Demand is starting to surge in North Carolina's Raleigh-Durham office sector, as construction was nonexistent for the first time in about a decade and a half.
Net absorption in the market rose by 43 percent year-over-year to 41,575 square feet in the second quarter. Also, the number brings down the year-to-date negative total to -149,034 square feet, according to a report from CBRE.
"Absorption this quarter was driven by multiple mid-sized occupancies between 15,000 and 40,000 sq. ft," the CRE firm wrote in an analysis.
Infosys posted the biggest occupancy, taking 61,562 square feet of space. The next two largest went to an undisclosed company and Kimley-Horn, which inked deals to occupy 53,574 and 36,333 square feet, respectively.
Total vacancy declined by 10 basis points to 21.2 percent. However, on a direct basis, the category was actually up 10 basis points to 17.8 percent.
The results come as no office product was under construction in Raleigh-Durham in the second quarter. That marks the first time that's happened since 2011.
In terms of rents, CBRE only showed data for Class A rates, which declined slightly to $33.55 per square foot compared with $33.77 per square foot.
"This change is from a mixture of the leasing of premium inventory in newer developments as well as some property owners adjusting rents in older Class A buildings. Higher-quality space is being effectively absorbed despite broader market challenges," CBRE explained of the shift.
While the current dynamics for office in Raleigh-Durham favor tenants currently, CBRE expects fundamentals to see "gradual improvement" in the second half. Particularly, leasing activity is forecasted to accelerate in the coming months, the firm predicts.
"Sublease spaces continue to play a prominent role in the Raleigh-Durham office market, offering tenants access to prime Class A locations at a discount. The majority of newer Midtown and CBD assets are faring well, and the leasing demand for best-in-class locations remains solid," CBRE highlighted.
"Raleigh-Durham’s reputation as one of the fastest-growing and most well-educated metros in the U.S. will continue to attract both institutional capital and national tenants."
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