It is with mixed emotions that we find ourselves compared to the hottest office markets on the planet (excuse us New York, London and Hong Kong – we’re not kidding). And the two hottest are both in, where else, California.
According to a recent study by CBRE, Raleigh-Durham ranked third among U.S. tech markets for the largest increase in office rents over the past two years, surpassed only by Silicon Valley and San Francisco.
Raleigh-Durham rents increased 23.4 percent to $23.31 per square foot while the vacancy rate declined to 14.2 percent.* Silicon Valley rents went up 28.1 percent during the 24-month period (with office vacancy averaging 7 percent and rents at $49.20 per foot) while office rents in San Francisco spiked 30.7 percent during the period, to $67.99 a foot. The San Fran vacancy rate, not surprisingly, settled at 5.7 percent – the lowest of the 11 cities CBRE used in its tech cities report.
However, CoStar reports that the Raleigh-Durham office market ended the second quarter with an overall vacancy rate of 9.3 percent. We suspect* that CBRE measured only Class A office product that is actually or likely to be occupied by technology clients, whereas CoStar’s report covers all industries as well as Class B and C offices. Another reason why the data points from all CRE firms and market trackers like CoStar never matchup is methodology and buildings tracked. Some of these firms track buildings as small as 5,000 square feet and others start at 10,000 square feet.
Some of our largest tech occupiers, by the way, include Lulu, ShareFile, Cree Inc., Epic Games, Quintiles, Cisco Systems, IBM., eTix and SAS Institute (which began as a project at North Carolina State University (NCSU) and was originally funded by the National Institute of Health – thought you would like to know!)
Returning to the local real estate market, according to CoStar the largest lease signings in the second quarter were:
- Biologics Inc. booked 75,000 square feet in the West Wake County market
- Fujifilm did a 30,589-square-foot deal, also in West Wake County
- NCSU signed a 25,906-square-foot lease in Raleigh
Six office buildings totaling 713,759 square feet were delivered in 2Q2015 in Raleigh-Durham and there was 840,316 square feet of offices under construction at the end of June.
In terms of the supply and demand equation, we predict that the Raleigh-Durham office market is far from in danger of being over-built and in fact the vacancy rate is likely to continue its decline for the foreseeable future, based on the amount of net absorption the market is getting.
While the combination of space delivered and under construction in the second quarter was +1.5 million square feet, in the recent four quarters, net absorption totaled a whopping 2,974,003 square feet, CoStar reports. Net absorption in the recent quarter this was 909,270 square feet.