburban office parks, is today seeing a new kind of office construction that provides all the perks that startups and tech entrepreneurs covet.
“A decade ago we didn’t have offices like North Hills and The Dillon that were in the market,” Rogers says. “Now we’ve got these super amenitized buildings that are coming online, which helps attract talent.”
In many cases, the strategy seems to be working. One City Center in Durham and The Dillon tower in Raleigh have already nabbed WeWork as a major tenant. The company specializes in providing co-working space with plenty of add-ons for workers, from pool tables to coffee bars to networking groups.
Across the board, office occupancy rates remain high and are currently at 88.5 percent, more than 4 percentage points above the pre-recession peak. “It’s probably as active a market as I’ve ever seen,” Dominion Realty Partners President Andy Andrews says.
But strong leasing activity doesn’t necessarily mean that office construction is getting easier. Debt and equity financing have tightened in recent years, Andrews says, meaning some players want to see more preleasing before backing a project.
Still, developers who are confident in the market are continuing to pursue speculative projects.
Andrews’ firm opened the Wade IV building off Wade Avenue in Raleigh in November and it was already 87 percent leased. Dominion will break ground on Wade V in September, a sister building that will be completely speculative. “It’s proven that if you can get it built, you’ll lease it,” Andrews says.
The highest asking rates in the market are in the downtowns of Durham and Raleigh, where the asking price for available space is $32.49 and $31.79 per square foot, respectively, based on JLL's data. The steep prices in Durham are likely related to the very low vacancy rate, Rogers says. Just 1.9 percent of the total 3.4 million square feet of office inventory in downtown Durham is vacant, according to JLL’s data.
The biggest leases to be signed there in the past year were WeWork’s 62,000-square-foot lease at One City Center and WillowTree’s 29,000 square feet at the Golden Belt Campus, a deal that was announced last week.