strong q3 positions triangle industrial market for healthy ... · 3 raleigh-durham research report...

Research & Forecast Report

RALEIGH-DURHAM | INDUSTRIAL Q3 2016

Strong Q3 Positions Triangle Industrial Market for Healthy 2016 Finish Emily Bostic Research Associate | Raleigh-Durham

Key Takeaways > Average asking rental rates have continued to rise in response to increasing demand and low supply in the Triangle. The remaining 550,000 + square feet of industrial space that is expected to deliver has significant prelease commitments creating an intense environment for tenants looking for space.

> The Triangle’s overall year-to-date total net absorption reached 604,904 square feet during the third quarter of 2016. Due to lack of available space in the market, net absorption is well below the total net gain that was reported in 2015.

> The Raleigh-Durham region should expect to see the pace of increased demand continue to climb well into 2017 which in turn will keep vacancies on the decline.

> Investment sales volume among both warehouse and flex markets continues to rise in the Triangle region. In response to increasing asking rates, investors should expect rising prices in the fourth quarter and into 2017. Total sales activity among the Triangle’s industrial market was $170.9 million at the end of the third quarter.

Market OverviewAs of August 2016, the Triangle unemployment rate was reported at 4.4%, 0.5% lower than the national unemployment rate. Wake County added 2,795 jobs (in 14 new companies and 28 expanding companies) adding a total investment of $224,100,000 from January 1, 2016 to September 30, 2016. Raleigh was recently named #3 Best City for Jobs and the #2 Hottest Spot for Tech Jobs in September’s Forbes magazine. Raleigh is home to over 500 startup companies and in the last three years alone, startups in Raleigh have raised over $300 million in venture capital investment.

Summary Statistics Q3 2016 Regional Industrial Market

Raleigh DurhamFlex Market

Raleigh DurhamWarehouse Market

Vacancy Rate 9.6% 3.8%

Change From Q3 2015 (basis points) -0.5 1.9

YTD Absorption (Square Feet) (436,195) 728,262

Under Construction (Square Feet) 74,978 481,000

Deliveries (Square Feet) 51,679 115,500

Total Square Feet 27,2768,722 41,837,816

Asking Rents Per Square Foot Per Year

Average Quoted $13.22 FSG $5.01 NNN

Change from Q3 2015 $1.47 $0.43

Market IndicatorsRelative to prior period

Raleigh-Durham Q3 2015

Raleigh-Durham Q3 2016

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

2 Raleigh-Durham Research Report | Q3 2016 | Industrial Market | Colliers International

Absorption & Leasing Activity > Total year-to-date net absorption of 604,904 SF was reported in the industrial market at the close of the third quarter 2016, sustaining a four year steady increase in total net absorption in the Triangle.

> Johnston County led the warehouse sector in the year-to-date net absorption of 339,202 SF that was occupied at the close of the third quarter. The Northeast Wake county submarket didn’t fall far behind, posting year-to-date net absorption totals of 173,079 SF.

> Northeast Wake County experienced the most positive year-to-date flex absorption at the close of the third quarter with a combined 130,888 SF. The Southern Wake county submarket also reported strong year-to-date flex absorption totals with 77,134 SF leased in the third quarter.

> The largest tenant gain in the Triangle’s industrial market during the third quarter was Amazon’s occupancy of 324,838 SF at CenterPointe I in the RTP | I-40 submarket.

> USPS also occupied 126,136 SF at Research Tri-Center North, also located in the RTP-I-40 submarket during the third quarter.

Vacancy & Availability > The overall industrial vacancy rate in the Raleigh-Durham market for the third quarter was reported at 5.0% with just over 5.1 million SF of total inventory reporting vacant.

> Over 2.6 million SF of flex space was reported vacant during the third quarter of 2016. The flex vacancy rate of 9.6% continues to stabilize after the downsizing of GlaxoSmithKline’s Research Triangle Park campus in the previous second quarter 2016.

> In the third quarter, 1.5 million SF of warehouse space was reported vacant, resulting in a 3.6% vacancy rate. This rate was down almost 4 percentage points from the beginning of 2015.

> Year-to-date warehouse vacancy was reported at 3.7%, down from 4.2% in 2015. Overall year-to-date flex vacancy was reported at 9.7% in the Triangle during the third quarter.

Rental Rates > The average quoted rental rate for the overall industrial market was $7.04 per square foot at the end of the third quarter 2016, which represents a $0.73 increase since the end of the third quarter 2015.

> The average full service rental rate in the Triangle’s flex sector was $13.22 per square foot, up from $10.45 reported at the beginning of 2015. Flex rents will continue to rise as the Triangle’s office market continues to put increasing rental pressures on tenants, creating a push towards flex office space.

> The overall NNN rental rate in the Triangle’s warehouse sector was $5.01, up $0.43 from the third quarter of 2015.

Source: Colliers Research, CoStar Group


0.0%

2.0%

4.0%

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12.0%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2012 2013 2014 2015 YTD

Absorption Vacancy

Historical Absorption and Vacancy

Average Asking Rates by Market Type


$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

2012 2013 2014 2015 YTD

Warehouse

Flex

Bulk

Flex

Warehouse

Bulk

FlexVacancy % =

7.9

BulkVacancy % =

7.4

WarehouseVacancy % =

7.4

Triangle Vacancy by Industrial Property Type


MARKET COMPARISONS | FLEX | Q3 2016TOTAL# BLDS

EXISTING INVENTORY (SF)

TOTAL VACANCY (SF)

VACANCY RATE (%)

YTD NET ABSORPTION (SF)

DELIVERIES (SF)

UNDER CONSTRUCTION (SF)

AVG RENTAL RATE (FULL SERVICE)

SUBMARKET NAME

Cary 64 1,370,581 19,489 1.4 27,363 0 0 $11.30

Downtown Durham 12 229,862 0 0.0 0 0 0 $12.00

East Raleigh 14 320,970 12,371 3.9 59,573 0 0 $12.23Glenwood Creedmoor 65 1,066,936 35,435 3.3 40,377 0 0 $9.07

Johnston County 26 579,027 17,132 3.0 20,008 20,000 0 $10.34

North Durham 24 801,049 86,386 10.8 4,800 0 0 $8.81Northeast Wake County 51 2,423,110 203,483 8.4 130,888 0 0 $11.27Orange County 28 802,006 44,332 5.5 10,060 0 13,764 $8.90US 1 Capital Blvd 116 3,153,614 293,700 9.3 7,578 0 0 $11.39RTP | I-40 150 10,463,639 1,790,526 17.1 (818,865) 14,579 0 $14.81Six Forks Falls of Neuse 31 677,401 42,565 6.3 650 0 0 $9.70South Durham 38 895,564 6,751 0.8 9,850 0 0 $11.39Southern Wake County 136 3,307,906 99,057 3.0 77,134 17,100 61,214 $10.04West Raleigh 59 1,677,057 11,160 0.7 (124) 0 0 $10.12MARKET TOTALS 814 27,768,722 2,662,387 9.6 (436,195) 51,679 74,978 $13.22

MARKET COMPARISONS | WAREHOUSE | Q3 2016TOTAL# BLDS


TOTAL VACANCY (SF)

VACANCY RATE %


DELIVERIES (SF)


AVG RENTAL RATE (NNN)

SUBMARKET NAME

Cary 19 1,226,911 0 0.0 5,000 0 0 $7.50

Downtown Durham 37 1,173,790 55,500 4.7 116,338 0 0 $4.50

East Raleigh 43 1,310,528 49,500 3.8 (17,666) 0 0 $6.73Glenwood Creedmoor 70 1,643,117 21,060 1.3 8,304 0 0 $6.72

Johnston County 97 4,235,334 293,765 6.9 339,202 0 0 $2.52

North Durham 41 1,527,056 74,400 4.9 (25,000) 0 0 $5.52Northeast Wake County 181 6,438,314 374,927 5.8 173,079 0 160,000 $6.48Orange County 14 521,670 25,400 4.9 (400) 0 0 $6.00US 1 73 2,837,210 38,500 1.4 (40,040) 0 0 $6.52RTP | I-40 111 10,052,849 395,104 3.9 16,848 115,500 321,000 $5.82Six Forks Falls of Neuse 57 2,442,587 51,540 2.1 65,309 0 0 $5.75South Durham 62 3,019,978 34,102 1.1 19,040 0 0 $5.77Southern Wake County 181 6,438,314 374,927 5.8 77,773 0 0 $4.43West Raleigh 41 1,096,182 12,000 1.1 (9,525) 0 0 $6.55

MARKET TOTALS 953 41,837,816 1,515,503 3.6 728,262 115,500 481,000 $5.01

MARKET COMPARISONS | OVERALL MARKET TOTAL# BLDS


TOTAL VACANCY (SF)

VACANCY RATE (%)


DELIVERIES (SF)


AVG RENTAL RATE

MARKET BREAKDOWN

Flex 814 27,768,722 2,662,387 9.6 (436,195) 51,679 74,978 $13.22

Warehouse 953 41,837,816 1,515,503 3.6 728,262 115,500 481,000 $5.01

Bulk 48 8,007,430 695,109 8.7 (155,573) 155,500 286,000 $4.76

*NOTE: Bulk Inventory consists of buildings from 100,000 SF with ceiling heights from 24 FT and a minimum of one dock.


NOTABLE LEASE TRANSACTIONS | Q3 2016TENANT PROPERTY SUBMARKET SIZE (SF) PROPERTY TYPE DEAL TYPE

Amazon CenterPoint I RTP | I-40 324,838 Warehouse New

USPS Research Tri Center North RTP | I-40 126,136 Warehouse New

HH Gregg 108,000 Warehouse

Parata Systems 106 Roche Drive RTP | I-40 99,960 Warehouse New

NC Education Lottery 2100 Yonkers Road US 1 85,098 Flex

Undisclosed 8013 Purfoy Road Southwest Wake County 70,000 Warehouse New

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

$10.00

Flex Asking Rents by Submarket

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$2.00

$4.00

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$8.00

$10.00

$12.00

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$16.00

Warehouse Asking Rents by Submarket

NOTABLE YEAR-TO-DATE DELIVERIES | 2016PROPERTY SUBMARKET SIZE (SF) OCCUPANCY DELIVERY DATE PROPERTY TYPE

Greenfield North 1000 East Raleigh 133,350 100% Q1 2016 Warehouse

Hinton Oaks 1 East Raleigh 120,000 83% Q2 2016 Warehouse

1002 Twin Creeks Court RTP | I-40 115,500 100% Q3 2016 Warehouse

CenterPoint III RTP | I-40 97,900 100% Q1 2016 Warehouse

3901 Gateway Center RTP | I-40 74,215 100% Q1 2016 Flex

2450 S Miami Blvd. RTP | I-40 44,608 100% Q3 2016 Warehouse


SELECT INVESTMENT SALES | Q3 2016

PROPERTY SUBMARKET PROPERTY TYPE SIZE (SF) SALES PRICE PRICE/SF BUYER

*Tech Distribution Center RTP | I-40 Warehouse 245,000 $20,100,000 $82.00 Principal RE Investors

*Research Tri-Center V RTP | I-40 Warehouse 203,385 $14,900,000 $73.00 Principal RE Investors

*Kuehne & Nagel South Durham Warehouse 458,815 $28,000,000 $60.00 Stoltz RE Partners

Peter Millar RTP | I-40 Warehouse 115,000 $11,400,000 $99.00 Gramercy Property Trust

Tri-Center III & IV RTP | I-40 Warehouse 272,400 $10,200,000 $38.00 Trinity Capital

*NOTE: Part of portfolio sale.

Investment Activity & Construction > The overall Triangle industrial market reported a total of 1,157,424 square feet in construction starts at the close of the third quarter. Year-to-date construction totals were over 1.2 million SF in 15 new buildings. The largest development that is currently under construction is in the Southeast Wake County submarket at the Greenfield North Parkway building. The property will add an additional 151,000 SF of new industrial space in the second quarter of 2017.

> Total sales activity among the Triangle’s industrial market was $170.9 million at the end of the third quarter. During the third quarter of 2016, there were 16 properties totalling 2,649,755 SF that sold at an average of $63.00 per square foot.

> The most notable investment sales transaction of the third quarter was the portfolio sale of the Tech Distribution Center and the Research Tri-Center North warehouse buildings, both located in the RTP | I-40 submarket. In July, Principal RE Investors purchased both buildings (448,385 total square feet) from Stoltz RE Partners for $35.0 million.

TRIANGLE SUBMARKET MAP

DURHAM

RALEIGHCARY

GREENSBORO

BURLINGTON

Greenville

CHAPEL HILL

Asheboro

Goldsboro

Sanford

Garner

ApexWilson

Wake Forest

Smith�eld

Fuquay-Varina

Clayton

Reidsville

Holly Springs

Henderson

Graham

Tarboro

Morrisville

Carrboro540

44040

40

40

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1

540

40

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GRANVILLE CO. WAKE CO.

FRANKLIN CO. WAKE CO.

RDU International Airport

RESEARCH TRIANGLE

PARK

Orange County

North Durham

South Durham

Downtown Durham

RTP / I-40

Southern Wake County

Northeast Wake County

US 1 / Capital Blvd

Falls of the Neuse Rd

Glenwood/Creedmoor

Six Forks Rd

Downtown Raleigh

Copyright © 2015 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.

About Colliers InternationalColliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals’ Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm.

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502 offices in 67 countries on 6 continentsUnited States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108

$2.3billion in annual revenue

1.7billion square feet under management

16,300professionals and staff

INDUSTRIAL SERVICES | CONTACT:Lee HolderSenior Vice President | Raleigh+1 919 582 [email protected]

Dennis EatonVice President | Raleigh +1 919 582 [email protected]

REGIONAL AUTHOR:Emily W. Bostic | Research Associate +1 919 582 [email protected]

strong q3 positions triangle industrial market for healthy ... · 3 raleigh-durham research report...

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