RALEIGH—Raleigh-Durham is hitting on almost all cylinders, with industry watchers ranking the region high for office, industrial and multifamily. PricewaterhouseCoopers' Emerging Trends in Real Estate 2015 report points to the Millennial generation's fondness for this southern market, especially considering that several projects underway are urbanizing Raleigh/Durham.
According to PwC, this activity is creating an environment that is setting the stage for Raleigh-Durham to attract and retain a high-quality workforce. What's more, the market offers companies a “very competitive” cost of doing business.
“Local market participants feel that the strength of the local economy will drive activity in 2015,” PwC reports. “The continued strength of the economy could provide investment opportunities for a growing institutional investor base as well as support the strong local development community.”
Looking ahead, though, Raleigh-Durham could soon experience growth pains. For starters, Kevin Finkel, executive vice president of Resource Real Estate, points to a growing abundance of new multifamily supply in high-growth cities such as Raleigh.
“This new supply will put downward pressure on rents and occupancy for class A apartments,” he says. “Fortunately, the majority of new supply is concentrated in the urban core so certain suburban submarkets will be quite insulated from this negative impact, especially for class B and C apartments in strong suburban markets.”
What about the capital markets front? Clearly, the gateway markets are the hottest but Kevin Welsh, senior vice president of CBRE's institutional properties team, is starting to see more interest in what he calls the “edge cities” such as Charlotte, Raleigh and Charleston.
“These cities are not quite 24/7 communities, but rather can be called 18/7 communities, as they still have a nightlife and the live-play-work environment,” he says. “These markets are interesting because there's a lot of capital that wants to be in them. In terms of product class, the apartment space will continue to be strong in these markets because of the high demand from Millennials.”
Turning to the retail market, Avison Young's most recent Raleigh-Durham Retail Market Report predicts vacancy is likely to remain tight for the foreseeable future, placing upward pressure on rental rates. Construction activity is steady, the firm reports, but moderate by historical standards, with developers being very selective with regard to location and timing.
Finally, turning to offices, Avison predicts a lack of class A options will force more Triangle tenants to consider class B space in 2015. While several construction deliveries are scheduled in the next 12 months, the firm reports preleasing activity has been strong, and the additional space will not be enough to meet increasing demand. More projects are likely to break ground in 2015, Avison concludes, but landlords will find themselves in the driver's seat in the near term.
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