2017 Annual Conference

NAI Carolantic Reports 2017 to be Another Healthy Year for the Triangle Commercial Real Estate Market

Nearly 1,600 business, government and community leaders, including Governor Roy Cooper, gathered last night inside Raleigh’s PNC Arena to seek and share answers about the health and direction of the local economy, and to hear what’s likely in store for the coming year—and the news was generally positive.


Governor Roy Cooper

The event was the 32nd Annual Triangle Commercial Real Estate Conference, hosted by NAI Carolantic Realty. Considered the authoritative “state of the market” report on the Triangle’s real estate sector, findings presented at the conference also provide an important bellwether of the region’s general economic vitality.

The overall market was healthy in 2016 and likely to remain so in the coming year, Jimmy Barnes, SIOR, President of NAI Carolantic, told the conference-goers. He listed several statistics in support of that assessment: the most single family home sales in Wake County since 1994, a Durham office market with vacancy at a low of 4%, positive absorption in downtown Raleigh, overall shopping center vacancy dropping to an all-time low of 2%, and the overall multipurpose/warehouse market inching up only 1% to end the year at 9% vacancy.


James M. Barnes, SIOR, President

“Absorption and vacancy trends are good indicators of market performance and more importantly, of what local businesses are planning,” Barnes said. “Will they expand? Retrench? Hold the course? Commercial real estate activity tells you months ahead of anything else.”

Barnes said the report was based in part on a survey of over 274 million square feet of office, multipurpose and retail space.

Governor Roy Cooper urged attendees to pressure state lawmakers to support three social initiatives that he said will directly improve the state’s economic health: greater investment in education, complete repeal of HB2 (the so-called “bathroom bill”) and expansion of the state’s Medicaid program.

“We’ve got to get rid of HB2,” Cooper said. “It has cost us thousands of jobs and hundreds of millions of dollars that we know about.”

“When you talk to economic consultants who are talking to companies across the globe, many of them are striking us off the list from the get-go because they have plenty of other places they can go,” Cooper said.

That point was echoed by keynote speaker Sarah Quinlan, Senior Vice President of Market Insights for Mastercard, in her remarks. Quinlan said that while North Carolina was fortunate to be in the healthiest economic region of the country, consumer spending, data shows North Carolina is already seeing a loss of tourism and travel dollars because of HB2.


Sarah Quinlan, Senior Vice President of Market Insights for Mastercard

Quinlan said a surge in consumer spending in the fourth quarter of 2016 was in anticipation of an economic boon promised by recently elected president. But she warned that consumers will start to withhold spending if they don’t see the promised improvements within six months.

In his market recap, Barnes reported that while the Triangle had seen another year of positive absorption creating single-digit vacancy in the overall multipurpose and shopping center categories, vacancy in the office category increased slightly to 11% and some submarkets even saw negative absorption.

“This was particularly true in the RTP submarket, which saw several large office and flex buildings come back to the market”, said Barnes. “On a positive note, it creates opportunities for large end-users looking to relocate here. But it also creates questions about how mergers and buyouts are affecting some of our home-grown businesses.”

Barnes predictions for the year ahead were generally positive, but he cautioned that vacancy in the apartment market would likely rise in 2017, despite a year of strong absorption. “I don't think the market can sustain supply side pressure in 2017,” he said, “especially with financing constraints.”

Speaking to the “A Place For All Seasons” conference theme, NAI Carolantic Realty Chairman Steve Stroud spoke to the trends and changes reshaping the Triangle area.


NAI Carolantic Realty Chairman Steve Stroud

“One of the most remarkable things about the Triangle is its enduring appeal through all the stages of life, and the entire life cycle of a business,” Stroud said. “The Triangle is regularly named as one of the best places to go to school, to get a first job, to find a mate, to raise a family, and to retire. We see this on the commercial side as well—the Triangle is rated as one of the best places to start a company, to invest in a company, to find first-rate talent, to expand a company, and to site a headquarters.”

Jay Olshonsky, SIOR, President of NAI Global, the world’s largest commercial real estate network, spoke about the expanding capabilities and expertise of NAI Global professionals. Olshonsky noted there are now more than 6,700 professionals in over 375 offices worldwide ready to help clients with their real estate needs.

Jay Olshonsky, SIOR, President of NAI Global

Conference attendees were polled about issues of top concern to the Triangle. Their answers:

  • Are you more or less optimistic about the financial prospects for your company this year? 75% responded they were more optimistic.
  • Will your company be hiring and expanding in 2017? 76% responded they would be.
  • What impact do you think the new federal administration will have on the willingness of foreign companies to do business with US companies? 48% said it would have a positive impact.
  • How do you think trade alliances between nations impact the growth and health of the Triangle’s economy? 81% said it would have a positive impact.
  • What are your expectations of real estate values in 2017? 74% expected values to rise.
  • Who will win the Super Bowl? A close call between the Green Bay Packers at 33% of the vote, and the New England Patriots at 30%.

A cocktail reception followed. Sponsors for the NAI Carolantic Conference included Bobbitt Design Build; Celito.net; DMJ & Co., PLLC; JDavis; Manning, Fulton & Skinner, P.A.; TriSure; Wells Fargo and WithersRavenel.

2017 NAI Conference Cocktail Reception

Highlights of Mr. Barnes’ commercial real estate presentation:

Barnes reviewed the past year’s commercial real estate landscape and offered NAI Carolantic’s forecast for 2017.

In a market with over 274 million square feet of office, multipurpose and shopping center space, approximately 22 million square feet remained vacant at year-end, per NAI Carolantic’s survey and analysis.

Barnes reported that overall office market vacancy rose to 11% in 2016, a 1% increase over 2015. The Multipurpose market also saw a slight rise in vacancy from 8% in 2015 to 9% in 2016. But Shopping Center vacancy dropped a point, reaching a healthy low of 2% with approximately 846,000 square feet under construction.

Overall, approximately 2 million square feet were absorbed in the Triangle commercial market, with roughly 4.2 million square feet of office, multipurpose and shopping center space now under construction for the first quarter of 2017. The apartment market continued its robust growth in 2016, but NAI Carolantic does not anticipate absorption to keep up with supply, and expects a slight vacancy increase to 7% by the end of 2017. The single-family homes market also remained strong with another 10% annual increase in sales and historically low inventory. This trend is expected to continue throughout 2017.


2017 Forecast and Category Summaries:

2017 Investor Outlook for Land

  • Growing demand for office and hotel sites in downtown and suburban areas
  • Continued high demand for suburban residential land
  • Northeast and East Wake County residential tracts gaining more attention
  • Developer interest for multifamily land beginning to slow down
  • Continued demand for well-located and well-priced warehouse land
  • Higher retail demand due to grocery store chains’ aggressive growth plans

2017 Investor Outlook for Income Property

  • Pricing starts to level off
  • Money is available, but core properties remain hard to find
  • Continued interest in the 18-hour markets
  • Industrial sector remains in favor
  • Office investment slows in 2017
  • Cap rates trend upward following interest rate hikes
  • Another good year, just not as robust

Summary: NAI Carolantic’s research showed area-wide vacancy in the office category increased from 10% in 2015 to 11% in 2016. The multipurpose category—which includes warehouse, industrial and flex space—also saw a rise in vacancy from 8% in 2015 to 9% in 2016. Shopping center vacancy dropped slightly from 3% in 2015 to 2% in 2016. The office category expects 2 million square feet to be constructed in 2017, and multipurpose looks for 1.2 million square feet of new construction. Shopping centers have 846,000 square feet underway, with most being built in the Cary/Morrisville/Apex and North Raleigh/Wake Forest submarkets.

Absorption was generally positive in 2016 except for the office category, which dropped from 3% in 2015 to 0% in 2016. The multipurpose category also dropped from 3% in 2015 to 1% in 2016. The shopping center category improved in 2016, going from 1% to 2% absorption by year end.

Multipurpose: The Research Triangle submarket had the highest vacancy for warehouse/industrial space during 2016 at 11%. This was an increase from 6% the previous year. Overall, with approximately 1.2 million square feet of new construction underway, absorption is expected to remain positive into 2017.

Office: As in the past several years, the Research Triangle submarket had the highest office vacancy at 17%. This equates to 3.3 million square feet of available space. Downtown Raleigh vacancy remained at 11%. Absorption in the overall office market was flat. Approximately 2 million square feet of office space is under construction with most taking place in the Downtown Durham submarket.

Shopping Centers: All Shopping Center submarkets were under 4% vacancy for 2016. The Cary/Morrisville area as well as the North Raleigh/Wake Forest submarkets expects to have the most new construction in 2017 with approximately 613,000 square feet. Overall absorption improved from 1% in 2015 to 2% in 2016. Construction will be steady as this category will continue to improve. As we reported in early 2016, the market remained healthy, keeping vacancy low.

Single-Family Housing: The NAI Carolantic’s Housing Momentum Index considers the annual new and pre-owned sales volume, subtracting year-end Multiple Listing Service inventory to track sales momentum. Again in 2016, the Momentum Index rose with the increase in activity. Over 24,440 units were sold in Wake County and inventory dropped to 2,988 units…the lowest level since 1994. According to Barnes, actual home sales were the highest since 2007.

Multi-Family Market: The apartment market was very active in 2016 and vacancy actually dropped from 7.7% in 2015 to 6.1% in 2016. Over 6,733 units are under construction with an additional 5,151 proposed according to Real Data Apartment Market Research Report. Barnes predicts vacancy will go to 7% in 2017 indicating demand will not be able to keep up with supply.

Hotel Market: According to the Greater Raleigh Convention and Visitors Bureau, there has been an increased interest in building new hotels in the Raleigh area. Hotel occupancy in Wake County for 2016 was 71.2%, the highest in over ten years. The average daily rate rose slightly to $101.20, also the highest level in over ten years. During 2016, two hotels were built in Wake County, adding 189 rooms. Seven more hotels are due to open in 2017 to add an additional 915 rooms.

Durham County had two hotels to open in 2016 adding 171 rooms. According to Shelly Green, President & CEO of the Durham Convention & Visitors Bureau, three more hotels are scheduled to open in 2017 adding another 273 rooms.