RALEIGH-DURHAM OFFICE Q1 2017

Transcription

1 Research & Forecast Report RALEIGH-DURHAM OFFICE Q Office Market Remains Stable During First Quarter 2017; Class A Market Continues to Peak Emily Bostic Research Analyst Raleigh-Durham Market Indicators Relative to prior period Key Takeaways >> With over 450,000 square feet of total office deliveries in the first quarter, the market is off to a solid start in The delivery of the new office supply, pushed total net absorption to over 489,000 square feet in the first quarter. The still has over 1.8M square feet of space that is currently under construction, creating a tight market for tenants in search of large block Class A space. NET ABSORPTION Raleigh-Durham Q Raleigh-Durham Q CONSTRUCTION RENTAL RATE >> The lack of large Class A office space in the continues to drive vacancies to record lows while increasing the demand for Class B product throughout the market. Year-todate vacancies have been on the decline since 2010 and first quarter vacancy rates were reported at 7.8%, resulting in 1.3% decrease from the first quarter of Vacancy rates in the s suburban market fell to 8.4%, a 1.5% decrease from a year ago, which indicates that tenant demand remains strong in all markets, not just CBD markets. Summary Statistics Region CBD Existing Inventory 66,503,178 10,345,357 56,157, % 4.7% 8.4% -1.3% -0.1% -1.5% >> Downtown Durham and Downtown Raleigh are thriving central business districts. Downtown Durham's vacancy rate has remained below 2% for six consecutive quarters. Downtown Raleigh continues to see increasing demand from tecnology and innovation sectors, keeping Class A asking rents high. In turn, the consistent influx of new supply has kept rental rates from drastically increasing. (Square Feet) 489,139 29, , , , ,262 $21.81 $29.41 $21.06 $0.51 $2.75 $0.25 $26.04 $30.48 $25.23 >> As of March 2017, Wake County added 3,270 jobs in 54 new and expanding companies, creating a total investment of $91.4M. The unemployment rate remained low, reporting at 4.2% as of the end of March >> The provides such a talented workforce that the incentives for new & expanding companies, entrepreunurial hubs and tech start-ups to open locations in the RaleighDurham area continues to rival other U.S. mid-size markets. Q Regional Office Market (Square Feet) Vacancy Rate Change From Q Q Net Absorption Under Construction (Millions Square Feet) Construction Deliveries (Square Feet) Suburban Asking Rents Average Quoted Change from Q Class A Rents

2 Absorption & Leasing Activity > > In the first quarter, the s net absorption totaled 489,139 square feet. The Six Forks Falls of Neuse submarket gained momentum, obtaining the most positive net absorption with over 268,478 SF of Class A office space absorbed. Allscripts and SunTrust Bank were major pre-lease tenants at Midtown Plaza where most of the 268,000+ square feet of absorption occured. Allscripts will finalize their move to Midtown Plaza later in 2017 when they relocate from their current location at The Forum. > > West Raleigh reported strong absorption numbers during the first quarter with over 141,000 total square feet absorbed. The Center for Technology and Innovation will gain the NCSU Nonwoven Institute as a major tenant during the second quarter after the building delivered in January. > > Overall Class A absorption in the reached 441,368 square feet during the first quarter, while overall Class B net absorption reported negative absorption of (26,774) square feet in the first quarter. > > The largest lease of the quarter was the 214,450 square foot lease signed by INC Research at Perimeter Five in the RTP I- submarket. Perimeter Five is now 100% leased with amenities including seven miles of walking trails, green space and a new on-site cafe. Vacancy & Availability > > The overall market s vacancy rate remained low at 7.8% for the first quarter, resulting in 1.3% drop in percentage points from the first quarter of The overall Class A vacancy in the market has been on the decline since 2008 and was reported at 7.2% at the close of the first quarter with over 2.2M total square feet of vacant space. > > Downtown Durham continues to post exceptionally low vacancy rates as well as the Downtown Raleigh, RTP I- and Six Forks Falls of Neuse submarkets. The Downtown Durham submarket reported at 1.3% vacancy rate at the end of the first quarter. This submarket's vacancy rate has remained below 2% for six consecutive quarters. > > The North Durham and Research Park submarkets reported the highest vacancies during the first quarter of North Durham vacancy reached 28.9% and RTP reported a vacancy rate of 19.4%. Rental Rates > > Class A office rents in both CBD and suburban markets are still rising; however market rents will begin to stabilize throughout > > The average Class A rental rate in Downtown Durham reached $30.88 per square foot during the first quarter. The average Class A rental rate in Downtown Raleigh reached $30. per square foot during the first quarter. > > The Six Forks Falls of Neuse submarket is forecasted to produce record setting Class A rents in 2017, with average per square foot costs reaching over $35.00 psf. Average Asking Rental Rates $27.00 $25.00 $23.00 $21.00 $19.00 $17.00 $15.00 $ Q Overall Average Class A Class B Class C Linear (Overall Average ) Historical Vacancy Trends 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Q Overall Class A Class B Under Construction vs. Absorption 3,000,000 2,500,000 2,000,000 1,500,000 $ 1,000, , Q Source: Colliers Research, Total CoStar Under Group Construction Net Absorbtion 2 Raleigh-Durham Research Report Q Office Market Colliers International

3 OVERALL SUBMARKET COMPARISONS RALEIGH-DURHAM EXISTING INVENTORY DIRECT SUBLET TOTAL PERCENTAGE (%) Q1 17 NET ABSORPTION NEW DELIVERIES UNDER CONSTRUCTION SUBMARKET NAME Cary 8,573, ,917 46, , (5,857) 23, ,216 $21.52 Downtown Durham 4,263,641 55, , (8,832) 0 434,000 $28.77 Downtown Raleigh 6,081, ,750 38, , , ,688 $29.56 Glenwood Creedmoor 3,070, ,500 10, , (2,413) 0 0 $20.75 North Durham 1,765, , , , $14.53 Northeast Wake County 512,371 14, , , $16.07 Orange County 2,882, , , (11,148) 0 158,284 $26.13 Research Park 7,147,584 1,351,605 33,091 1,384, , ,000 $19.23 RTP I- 5,4, ,642 43, , , ,500 $22.91 Six Forks Falls of Neuse 8,368, ,187 18, , , ,214 0 $23.74 South Durham 5,027, ,264 2, , , ,446 $21.94 Southern Wake County 1,743, , , (9,753) 0 0 $16.54 US 1 Capital Blvd. 2,782, , , (20,214) 0 0 $17.35 West Raleigh 8,844, ,339 20, , , ,988 74,000 $23.84 MARKET TOTALS 66,503,178 4,981, ,078 5,193, , ,262 1,892,134 $21.81 AVERAGE RENTAL RATE CLASS A SUBMARKET COMPARISONS RALEIGH-DURHAM EXISTING INVENTORY DIRECT SUBLET TOTAL PERCENTAGE (%) Q1 17 NET ABSORPTION NEW DELIVERIES UNDER CONSTRUCTION SUBMARKET NAME Cary 4,046, ,601 46, , (12,501) 0 307,216 $23.93 Downtown Durham 2,394,518 14, , (6,751) 0 434,000 $30.88 Downtown Raleigh 3,857, ,533 38, , , ,000 $30. Glenwood Creedmoor 1,247,991 31,243 7,111 38, (3,362) 0 0 $23.97 Orange County 1,384, , , (308) 0 158,284 $28.50 Research Park 3,074, ,175 23, , , ,000 $23.31 RTP I- 3,862, ,521 43, , , ,500 $24.53 Six Forks Falls of Neuse 3,789, ,789 2, , , ,214 0 $27.73 South Durham 2,345,120 90,106 2,895 93, (7,051) 0 06,446 $24.47 Southern Wake County 85, $22.00 US 1 Capital Blvd. 1,045,060 64, , $22.91 West Raleigh 4,711, ,042 17, , , ,988 74,000 $25.73 MARKET TOTALS 31,912,607 2,113, ,820 2,293, , ,202 1,838,446 $26.04 *NOTE: North Durham and NE Wake County submarkets do not have any Class A inventory. AVERAGE RENTAL RATE NOTABLE Q LEASE TRANSACTIONS TENANT BUILDING SUBMARKET TOTAL SF LEASE TYPE INC Research Perimeter Five RTP I- 214,450 Pre-Lease Clintrax Global CentreGreen Three Cary 44,000 Pre-Lease Ward & Smith Raleigh Corporate Center West Raleigh 33,000 Pre-Lease The Nonwovens Institute Center for Technology West Raleigh 30,000 New Trilliant One Harrison Park Cary 20,024 New LogMeIn One City Plaza Downtown Raleigh 17,000 New 3 Raleigh-Durham Research Report Q Office Market Colliers International

4 Construction & Investment Activity > > In the first quarter of 2017, office deliveries totaled 457,262 SF in 3 buildings with an additional 1.8 million square feet that is currently under construction. > > In the Six Forks Falls of Neuse submarket, Midtown Plaza finally delivered 329,14 total square feet of space with a pre-leasing percentage of 83%. Allscripts and SunTrust Bank both pre-leased their space in the new Midtown Plaza building during the first quarter. > > The most notable office transaction of the first quarter was the portfolio sale of the Regency Lakeview Office Park in Cary. The 382,000 SF portfolio property sold for $68,000,000 at $ per square foot in January The properties were sold to the Dilweg Companies from Intercontinental Real Estate Corporation at a 9.2% pro forma cap rate. The portfolio was 100% leased at the time of the sale and Dude Solutions is the largest tenant occupying 376,131 square feet. > > In the first quarter, the Raleigh-Durham market produced $208.7M in total volume of 16 office property sales with an average per square foot price of $180. Q DEVELOPMENT ACTIVITY PROPERTY SUBMARKET SIZE PRE-LEASED % QUOTED RATE BUILDING CLASS The Chesterfield Downtown Durham 284,000 44% Withheld A Under Construction Q4 17 The Dillon Downtown Raleigh 267,000 6% $34.50 A Under Construction Q1 18 Forty5 RTP I- 205,000 35% $27.50 A Under Construction Q2 17 CentreGreen Three Cary 167,536 5% $28.75 A Under Construction Q3 17 Perimeter Park Six RTP I- 166,500 0% Negotiable A Under Construction Q3 18 Carolina Square Orange County 158,284 75% $36.00 A Under Construction Q3 17 One City Center Downtown Durham 150,000 35% $32.00 A Under Construction Q1 18 Legacy at Brier Creek Glenwood Creedmoor 116,500 28% $26.95 A Under Construction Q3 17 Wade IV West Raleigh 104,071 11% $28.50 A Under Construction Q3 17 STATUS DELIV DATE Q SALES ACTIVITY PROPERTY SUBMARKET SALES MONTH SALES PRICE (MILLIONS) SIZE PRICE PER SF CAP RATE (%) BUYER *Regency Lakeview Park Cary January $ ,131 $ Dilweg Companies *Principal Real Estate Portfolio RTP I- February $ ,048 $145 NA Fairlead CRE *Investcorp Office Portfolio RTP I- March $ ,448 $211 NA Innovatus Capital Partners Town Hall Commons III RTP I- January $ ,613 $171 NA Carolina Investment Properties Keystone 100 RTP I- March $7.0 63,144 $111 NA Origin Investments 521 S. Greensboro Street Orange County January $6.1 20,348 $297 NA Kerala Capital Partners 5838 Six Forks Road Six Forks Falls of Neuse January $5.0 14,053 $352 NA Glenwood Commercial Properties *NOTE: Part of a portfolio sale. 4 Raleigh-Durham Research Report Q Office Market Colliers International

5 North Durham TRIANGLE SUBMARKET MAP BURLINGTON Orange County Graham CHAPEL HILL Carrboro 85 ORANGE CO. DURHAM CO. 501 South Durham Downtown Durham CHATHAM CO. DURHAM Research Park RESEARCH TRIANGLE PARK RTP / I- Apex Morrisville RDU International Airport Cary 1 64 CARY West Raleigh DURHAM CO. Glenwood/ Creedmoor GRANVILLE CO. 5 Six Forks Rd 4 RALEIGH Downtown Raleigh Falls of the Neuse Rd Garner FRANKLIN CO. Wake Forest US 1 / Capital Blvd 264 Northeast Wake County 1 Southern Wake County Holly Springs East Raleigh 70 Clayton Fuquay-Varina. JOHNSON CO. Smithfield Sanford METHODOLOGY METHODOLOGY The Raleigh-Durham Office reports calculate statistics using CoStar Group and Colliers International Raleigh-Durham s database of existing and under construction properties at market and submarket levels. Included in the pool of data are non-owner occupied Class A, B, and C office properties of 10,000+ SF. DOWNTOWN DURHAM AMERICAN TOBACCO CAMPUS 5 Raleigh-Durham Research Report Q Office Market Colliers International

6 396 offices in 68 countries United States: 153 Canada: 29 Latin America: 24 Asia: 36 EMEA: 111 ANZ: 43 $105 billion in annual revenue 2.0 billion square feet managed 15,000 professionals and staff OFFICE SERVICES CONTACT: Kathy Gigac Director of Leasing Raleigh Baxter Walker Senior Vice President Raleigh Martie Serianni Senior Vice President Raleigh Thomas Kenna Associate Raleigh Lindsey Calverley Associate Raleigh REGIONAL AUTHOR: Emily W. Bostic Research Analyst, CPRC About Colliers International Colliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.