mid-year north carolina investment sales report
TRANSCRIPT
Kelsey Rogers Senior Research Analyst I Raleigh-Durham
Key Takeaways > Mergers and acquisitions with North Carolina based companies are expected to bring growth and opportunity to the market. Included is the $34 billion IBM purchase of Red Hat and the merger of BB&T Bank with Suntrust Bank.
> Companies have announced significant expansion plans and investment in North Carolina, including Align Technology, Cree, Honda Aircraft Co., Paraxel and Pamlico Air.
> E-commerce giant Amazon held a ribbon cutting ceremony for its sorting facility in Durham. The 2.6-million-square foot distribution center being built at the old ConAgra plant in Garner is still under construction with an anticipated delivery in late 2019.
> Preferred Office Properties purchased Captrust Tower at 4208 Six Forks Road from KBS Realty Advisors, setting records in the Triangle Market. The 300,389 square foot property was originally purchased by KBS Realty Advisors in 2013 for $98.2 million and sold in July 2019 for $137.7 million.
> New accolades and rankings released this year include North Carolina ranking #1 for Economic Growth Potential by Business Facilities Magazine and #3 in CNBC's Top States For Business.
MID-YEAR NORTH CAROLINA INVESTMENT SALES REPORT
Raleigh-Durham Research | Investment Sales Report | Colliers InternationalRaleigh-Durham Research | Investment Sales Report | Colliers International
Sales Volume by Buyer Type
Sale Price Per Square Foot
Industrial Investments > Despite rising construction costs and interest rates, investor interest in the Raleigh-Durham industrial market remains strong as prices continue to increase. The average price per square foot in the market was reported at $90 with select sales exceeding $100 per square foot. Average cap rate in the market held steady at 7.6%.
> Top sales in the market included the joint venture of Starwood Capital Group and Trinity Capital Advisors LLC purchasing 4001 East Chapel Hill Road for $37.0 million, Founders Properties purchasing Spring Forest Business Center for $22.2 million, NorthBridge CRE purchasing North 70 Distribution Center for $16.0 million, Trinity Capital investing $14.3 million in Eastgate 540 #1 and The Clorox Company purchasing the former Burt’s Bees building at 701 Distribution Center for $14.1 million. Buyers with the highest sales volume in the market include Trinity Partners with $47.5 million, Starwood Capital Group with $37.0 million and CA Ventures, LLC with $37.0 million.
> Strong absorption this quarter and limited new supply have yielded conditions favorable for rent growth. The average asking rental rate in the Triangle flex market was reported at $11.80 per square foot with a vacancy rate of 8.21%. The warehouse sector reported rental rates at $6.25 per square foot with a vacancy rate of 2.49%.
> There was over 2.76M square feet of industrial product under construction in the Raleigh-Durham industrial market at the end of the second quarter in 2019. While construction activity was relatively light this quarter, upcoming projects including the 2.6-million-square foot Amazon facility, Eastgate 540 Building 2, NCDA&CS Agricultural Sciences Center and the 900,000 square foot Novo Nordisk facility will be substantial additions to the market.
Cap Rate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2014 2015 2016 2017 2018 2019
Cap Rate
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
2014 2015 2016 2017 2018 2019
Price Per Square Foot
51%
12%
1%
35%
1%
Institutional User Private Equity Private REIT/Public
Raleigh-Durham Research | Investment Sales Report | Colliers International
Notable Industrial Investment Transactions
ADDRESS SUBMARKET SALE DATE SALE PRICE PRICE/SF SELLER BUYER
4001 E Chapel Hill-Nelson Hwy RTP 7/19 $37,000,000 $51 ZSF/Research Gateway LLC PP Office Owner 1, L.P.
224 N Hoover Rd N. Durham 1/19 $16,025,000 $62 224 North Hoover Road, LP NBPII Hoover LLC
701 Distribution Dr RTP 7/19 $14,100,000 $104 Liberty Durham LLC Burts Bees Inc
420 Civic Blvd NE Wake 2/19 $13,000,000 $79 RAJDC Raleigh Real Estate LLC Barringer Leasing LLC
2114 Atlantic Ave Route 1 5/19 $9,750,000 $65 NMS Atlantic, LLC DFILP Atlantic Ave LLC
850 Lufkin Rd SW Wake 5/19 $9,000,000 $60 Beechmoor, LLC LM Lufkin Road LLC
4018 Stirrup Creek Dr RTP 6/19 $8,501,500 $88 Lifestar Pharma LLC Stirrup Creek LLC
8900 Capital Blvd Route 1 2/19 $8,247,500 $106 Xellia Pharmaceuticals USA, LLC Sagent Pharmaceuticals
SUBMARKET DEALS TOTAL SF TOTAL $ VOLUME $PSF
Southern Wake County 19 457,034 $33,243,840 $104
Route 1 6 328,753 $26,937,500 $90
Research Triangle Park 6 1,181,171 $68,276,500 $75
North East Wake 7 243,945 $16,060,000 $57
North Durham 6 277,982 $16,300,000 $50
Industrial Sales Activity by Submarket
Raleigh-Durham Research | Investment Sales Report | Colliers InternationalRaleigh-Durham Research | Investment Sales Report | Colliers International
Sales Volume by Buyer Type
Annual Sales Volume
Office Investments > Sales volume and investor interest held strong the first half of 2019 for office product. With over $803 million in sales volume, the average price per square foot in the market has hovered around $230 with an average cap rate of 6.8%.
> Captrust Tower at North Hills broke sale records in July with a sale price of $137.7 million ($458 per square foot) and a cap rate of 5.68%. Other noteworthy sales in the market included Forty540 for $58.0 million, 3900 N Paramount Parkway for $48.3 million, 6601 Six Forks Road for $39.7 million and 7751 Brier Creek Parkway for $34.1 million. Preferred Apartment Communities, Inc, Global Mutual Properties Ltd, Ventas Inc and Align Technology are among the top investors in the Raleigh Durham office market.
> Vacancy in the overall Triangle market continues to fall with mid-year rates hitting 7.52%. The Downtown Raleigh Class A submarket reported the lowest vacancy rate at 3.11%. Average asking rents for the Triangle market were reported at $22.25 per square foot with overall market rents in the Downtown Durham and Downtown Raleigh submarkets coming close to $30.00 per square foot. As the trend for urban living, and companies desire to retain the best talent by seeking high quality, Class A product continues, we predict strong performance for the second half of 2019 in the Downtown Raleigh market as well as other submarkets with this product.
> A surge in investment activity coupled with strong performance exhibited by newly delivered buildings resulted in an added interest for development in Downtown Raleigh and around the Triangle. Several large-scale projects have been proposed to meet the continued demand for Class A space in Downtown Raleigh. Of the proposed projects, many are high rise structures that will transform the downtown skyline and could break the record of being 40 floors high. Additional projects in the pipeline that will have significant impact on the Triangle include the redevelopment of Crabtree Valley Mall and the Sports Entertainment Complex south of Downtown Raleigh.
> Expected deliveries by mid-2020 include Tower IV at North Hills with 330,380 square feet, 555 S. Mangum Street with 233,000 square feet, Wade V with 209,322 square feet, Crabtree Terrace with 168,000 square feet and FNB Tower with 149,842 square feet.
$
Cap Rate
$-
$500.0
$1,000.0
$1,500.0
$2,000.0
$2,500.0
2014 2015 2016 2017 2018 2019
Sales Volume (millions)
31%
26%
31%
7%
5%
Institutional REIT/Public Private User Private Equity
6.20%
6.40%
6.60%
6.80%
7.00%
7.20%
7.40%
7.60%
7.80%
2014 2015 2016 2017 2018 2019
Cap Rate
Raleigh-Durham Research | Investment Sales Report | Colliers InternationalRaleigh-Durham Research | Investment Sales Report | Colliers International
Notable Office Investment Transactions
ADDRESS SUBMARKET SALE DATE SALE PRICE PRICE/SF SELLER BUYER
4208 Six Forks Rd 6 Forks FON 7/19 $137,750,000 $459 4208 Six Forks Road, LLC POP 4208 Six Forks Road, L.P.
3030 Slater Rd RTP/RDU 4/19 $58,100,000 $283 Slater Road I LLC Align Technology, Inc
7751 Brier Creek Pky Glenwood/Creedmoor 2/19 $34,100,000 $275 7751 Brier Creek HPI, LLC Raleigh Office 1, LLC
3700 Glenwood Ave West Raleigh 2/19 $30,000,000 $269 3700 Glenwood LLC 3700 Glenwood Owner LLC
2610 Wycliff Rd West Raleigh 4/19 $28,500,000 $164 Albany Road-Wycliff LLC A&M 2610 Wycliff Owner LLC
1011 S Hamilton Rd Orange County 1/19 $19,925,000 $418 Station at Chapel Hill, LLC Mattie Equity LLC
4912 Green Rd Route 1 3/19 $14,500,000 $131 Raleigh Portfolio NW, LLC Milena USA LLC
4600 Marriott Dr Glenwood/Creedmoor 6/19 $10,000,000 $152 Murray Investment Co, LLC Crabtree Center, LLC
1330 Saint Marys St West Raleigh 6/19 $9,650,000 $159 Stmarys Office Llc ZR Plaza West LLC
SUBMARKET DEALS TOTAL SF TOTAL $ VOLUME $PSF
Six Forks Falls of Neuse 10 419,238 $149,834,500 $182
Cary 9 113,634 $20,487,000 $198
Glenwood/Creedmoor 4 208,420 $46,810,000 $185
North Durham 6 151,900 $22,172,000 $158
Orange County 5 125,455 $29,510,000 $239
Office Sales Activity by Submarket
Raleigh-Durham Research | Investment Sales Report | Colliers International
Notable Proposed Developments
> Moderate construction activity and stable leasing has pushed vacancies down to 3.6% in the Triad market and made it favorable to landlords, allowing rents to surpass $4 per square foot.
> Investments in the Triad industrial market have been of interest to institutional investors. Prices continue to escalate with noteworthy sales including 300 Penry Road for $44.7 million, the portfolio sale of 4754, 4751, and 4755 McConnell Center Drive for $49.3 million, and the five property portfolio sale of Interstate Commerce Park for $7.8 million. Average cap rates have been around 7.5%.
> Despite slow development projects in recent years, construction starts and deliveries have picked up. Significant projects include the Amazon Distribution Center located at 1656 Old Greensboro Road totaling 1M square feet, The Fed Ex Distribution center that will be delivered in 2020 at 6540 Judge Adams Road and 190,000 square feet that is expected to be delivered at the end of 2019 located at 4747 McConnell Center Drive.
PROPERTY SIZE (SF) NOTES
301 Hillsborough Street 300,000 300,000 square feet of Class A office space
CAM/HQ Raleigh Project 500,000 20-story building with mixed-use space
Former N&O Building 1,500,000 3.3 acre 20-story project with mix of office, retail and lodging. Phase one will include 325,000 square feet of space
400 H 500,000 500,000 square foot building with 169,556 square feet of commercial space, 0.0% preleased
Two Glenwood 235,000 10-story building
Peace and West Development Phase II 225,000 Phase I will have 12-story mixed use project with Publix. Developer is seeking approval for 40-story building for phase III
Kane Warehouse District Project N/A Developer seeking approval for 20-stories
City Gateway 196,802 196,802 square foot buidling, 62.6% preleased
Crabtree Valley Mall Redevelopment N/A $290M 30-story mixed use tower at former Sears building
Oakridge Project 100,000 Mixed-use porject in Durham with 57,000 SF of retail space, 25,200 SF of office space and 17,262 SF of retail space
Zimmer Development N/A Developer seeking approval for 40-story project
Briar Creek Town Center I 200,000 200,000 square foot building, 0.0% preleased
The Edge 282,000 282,000 square foot building, 0.0% preleased
464 Pettigrew Street 202,000 202,000 square foot building, 0.0% preleased
Greensboro, Winston-Salem, High Point (Triad) Industrial Market
Raleigh-Durham Research | Investment Sales Report | Colliers InternationalRaleigh-Durham Research | Investment Sales Report | Colliers International
$
Retail SalesNet Lease Investments > A rise in longer-term interest rates, and a slowdown in economic activity, along with tighter financial conditions resulted in capitalization rates rising modestly and prices falling in the net lease sector in 2018.
> Cap rates on sales of STNL retail properties ticked up 12 basis points (bps) from 5.98% to 6.10% over the year. The rise in cap rates drove sale prices of net lease retail down from $244 per square foot to $232 per square foot.
> The food service and beverage retail category gained strength in 2018 increasing sales from 4.6% to 5.9%, midyear; however, sales of sporting goods & hobby goods fell 5.8% in 2018.
Auto Parts Stores > Average sale price per transaction fell 13.8% to $1.73 million las year, with auto part stores reporting a lower average sales price in comparison to the prior year. Autozone and O’Reilly experienced a rise in sales transaction and volume.
> Cap rates in the auto parts stores retail category rose 46 bps to 6.5% at the close of 2018.
> Sector sales price per square foot dropped 7.9% year over year.
> Industry revenue for this property type is forecast to increase at an average annual rate of 1.3% through 2023, according to IBISWorld.
Dollar Stores > The average sales price per transaction slipped slightly, down just 2.1% to $1.52 million.
> Cap rates increased in all three dollar store chains year over year. Dollar General rose 13 bps to 6.8%, Dollar Tree rose 10 bps to 6.8% and Family Dollar increased 93 bps to 7.6%.
> Despite the rise in cap rates, sales price per square foot for the sector increased 0.2% versus a year ago and remains above the quarterly average going back to 2010.
> Due to increasing external competition, industry revenue is forecasted to slow to an annualized increase of 1.1% into 2024, down from a 2013-2019 average of 3.9%, according to IBISWorld.
-6.0% -3.0% 0.0% 3.0% 6.0% 9.0% 12.0%
STNL Cap Rate vs. U.S. 10-Year Treasury
STNL Sales Volume
Raleigh-Durham Research | Investment Sales Report | Colliers International
Net Lease InvestmentsDrug Stores > Drug store sector sales volume fell 23% and the number of transactions declined 14%. > Average cap rates for the drug store sector remained relatively unchanged at 6.3%, dropping 2 bps from the prior year. CVS stores cap rates fell to 6% and Rite Aid dropped 89 bps to 7.2%, but Walgreens cap rates increased 14 bps to 6.4% at the close of 2018.
> Average sales price per square foot fell 6.2% year over year. > Rite Aid’s average sale price dropped 26.4% from the prior year, while CVS and Walgreens continue to trade at their long-term average sale price per square foot.
> According to IBISWorld, industry revenue is forecast to increase at an average annual rate of 2.4% through 2023.
Fast Casual Restaurants > Average sale price per transaction was up 1.2% year over year, hitting $2.7 million. > Sales transactions and volume were up 25% and 13% year over year. > Cap rates were recorded at 6.3%, a 7 bps increase from the prior year. > The sector’s average sale price per square foot increased 5.1% year over year. > Industry revenue for this property sector is expected to grow annually at a rate of 1.6% from 2019 to 2023, according to IBISWorld.
Quick Service Restaurants > QSR transactions and volume remained relatively unchanged from 2017, down just 1.4% and 0.1%, respectively. > Average sales price per transaction in this sector was down 9.5% year over year to $1.78 million. > The sector’s average sales price per transaction in Q4 2018 was down 9.5% year over year to $1.78 million. > Average cap rates remained nearly unchanged at 5.6%, increasing just 4 bps year over year. > The sector’s average sales price per square foot rose 2.7% year over year. > Through 2023, fast food industry revenue is forecast to annually increase an average of 1.2%, according to IBISWorld.
DOWNTOWN DURHAM AMERICAN TOBACCO CAMPUS
METHODOLOGYThe Raleigh-Durham investment report calculates statistics using CoStar Group and Colliers International Raleigh-Durham’s database of existing and under construction properties at market and submarket levels. Included in the pool of data are Class A, B, and C office, warehouse and flex properties in Raleigh-Durham and the Triad Region
9 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
Copyright © 2019 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
Colliers International I Raleigh-Durham 1201 Edwards Mill Rd, Ste 300 Raleigh, NC 27607 +1 919 582 1110 colliers.com/rdu
FOR MORE INFORMATION
Kelsey Rogers (Author)Senior Research Analyst919 582 [email protected]
Tabitha Spencer Vice President of Marketing919 582 [email protected]