KARNES Tri-City North Carolina Office 2013 Year in Review

Posted on July 21, 2014 by - Charlotte, Commercial Property Exchange, Construction Update, Greensboro/Winston-Salem/High Point, KARNES Perspective, KARNES Tri-City Report, Office, Raleigh, SiteIndex, Triad CIE, Triangle, Triangle CPE, Western NC, WNC CPE

A combined total of 117 million square feet of office space is located within the Tri-City area. Totaling nearly 50 million square feet at the end of 2013, the Charlotte market is the largest of the three North Carolina office markets. The Triangle market ranked second with 41.4 million square feet of office space, while the Triad maintained 25.7 million square feet of office space. After reporting a total of 1.48 million square feet of new office construction in the Charlotte, Triangle, and Triad regions during 2012, new supply came to a halt during 2013 and marked the first time in over 25 years that no new office space was completed in the combined Tri-City region.

The decrease in supply-side pressure allowed for gains to be reported in each of the Tri-City markets. The Charlotte market reported the greatest gains during 2013 as net absorption (demand) totaling 1.3 million square feet resulted in a 2.5%-point decrease in the office vacancy rate. The year-end 2013 rate of 14.8% in Charlotte was the lowest vacancy rate among the three markets, with the Triangle and Triad both reporting a rate of 15.0%. The year-end 2013 Triangle vacancy rate was 0.6% of a point lower than the year-end 2012 rate as net absorption totaled 204,615 square feet. The Triad region reported a 0.2% of a point decrease in vacancy during 2013 as net absorption totaled 162,219 square feet.

KARNES Charlotte Office Leasing Activity

With net absorption totaling 1.3 million square feet, the Charlotte region reported the highest level of net demand during 2013. The Triangle region ranked second in terms of office demand during 2013 with net absorption totaling 204,615 square feet. The Triad market reported 162,219 square feet of net demand during 2013. Four office tenants occupied over 100,000 square feet in the Tri-City markets during 2013, with the largest tenant occupancy reported at Ballantyne – Gragg Building, where MetLife took 284,212 square feet. MetLife also accounted for the fourth largest gain as the company took 104,747 square feet of space at Ballantyne Three. Ballantyne Corporate Park also accounted for the largest contraction during 2013 in the Tri-City markets as AXA Equitable Life Insurance relocated from 152,000 square feet at Ballantyne – Rushmore One to 141,647 square feet at Innovation Park Building 202.

KARNES Triangle Office Leasing Activity

The Triangle region reported three of the largest tenant contractions during 2013 as Duke Power vacated 125,000 square feet at 200 Lucent Lane, Genworth Financial vacated 119,023 square feet at Northcase II, and Fidelity vacated 118,757 square feet at Danbury Hall. While not making the list for top ten changes in occupancy during 2013, the Triangle region did report several large gains in occupancy. The largest gain was reported at Crossroads III, where Relias Learning occupied 34,378 square feet. Icon’s lease of 30,215 square feet at 4401 Research Commons was also among the Triangle’s largest changes in occupancy during 2013.

The most significant new occupancy in the Triad market during 2013 was reported at the Premier Office & Technology Park, where LGS Innovations occupied 54,356 square feet. Other significant gains reported during 2013 in the Triad market included Lab Corp expanding into 37,595 square feet at the Salem Building and Blue Cross Blue Shield of NC occupying 30,082 square feet at Madison Park IV. The largest contractions reported in the Triad market during 2013 included an undisclosed tenant vacating 39,502 square feet at the Premier Office & Technology Park, Inmar vacating 43,642 square feet at Consolidated Center II, and Blue Rhino vacating 30,000 square feet at 450-470 Hanes Mill Road.

KARNES Triad Office Leasing Activity

Full service weighted average asking rents increased in all three Tri-City markets during 2013. Rents in the Charlotte market averaged $22.68 per square foot at the end of 2013. This rate was $0.39 per square foot higher than the rate reported at the end of 2012. The Triangle market averaged $20.85 per square foot at the end of 2013. This rate was $0.34 per square foot higher than the rate reported at the end of 2012 and $0.52 per square foot higher than the $20.33 averaged at the end of 2008. The Triad market’s average rent of $16.83 per square foot reported at the end of 2013 was $0.41 per square foot higher than the $16.42 per square foot reported at the end of 2012 and $1.08 per square foot higher than the $15.75 per square foot averaged in 2008.

Nearly 1.8 million square feet of office space was reported under construction in the Tri-City markets at the end of 2013. The Triangle region accounted for approximately 56% of this total as more than one million square feet of office space was under construction at the end of 2013. The largest buildings under construction at the end of 2013 in the Triangle market were located in the I-40/RTP submarket, where the 245,352-square-foot Perimeter Three and 205,000-square-foot Perimeter Two buildings were under construction. Both properties reported significant pre-leasing with future tenants to include Teleflex (130,000 square feet), SciQuest (78,565 square feet), Fujifilm Medical Systems (42,456 square feet), MaxPoint Interactive (32,715 square feet), and Compliance Implementation Services (23,089 square feet). Two buildings located in the Wake Forest Innovation Quarter accounted for a majority of the space under construction in the Triad market at the end of 2013. The 635 Vine building will measure 242,000 square feet, while the 525 Vine building will total 230,000 square feet when completed. The largest building under construction in the Charlotte market at the end of 2013 was the 163,000-square-foot renovation of 8740 Research Drive in the Northeast submarket.

The proposed pipeline of office space continues to grow as more than 14.3 million square feet of office space was planned for the Tri-City markets at the end of 2013. The Triangle market accounted for 49% of the proposed office space with a total of 6.9 million square feet, while the Charlotte market ranked second with nearly 6.2 million square feet of proposed space at the end of 2013. The 500,000-square-foot Veridea development in Cary and the 427,000-square-foot MetLife Global Technology Buildings in Cary were the largest proposed projects in the Triangle market. Three of the largest proposed projects in the Charlotte region were located in the I-77/Southwest submarket. The 500,000-square-foot Ayrsley Corporate Campus was the largest project proposed, followed by an expansion at Coliseum Center and City Park, which both are planned to total 400,000 square feet. The 300,000-square-foot Triad Tower building in the Guilford – Airport submarket remained the largest proposed office project in the Triad market at the end of 2013.

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