Triangle Industrial Market Update

At the Annual CCIM Forecast luncheon this past Wednesday, I gave an update on the Triangle industrial market to approximately 300 attendees.  My presentation included a historical look back to 1996 showing vacancy trends over the years with the most recent increase starting in 2006 with 12.5% vacancy to today with 20.8% vacancy.  Sublease space makes up a large portion of the vacancy with over 800,000 square feet on the market at the end of 2010.  It is then no surprise that there has been no absorption and in fact negative absorption since 2008. 

Ed Brown, SIOR, CCIM, NAI Carolantic Realty

The three largest submarkets for leasing activity are the Research Triangle Park, East Wake and North Raleigh/US 1 corridors. Given the high vacancy numbers, one would expect construction to be down and in fact, there was little to no speculative building.  Construction was limited to a few build to suits. Rental rates have been flat since 2000 with most Class A buildings hovering around $4.00-$4.50 per square foot depending on location and ceiling height.  Many companies have taken advantage of current market conditions and traded up to lower their cost to a newer and/or more efficient building.  Industrial building sales were generally in the $41 to $46 per square foot range, and land sales were anywhere from $29,000 per acre in outlying areas, to $100,000 to $200,000 per acre for prime locations.

Today, we see the most industrial market activity in the following sectors: printing, medical, food, electronics and furniture.  I expect our negative absorption will continue through 2011 with several tenants downsizing or moving out of buildings in Keystone Park, Imperial Center, Tri-Center South and Tri-Center North.  Construction costs continue to escalate especially with increasing fuel prices.  Steel has increased 16% this year and concrete is due to increase to $5 per yard in April.

For the future, I expect industrial vacancy levels to be up again this year, and absorption to remain negative.  Rates will be stable and there will be no speculative construction.  Land values will be down, and construction costs will rise.  But, job growth…the engine that drives our economy, should improve which can only help the overall commercial real estate market.

Please let me know if you have any questions or if I can be of service with your real estate needs.

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