Rents on the rise, but so are construction options? 2Q16 Triangle Office Report explains.
Here’s your Capital Compass perspective:
Office rents continue their 2016 rise as space options tighten across the majority of Triangle sub-markets. Raleigh is also seeing one of an all time highs in construction activity with close to 2 Million SF of office space underway or being delivered in 2Q16.
Raleigh business owners and tenants will find interesting:
The Triangle vacancy rate continues to sit at last quarter's record of 8.0% of space open for rent in the market.
Year to year Class A office rental rates rose 6%, or $1.30 psf to $24.80 psf in the Triangle.
Class A Office space in downtown/central business districts push rates even higher, with an average of $28.25 per SF
New Construction is demanding a PREMIUM in pricing, at levels never seen before in the Triangle, with asking rental rates averaging over $30.50 per SF
How does this apply to business owners and tenants?
Rates, rates, rates. They keep going up for tenants even as the Triangle gains more construction options (and thus more competition) and future office space. How do you make sense of this?
For tenants, the market continues to favor the Landlord. This trend has been nationally predicted to last until 2018. The basis lies on the fact that in better economic times, cash is more fluid and consumers can handle an increase in pricing. This pricing increase can rise across all industries and sectors. For commercial real estate, construction prices, land values and thus office rents will continue to push up as investments consume product and pad developer's projects.
The end effect is that office rates HAVE to rise to cover developer's costs. With this in mind, very little rental discounts are occurring in asking rents (sometimes as little as 50 cents amongst competing office parks). The only way for developers to "beat the market" and their competitors currently is SPEED. The project quickest to market can justify and consume the higher rental numbers.
In a tenant's perspective, this means that large company moves and expansions, if they can be laterally pushed or postponed for a few years may lead to BETTER rates and market conditions come post 2018, when the office market should shift back to a tenant favored atmosphere.
For growth stage and startup companies, where revenues are tied closely to expansions and hiring, postponing a move today may be detrimental to the company's future and financial stability. In this case, waiting until 2018 is not an option. For rapid moves you will need flexible lease terms in value add spaces that only a corporate real estate advisor can guide you through. Luckily, you have Capital Compass to call and help assist!
- Capital Compass