By Ivanna C. Sukkar
RALEIGH/DURHAM, N.C.
Photo: Mark Turner
Consistently ranked among the top areas for business, jobs, higher education and more, North Carolina’s Research Triangle region appears to be
defying the nation’s economic woes.
In fact, Raleigh — the state’s
capital and the largest city in the
combined statistical area that
also includes Durham, Cary and
Chapel Hill, N.C. — witnessed
key growth in 2008. Completions
included Raleigh’s new convention center, which opened this
past September; the RBC Plaza
and Condominiums, a 33-story,
mixed-use tower; and three hotels, which added more than 700 total rooms to the city.
What the Locals Say
“The market is flat now. Everyone’s looking for the
other shoe to drop, but it may drop lightly. We were not
overdeveloped or overbuilt. Commercial developments
kept track with the market, so we didn’t have an
oversupply.”
— Mac Jones, principal and managing broker, McConnell Jones Realty LLC
Likely helping the region’s continued growth is the Research Triangle’s historically low unemployment and
its status as a high-tech, biopharmaceutical and life-sciences hub. The area also ranks among the top 10 office
markets for the next five years, according to Grubb & Ellis’ Investment Opportunity Monitor.
With more developments in the works and a new comprehensive city plan that looks toward 2030, Raleigh
is expected to continue its current trend in years to come.
Vitals
Population (combined statistical area): 1.6 million
■
CSA population in 2000: 1.1 million
■
Rank (U.S.): 28th-largest CSA
Average commute: 24. 5 minutes
■
Average commute in 2000: 23. 4 minutes
■
U.S: 25 minutes
Median household income: $53,300
■
Median household income in 2000: $50,083
■
U.S.: $48,451
Median age: 34. 8 years
■
Median age in 2000: 33. 3 years
■
U.S.: 36. 4 years
Unemployment: 6.1 percent
■
Unemployment in November 2007: 3. 6 percent
■
U.S.: 6. 7 percent
Rents/Leases
Offi ce:
■
Asking: $20.04 per square foot
■
Effective: $16.52 per square foot
Retail:
■
Asking: $18.05 per square foot
■
Effective: $15.90 per square foot
Apartment:
■
Asking: $816 per unit
■
Effective: $730 per unit
Industrial: $6.75 per square foot
Vacancy
Office: 13. 4 percent
Retail: 8. 5 percent
Apartment: 7 percent
Industrial: 15.1 percent
Absorption
Net office: 155,000 square feet
Net retail: 326,000 square feet
Apartment: 1,152 units
Net industrial: 179,214 square feet
Under Construction
Office: 381,000 square feet
Retail: 346,000 square feet
Apartment: 300 units
Industrial: 221,432 square feet
Résumé
Demographics: 67 percent white, 23 percent black,
4 percent Asian, 6 percent other; 9 percent identify as
Hispanic or Latino
Top private employers (Research Triangle region):
Duke University and Medical Center, IBM, WakeMed Health
and Hospitals, Wal-Mart, GlaxoSmithKline PLC
No. 1 U.S. metropolitan area for business and careers ( Forbes)
2nd-best-performing U.S. metro area economically (Milken
Institute)
2nd-best U.S. city (Raleigh) to live, work and play in 2008
( Kiplinger.com)
4th-hottest U.S. labor market in 2008 ( Bizjournals.com)
Sources: Bizjournals.com, CB Richard Ellis, City of Raleigh,
Forbes , Greater Raleigh Convention & Visitors Bureau,
Grubb & Ellis, Kiplinger.com, Milken Institute, Reis Inc.,
U.S. Census Bureau, U.S. Department of Labor
Ivanna C. Sukkar is senior associate editor at Scotsman Guide. Reach her at (800) 297-6061 or ivanna@scotsmanguide.com.
Property TypeCast
Retail turmoil could last through 2011
By Victor Calanog,
director of research, Reis Inc.
In October 2008’s Property TypeCast (scotsmanguide.
com/3174), we noted that retail properties may be the sector of commercial real estate most affected by the current
recession. Results from the fourth quarter of ’08 confirm
our dismal outlook.
Shopping-Center Trends
8. 7
Occupancy levels of U.S. neighborhood and community
shopping centers deteriorated sharply in the quarter,
pushing the overall vacancy rate to 8. 9 percent for retail
properties. The 50-basis-point increase is the largest sin-gle-quarter vacancy increase Reis has noted since it began
publishing quarterly data in 1999. Larger properties, such
as regional and superregional malls, experienced a similar
decline in occupancy, with a 50-basis-point increase pushing vacancy levels to 7.1 percent, the highest level since
Reis started tracking malls in 2000.
While asking rents showed 0.3-percent annual growth at
year’s end, effective rents fell by 1.1 percent in ’08. This indicates a sharp increase in concessions throughout the year.
Average asking rents at shopping centers fell by 0.4 percent
between the third and fourth quarters, while effective rents
dropped by 0.9 percent. These again are the largest single-quarter declines in asking- and effective-rent growth since
’99, when Reis began publishing this data. At regional malls,
asking-rent levels decreased by 0.3 percent.
Net Absorption (millions of sq. ft.)
12
Net Absorption Vacancy
10
8
6
8.2
4
2
7. 7
0
-2
7.2
Vacancy Rate (%)
- 4
- 6 6. 7
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2005 2006 2007 2008
Source: Reis Inc.
What has caused these drops? Signs point to:
1. Negative job growth, which the U.S. Bureau of Labor
Statistics says has accelerated at a pace unseen since the
early 1970s; and
2. The plunge in retail spending, driven by eroding consumer confidence.
How can consumer confidence return? Job growth must
turn positive, the housing market must stabilize and credit
markets must ease. Unfortunately, all three conditions are
still in flux. And even when they stabilize, we often observe
a 12- to 24-month lag until commercial retail properties
benefit from resumed consumer and retail spending.
Thus, we’re projecting a continued increase in vacancy for
neighborhood and community centers through 2011, unless conditions change dramatically. Asking- and effective-rent growth will be negative through at least 2010, with
effective-rent growth trailing asking-rent growth because
of concessions. With the International Council of Shopping Centers projecting store closures this year to match
2008’s level, there appears to be little respite for landlords
and tenants in the near term.
Victor Calanog, director of research at Reis Inc.,
writes a monthly column on property types for
Scotsman Guide. As head of Reis’ core economics
team, he is responsible for data models, forecasting,
valuation and portfolio services for clients in commercial real estate. Reach him at victor.calanog@
reis.com. Faruk Ozdemir, team leader for Reis’
quality-control team, contributed to this article.
