Report: Triangle commercial real estate market could rebound swiftly this fall

RALEIGH – The Triangle’s commercial resestate market has suffered a “considerable short-term slowdown” due to COVID-19 but is poised for an “unusually swift recovery” this fall, says research and real estate services firm CBRE in a new report.

The Raleigh office of the international firm also says that “office-using employment may be less negatively affected than in recent recessions” even though most companies have ordered workers to work from remote locations due to “stay at home” social distancing orders from state and local governments.

CBRE, which publishes reports quartertly about the health of the Raleigh-Durham corporate real estate market, says COVID-19 has created the “unique nature of this downturn.” Economies across the globe were plunged into recession in just a matter or weeks, but now numerous US states as well as European and Asian countries are begining to open up from social restrictions trigged by the pandemic.

But the report based on data through March 31 notes that the Triangle office market entered the pandemic disruption.

CBRE report

For example, “ask for” rates to lease top-tier space climbed to nearly $30 per square foot – the highest in years – while the vacancy rate declined to 10 percent even as construction continued.

Other data points indicating the strength of the market include:

Overall vacancy declined 273 basis points yearover-year to 10.0%
Over 4.1 million sq. ft. is currently under construction throughout the market.
The Triangle posted 421,000 sq. ft. of net absorption during Q1 2020, marking ten consecutive quarters of positive net absorption

However, there are no guarantees.

CBRE Raleigh graphic

CBRE notes that at the core of hopes for a recovery is “assuming the coronavirus peaks this summer” and the US economy “mirroring China’s experience.”

CBRE also believes federal ” fiscal and monetary stimulus will begin to bear fruit.”

“This will be paired with pent-up private demand that could help the U.S. economy return to growth by year-end and drive stronger than previously expected growth in 2021,” CBRE concludes.

While the pandemic has driven 36 million Americans – including nearly 1 million in North Carolina – into unemployment, CBRE notes that the Triangle real estate market entered 2021 buyoyed by growing demand, a shrinking vacancy rate, and a corresponding rise in leasing rates.

“The overall Class A [top tier] average asking rate increased 3.6% year-over-year to $29.25 per sq. ft. Driven mainly by absorption in the Class B sector, the market experienced strong positive absorption during Q1,” CBRE reports.

CBRE Raleigh graphic

“Overall net absorption for the quarter was 421,000 sq. ft., bringing the12-month trailing net absorption total to 1.7 million sq. ft. The RTP/I-40 Corridor led all submarkets with 558,000 sq. ft. of positive net absorption in Q1.”

The report does not include the recent decision by Eli Lilly to build a major pharmaceutical manufacturing plant at The Parmer (the former GlaxoSmithKline campus) in RTP.

However, numerous other deals were signed, including:

Duke University leasing 273,000 sq. ft. at Parmer RTP
Q2 Solutions leasing 163,000 sq. ft. at Parmer Ellis.
UCB Biosciences leased 45,000 sq. ft. at 4000 Paramount Parkway
Marvell Semiconductor will expand into 30,000 sq. ft. at Perimeter Three.
Martin Marietta leased the entirety of Glenlake Seven. The 125,000 sq. ft. spec development is currently under construction and expected to deliver in Q3 2020.

“Overall, 2.1 million sq. ft. of office product traded hands during Q1 totaling $473.8 million in sales volume,” CBRE reports.