While the office market it a little tricky to predict in terms of occupancy (other than the obvious factor – jobs) because there are too many variables, retail real estate and industrial real estate occupancy is more of a numbers game. Namely, head count. As in people. The more people there are, more stuff is going to be sold at the retail level. The more stuff sold in stores, the greater the demand becomes for warehouse buildings and distribution facilities. And so on.
This is not to say that retail and industrial real estate developers are guilt-free of over-building retail and industrial real estate from time-to-time, because they do. Yet short and long-term trends are for the Raleigh Triangle to keep growing at a similar pace to our growth in recent years.
Earlier this year (February) the Urban Institute projected population growth in the Raleigh area to grow by 50 percent between 2010 and 2030. Interested readers of this blog can view the entire report on UNC-Chapel Hill’s Carolina Demography Institute webpage: http://demography.cpc.unc.edu/2015/02/02/what-will-your-city-be-like-in-15-years/
Raleigh’s population grew by 8.9 percent from April 1, 2010 to July 1, 2014, according to U.S. Census data. During the same period, Durham County grew by 9.1 percent while Chapel Hill grow at a more historically average rate of 3.7 percent. The State of North Carolina grew 4.3 percent during that +four-year span.
Switching to local real estate market conditions, the overall retail vacancy rate declined in the second quarter to 4.6 percent — down from 4.9 percent at the close of the first quarter this year (all of this and the following data is from CoStar unless otherwise noted). The retail vacancy rate was 5.5 percent at the end of the third quarter last year. Net absorption was positive in 2Q2015 – 631,690 square feet. In the recent four quarters, net retail absorption in Raleigh-Durham was nearly 1.92 million square feet. This includes malls, power centers, specialty centers, shopping centers, general retail properties, strip centers and neighborhood centers. For a market with “only” 95 million square feet of total retail inventory, that’s a lot of net absorption in as year.
During the second quarter, 15 retail buildings totaling 358,121 square feet were brought to market in Raleigh-Durham.
Average rental rates for all product types ended the quarter at $14.55 per square foot, or $0.14 than they were at the end of March this year.
By comparison asking retail rental rates for ground-level space on Madison Avenue (yes, New York) averaged $1,700 a foot in May of this year, according to the Real Estate Board of New York, which is a relative bargain compared with Times Square between 42nd and 47th streets, which was running at $2,413 a foot.
I bet these interesting factoids have got you really wondering what the asking rate for ground floor retail is going for on 5th Avenue! Well here it is: between 49th and 59th Streets, the rate was $3,683 per square foot – a 4 percent increase from May 2014 to May 2015.
In our next blog, we’ll take a closer look at The Triangle’s industrial market conditions.