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Tenants Waiting to Land in Triangle's 2 Million SF of Anticipated Office Space

2Q16 Colliers Market Report

Here’s your Capital Compass perspective:

In response to an increasingly tight office market, tenants are eager for the +2 million square feet of new office space that is currently under construction to deliver in the Triangle. National and local commercial real estate developers have become more assertive as increasing demand for Class A office space has outpaced much of the Raleigh-Durham market’s supply. With the large amount of space that is under construction and another 1.7M proposed, tenants are looking to finally have a place to land.

Raleigh business owners and tenants will find interesting:

  • The Triangle vacancy rate dropped below last quarter's record of 8.0% to 7.2% of space open for rent in the market.

  • Class A office rental rates rose to $24.90 per SF, 74 cents higher than 2Q16.

  • Class A Office space in downtown/central business districts push rates even higher, with Durham peaking at an average of $31.50 per SF

  • Construction for Class A of space totaled at 26,000 SF delivered in 3Q16, with over 1.3 million SF to come.

How does this apply to business owners and tenants?

The wait game. Developers are rushing to get their projects off the ground and construction going in what may be one of the hottest examples for office market demand in the Triangle. Local and national groups though are running into the same issues. Mainly, pre-leasing typically still needs to be met for majority of the 2 Million SF of projects proposed for the Triangle (requirements average around 30% of the building committed to for pre leasing). And with looming elections and political concerns, larger tenants are moving slower on committing to real estate strategies and acquisitions of space.

For tenants, although rental rates continue to favor the landlord, if a large tenant's leadership and board have a clear plan for action, making the commitment to an upcoming development project now may have beneficial effects down the road. First off, each of the 2 Million SF of development is swooning for large anchor tenants. Developers may not be able to give you drastically discounted rental rates, but concession packages are being made for the first big group in the door that is serious on executing a lease.

Although the economy may dip to favor a tenant's market by 2018, a company's commitment NOW to a developer's project may guarantee the construction and completion of the new building, well ahead of any of their competitors. This will allow some select large tenants a big share in their marketplace for expansion, new workplace designs and cutting edge space, all definite edges against their individual industry peers.

For growth stage and startup companies, you will not have the leverage or size requirements to meet the pre-leasing levels of new construction in the Triangle. The best bet is having a corporate real estate advisor on hand (like Capital Compass) to keep you informed of WHICH development projects are going to make it, and which look to be stalled or not hitting pre-leasing requirements. Luckily, you have Capital Compass to call and help assist!

- Capital Compass

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