Many Say The Real Estate Market Still Belongs To Landlords Despite Changes

Unlike their soft office property markets, Triangle industrial real estate markets remain stable - beginning the first quarter of 2023 with an 82,000+ sq. ft positive net absorption rate. The new product introduction led to a vacancy rate increase of 4.5 percent, representing an increase of 24 basis points (or 2.4% from a record low vacancy rate in the first quarter of 2022).

Industrial properties span from cold storage facilities and factories to Flex space - low-rise structures used for storage, assembly, and office processes, as well as customer showrooms and showrooms for customers.

Elizabeth Gates, Senior Research Analyst with CBRE Raleigh in Raleigh, tracks and reports quarterly commercial real estate market conditions and describes warehouse/distribution space as being at the core of the recent boom in their market. Gates states this trend likely stems from fulfillment companies for online stores; although its demand began before COVID-19, it quickly escalated post-pandemic. Another factor driving expansion includes corporate America moving away from centralized distribution models toward regionalized fulfillment strategies to get merchandise into consumers' hands more rapidly, as per Gates's analysis.

According to reports by the U.S. Census Bureau, consumers' return to "normal" consumer behavior following pandemic recovery has not resulted in decreased online shopping behavior; rather, online purchases increased 11.3 percent between 2022-2023 as demand for fulfillment centers continued at its high rates; consequently resulting in rising rent for tenants as median asking rents for warehouses rose 12.8 percent year-on-year to $8.54 per sqft while flexible space rental increased 8.5% reaching an average rent price of $16.14.

According to Gates, tenants could soon experience relief thanks to projects currently in construction that will bring over 4.6 million sq. ft of the area onto the industrial property market. "New products are being added, which is good," she notes, that vacancy rates remain extremely low despite increases. She adds that more space is being created, which bodes well for tenants despite remaining landlord-dominated.

Though most of the new space being constructed will be found within Durham, Orange, and Wake Counties, over 1.7 million sqft will also become available to "outlying" markets like Chatham Johnston Lee County as part of "that trend worth noting," according to Gates: "That trend bears watching as more growth can be found there."

CBRE Raleigh is a joint venture of local and Dallas-based principals. CBRE Group Inc (NYSE: CBRE) is the most recognized commercial real estate services firm within the Raleigh-Durham market, offering portfolio management, leasing/sale assistance consultancy as well as various solutions, including data collection from all eight Triangle counties analyzed separately by CBRE; including medical biomanufacturing/life science facilities as well as government-owned facilities tracked separately by them.

Communities located further from the city core industrially zoned lands offer investors more affordable purchase opportunities. Infrastructure investments such as transportation and wastewater capacity upgrades make once-rural regions attractive to innovative industrial facilities that have recently come online. Johnston County alone currently hosts approximately 1.5 million sq. feet of under-construction industrial space. AdvanceTEC recently completed an expansive $10 Million renovation of its cleanroom near Smithfield, featuring approximately 63,000 sq-feet of traditional warehouse/distribution space available for lease. AdvanceTEC of Richmond, Virginia, serves clients from the nanotech, biotech, and cleantech fields. Their clients span military, government, and corporate and academic/university establishments requiring nanotech/biotech/cleantech expertise. AdvanceTEC is privately held and has constructed facilities dedicated to research development, pilot production, and high-volume manufacturing operations.

The industry has recently found its way into Chatham, Johnston, and Lee counties of North Carolina, particularly Chatham County, where Ann-Stewart Paterson of CBRE|Raleigh notes "that further out you will find better pricing on land." "Those counties are investing significant resources into infrastructure to support growth," says Patterson.

Economic development officers of some counties have worked with private developers to produce Class A industrial buildings that can be sold on the market. A collaboration between Greensboro's Samet Corporation and Sanford Area Growth Alliance, which oversees the business expansion and recruitment within Lee County and the City of Sanford, resulted in four shell structures at Central Carolina Enterprise Park that include amenities like foundations, doors, windows, roofs, footers; but still allow users to upgrade interiors based on individual business needs.

"Our commitment to the building has set us apart from some of our competition," according to Jimmy Randolph, chief executive officer of Sanford Area Growth Alliance. This partnership arrangement is unique because the county and city agree to rent out buildings if no tenants can be found within two years after arrival. By taking steps such as these, a developer in private is better able to control his risks while receiving more favorable conditions from lenders for financing purposes. Randolph and other local authorities can select which businesses will occupy the park - typically, manufacturing companies that promote economic development in their community and others that could enhance it through presence. "As a community," states Randolph.

Since signing its agreement with Samet, Four buildings have either been rented out to new employers or sold. Most notably in June last year when Astellas Gene Therapy launched their 100 Million dollar manufacturing plant at one of Lee County Parks 135,000 sq-ft buildings, employing approximately 200 workers with salaries higher than Lee County standards and offering wages on par with those of neighboring counties - Johnston County leaders have copied AdvanceTEC along with similar real estate partnerships like AdvanceTEC to promote industrial real estate speculation in their region.