Press Releases

NAI Carolantic Realty Reports a Healthy Market for 2016

RALEIGH, NC - January 22, 2016 - Nearly 1,800 business, government and community leaders, including Governor Pat McCrory, 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.

The event was the 31st 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 health.

“If you want to know what businesses are going to do in the coming year, activity in commercial real estate is the most credible indicator of their intentions, and that of investors,” notes Jimmy Barnes, President of NAI Carolantic, “Will they expand? Retrench? Hold the course? The commercial real estate sector tells you months ahead of anything else.”

After urging conference attendees to stay off the roads if the predicted winter storm materializes, special guest N.C. Governor Pat McCrory took the opportunity to rally support for the Connect NC bond referendum on the March 15 ballot. The $2 billion, 20-year bond is intended to fund statewide investments in education, parks, safety, recreation, and water and sewer infrastructure.

“We’ve got challenges ahead, but they are growing pains instead of dying pains,” McCrory said, drawing a contrast to the years following the 2008 financial collapse.

Consumer spending, not the stock market, accurately reflects the health of the U.S. economy, and spending is strong and trending upward. That was the message from guest speaker Sarah Quinlan, Senior Vice President of Market Insights for MasterCard Advisors, “Who dominates the Dow 30?” Quinlan asked. “Exporters. It’s not about exports.”

Jimmy Barnes, President of NAI Carolantic, delivered a recap of commercial real estate market activity in 2015 and offered guarded but generally positive predictions for the coming year.

“We start 2016 with vacancy at a 15-year low in all product categories,” Barnes said. “Be cautious, but the next 24 months look good for the commercial real estate market.”

Barnes offered up several supporting statistics, including the most single family home sales since 2007, a Cary office market with vacancy at an unprecedented low of 8%, positive absorption in downtown Raleigh despite strong new construction, vacancy rates in the multipurpose/warehouse market at a record low, and industrial markets benefitting from "insourcing" as manufacturers move record numbers of jobs back to the United States,

However, Barnes cautioned that vacancy in the apartment market would likely rise in 2016 after a year of record absorption. “I don't think the market can sustain supply side pressure in 2016,” he said.

Speaking to the “A Modern Renaissance” conference theme, NAI Carolantic Realty Chairman Stephen Stroud spoke to the trends and changes reshaping the Triangle area.

“The original Renaissance saw an explosion of learning and knowledge,” Stroud said. “With our region’s wealth of universities, the Research Triangle Park, growing numbers of technology clusters and centers for innovation, the Triangle truly is experiencing an economic and cultural Renaissance. Much of this transformation is being driven by the 80 million people sometimes referred to as the Millennial Generation.”

Drawing on insights gleaned from analyzing billions of cash, check and credit card transactions, Quinlan offered guidance to Triangle developers and investors on what to expect from consumers. In the post-recession economy, consumers are seeking shorter commutes and more intimate and unique shopping and dining experiences. Consumers are starved for time, Quinlan said, and retailers and developers who save them time will be rewarded for it.

Jay Olshonsky, 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.

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

  • What is your primary concern regarding growth for the Triangle? Almost 50% said transportation, followed by 22% on political/government influence.
  • Will your business be spending/investing more in 2016? Eighty percent indicated they would be with 45% of those primarily on capital goods.
  • What are your expectations of real estate values in 2016? Over 75% indicated values were rising.
  • If you were to invest in the Triangle commercial real estate market, which three product types would be most appealing to you? 69% indicated office, followed by raw land, then industrial/warehouse.
  • On a demographic question, how would you classify yourself? Approximately 41% indicated they were Baby Boomers, followed by 41% Gen X (1965-1980). then 17% millennials.
  • Who will win the Super Bowl this year? Over 75% indicated the Carolina Panthers.

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

Barnes reviewed the past year’s commercial real estate landscape and offered NAI Carolantic’s forecast for 2016.

NAI Carolantic’s survey and analysis showed that, in a market of over 265 million square feet of office, multipurpose and shopping center space, approximately 20 million square feet remained vacant at year-end.

Office market vacancy dropped three points from 2014 to end 2015 at a healthy 10%, Barnes said. The Multipurpose market also saw a drop in vacancy from 11% in 2014 to 8% in 2015. Shopping Center vacancy dropped one point to a healthy low of 3% with approximately 850,000 square feet under construction. Overall, 6.1 million square feet were absorbed. Approximately 3.3 million square feet of office, multipurpose and shopping center space are now under construction for the first quarter of 2016. The apartment market continues its robust growth, but NAI Carolantic does not anticipate absorption to keep up with supply forcing vacancy to increase slightly to 8% by the end of 2016.

Highlights of Mr. Barnes’ commercial real estate presentation:

2016 Forecast and Category Summaries:

2016 Investor Outlook for Land

  • Word of the year for land is “Urbanism”…demand in Downtowns is on fire
  • Pricing in Central Business Districts are currently in the $120 to $140 psf range
  • Timing is the new negotiation tactic…close quick wins the deal (higher risk)
  • Western Wake seeing a slowdown in transactions due to lack of inventory and political pressure
  • Retail land still hot as Wegmans, Publix, ALDI, Sprouts, and Harris Teeter are active. Tenant determines the land pricing
  • Office land demand has increased with major large users wanting space with walkable amenities
  • Fringes still best places for investment, but prices are up since last year.

2016 Investor Outlook for Income Property

  • Much of the same- still a lot of liquidity in the market
  • Money continues to flow – 25% increase over the last year - equal amount in 2016
  • Second tier “18 hour” markets remain attractive as investors are shut out of “24 hour” major markets like New York City, Chicago, Dallas and Los Angeles.
  • Multifamily and warehouse are still the shining stars
  • Office is always popular – just hard to find
  • Minimal uptick in interest rates will have little impact
  • Apartment market cools – supply side and potential lending challenges
  • Ground-up development provides opportunities – especially in the multipurpose/warehouse sector

Summary: NAI Carolantic’s research showed area-wide vacancy in the office category dropped from 13% in 2014 to 10% in 2015. Shopping center vacancy dropped slightly from 4% in 2014 to 3% in 2015. The multipurpose category which includes warehouse, industrial and flex space also saw a drop in vacancy from 11% in 2014 to 8% in 2015. The office category expects 1.1 million square feet to be constructed in 2016, and multipurpose looks for 1.4 square feet of new construction. Shopping centers have 847,000 square feet underway with most being built in the Cary/Morrisville/Apex and North Raleigh submarkets.

Absorption was positive in all the categories during 2015. The office market improved from 2% in 2014 to 3% in 2015. The multipurpose category also improved slightly from 2% in 2014 to 3% in 2015. The shopping center category remained the same for 2015 at 1%.

Multipurpose: The Durham-Chapel Hill submarket had the highest vacancy for warehouse/industrial space during 2015 at 11%. This was a slight improvement over 2014 which was 14%. Vacancy in the RTP submarket dropped from 11% in 2014 to 6% in 2015. Overall, with approximately 1.4 million square feet of new construction underway, we expect absorption will remain positive into 2016.

Office: As in the past several years, the Research Triangle submarket had the highest office vacancy at 16%, however this was a drop from the 19% reported in 2014. This equates to almost 3 million square feet of vacancy. Downtown Raleigh had the next highest vacancy at 11%. Absorption in the overall office market did improve slightly to 3% in 2015 over the 2% reported in 2014. Approximately 1.1 million square feet of office space is under construction with most taking place in the Suburban Raleigh submarket.

Shopping Centers: All Shopping Center submarkets were under 5% vacancy for 2015. The Cary/Morrisville area as well as the North Raleigh/Wake Forest submarkets expects to have the most new construction in 2016 with approximately 850,000 square feet. Overall absorption stayed the same in 2015 at 1%. Construction will be steady as this category will continue to improve. As we reported in early 2015, 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 2015, the Momentum Index rose with the increase in activity. Over 22,000 units were sold and inventory dropped to just under 3,200 units…its lowest point since 2000. According to Barnes, home sales are the highest in eight years.

Multi-Family Market: The apartment market was very active in 2015 and despite over 5,000 units being added, vacancy actually dropped from 7.7% in 2014 to 7.2% in 2015. Over 4,800 units are under construction with an additional 7,200 proposed according to Xceligent/Karnes. Barnes predicts vacancy will go to 8% in 2016 indicating demand will not be able to keep up with supply. Special thanks were given to the Triangle Apartment Association and Xceligent/Karnes for providing information on the apartment market.

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 2015 was 71.3% an improvement over the 69.1% in 2014. The average daily rate rose slightly to $95.74, the highest level over the past ten years. During 2015, four hotels were built in Wake County, adding 540 rooms. Three more hotels are due to open in 2016 to add an additional 350 rooms.

Durham County also had four hotels to open in 2015 adding 457 rooms. According to Shelly Green, President & CEO of the Durham Convention & Visitors Bureau, five more hotels are scheduled to open in 2016 adding another 594 rooms.

About NAI Carolantic

NAI Carolantic has played crucial backstage roles in the Triangle’s defining moments—from the creation of the PNC Arena and the Carolina Hurricanes to the re-opening of Raleigh’s Fayetteville Street to the development Crossroads Mall—to name only a few.

For more than 40 years, NAI Carolantic has been the leader in Triangle commercial real estate, and our annual commercial real estate conference has established us as the region’s most authoritative source of verifiable market data on commercial real estate.

While our region’s economic development units and chambers of commerce work tirelessly to make the Triangle a preferred destination for businesses and workers, NAI Carolantic ensures that interested parties can access the market intelligence and real-time data to make smart decisions, and provides unmatched guidance and service to landlords, investors, tenants and shareholders.

< Return to Press Releases

NAI Carolantic is the area’s leading commercial real estate firm with eighteen brokers, a full-service property management division, as well as an experienced marketing and research division. Established in 1972, NAI Carolantic is a member firm of NAI Global, the world’s premier network of commercial real estate firms and one of the largest real estate service providers worldwide. NAI has over 6,700 real estate professionals in over 375 offices around the world with regional management, global infrastructure, best practices and technology to provide clients with consistent, quality results.