NAI Carolantic Realty Reports a Year of Recovery
January 16, 2014
Manning Fulton is proud to sponsor the Annual NAI Carolantic Commercial Real Estate Conference. Information shared at the event is provided in the press release below issued by NAI Carolantic Commercial Real Estate Services.
NAI Carolantic Realty Reports a Year of Recovery
RALEIGH, NC – Wednesday, January 15, 2014 – As they predicted for 2013, NAI Carolantic reported all product categories were recovering well and we can expect to see continued improvement in 2014. The office market had over 1.6 million square feet under construction, the highest annual starts since 2008. The office and industrial markets absorbed over four million square feet in 2013, compared to just 177,000 square feet in 2008. Shopping center vacancy was the second lowest in ten years. “Overall the commercial real estate market is performing well with continued room for upward growth,” said Jimmy Barnes, SIOR, President of NAI Carolantic. That was the message to more than 1,700 business and community leaders who gathered at Raleigh's PNC Arena Wednesday for the 29th Annual Triangle Commercial Real Estate Conference hosted by NAI Carolantic Realty. The Conference is considered the authoritative “state of the market” report on the Triangle’s real estate sector, and general health of the region's overall economy.
In keeping with NAI Carolantic’s theme, A World of Opportunity, Steve Stroud, SIOR, Chairman of NAI Carolantic, welcomed attendees and asked everyone to scan a QR code on their program card to answer seven business-related questions. Among the questions, the attendees were to indicate which issue concerned them most on a local, national and international level. The results were shown less than 30 minutes later.
Stroud said when NAI Carolantic held its first Conference 29 years ago, reliable property and market information was difficult to acquire and rarely shared. “We set out to change that by becoming the first brokerage firm in the Triangle to disseminate highly–researched data. Today, despite living in a technology-driven era, we stay focused on the fact that real estate is still a local, relationship business.” Stroud also commented that the Triangle has long been recognized in the US as one of the top regions in the country for jobs, business, our universities, and our quality of life. “When we selected the theme of our Conference “A World of Opportunity,” we were pointing to a new reality. Those same outstanding qualities of our region are now bringing us global attention. Our playing field has gotten bigger, and our play book needs to grow with it.”
Following Stroud’s comments, he introduced Jay Olshonsky, President of NAI Global, the world’s largest commercial real estate network, who spoke about the capabilities and expertise required to work effectively across borders, across oceans, and across cultures.
After Olshonsky’s comments, Barnes took center stage and provided the results of the survey taken earlier by attendees:
- Does your company operate or have customers outside the US? 58% indicated yes.
- Do you plan to expand to additional countries? 48% indicated yes.
- Locally, will your company be hiring more people in 2014? 84% indicated yes
- Selecting one issue, what concerns you most on a local level as we move into 2014? Top issues: 33% indicated public education. 22 % were concerned about business/property taxes.
- Selecting one issue, what concerns you most on a national level as we move into 2014? Top issues: 53% said national debt. Next was Healthcare/Obamacare at 26%.
- Selecting one issue, what concerns you most on an international level as we move into 2014? Top issues: 50% noted international conflicts/civil wars/terrorism. Tied at 16% were trade gap and intensifying cyber threats.
- Finally, if you were to invest in the Triangle commercial real estate market, which three product types would be most appealing to you? 59% selected senior housing, followed by 47% selecting apartments, and 31% with raw land.
Barnes then proceeded to review the past year’s commercial real estate landscape and offered NAI Carolantic’s forecast for 2014. “Investors will continue to flock to the Triangle region as core properties in 24-hour cities are scarce. Expect another year of unprecedented investment activity. Overall, the commercial real estate market is performing well,” said Barnes.
NAI Carolantic’s survey and analysis showed that, in a market of over 252 million square feet of office, multipurpose and shopping center space, approximately 26 million square feet remained vacant at year-end. “Office market vacancy remained the same at 14%, and multipurpose dropped from 13% to 11%. Shopping centers experienced the second lowest vacancy level in ten years at 4%. Overall, over 4.8 million square feet were absorbed. Over 2.5 million square feet of office, multipurpose and shopping center space are now under construction for the first quarter of 2014. The apartment market continues its robust growth. Historical strong absorption will continue, but will not keep up with supply forcing the largest one year increase in vacancy in the last ten years,” said Barnes.
Following Barnes’ presentation, he introduced invited guest speaker Dr. Peter Linneman, NAI Global Economist, CEO of the American Land Funds as well as the founding principal of Linneman Associates. He is Professor Emeritus of Real Estate at the Wharton School of Business, the University of Pennsylvania where he served for 32 years. He holds both Masters and Doctorate degrees in Economics from the University of Chicago. The third edition of his book, Real Estate Finance and Investments: Risks and Opportunities, has been adopted at over 80 leading universities. His quarterly report called The Linneman Letter forecasts employment growth and examines how macroeconomic factors influence real estate markets.
Linneman provided insight into the national economy's recovery process, as well as offered his outlook for 2014. Outlining his view of the economy, Dr. Linneman said, “In five years, a lot of today’s economic uncertainty will be answered and that will massively help growth.”
2014 Forecast and Category Summaries:
Highlights of Mr. Barnes’ commercial real estate presentation:
2014 Investor Outlook for Land
- Raw land continues to be in demand
- National builders have full inventories
- Lending improves for smaller, local developers getting back in the game
- As land prices increase and impact home prices, outlying communities are becoming active again
- Western Wake County, Cary and Apex are in the highest demand
- Best apartment sites are still at a premium
- Industrial/office land sees improvement with users and talk of speculative development
- Retail sector continues to improve
2014 Investor Outlook for Income Property
- As long as interest rates stay low, investor dollars will be looking beyond the bond market for better returns
- Trophy properties provide that alternative and are still in demand but availability is limited
- Therefore, a continued interest in second-tier markets – and Raleigh/Durham leads the way
- Investment activity will increase another 40%
Summary: NAI Carolantic’s research showed area-wide vacancy in the office category remained at 14% for 2013. Shopping center vacancy dropped from 5% to 4%, and the multipurpose category dropped from 13% to 11% in 2013. The multipurpose category includes warehouse, industrial and flex space. The office category expects 1.6 million square feet to be constructed in 2014 with 225,000sf of new construction in the multipurpose category. Shopping centers have 667,000 square feet underway with most being built in the Cary/Morrisville submarket.
Absorption was positive in all the categories during 2013. The office market went from 2% to 1% year-end. The multipurpose category remained at 3% for 2013. The shopping center category dropped slightly to 1% in 2013, absorbing almost 800,000sf.
Multipurpose: The South Raleigh-Garner-Fuquay submarket had the highest vacancy for warehouse/industrial space during 2013 at 17%. This was a slight increase from 16% in 2013. Durham-Chapel Hill followed at 15% vacancy. Despite the high vacancies, no submarket had negative absorption. Despite having the largest amount of sublease space, vacancy in the RTP submarket was in single digits and at its lowest point in over ten years. With approximately 225,000 square feet of new construction underway overall, we expect absorption will remain positive into 2014.
Office: As in the past several years, the Research Triangle submarket had the highest office vacancy at 22% which equates to 3.6 million square feet. This is an increase over the 19% vacancy reported in 2013. Cary as well as the Suburban Durham/Chapel Hill submarkets followed at 13% vacancy. The Downtown Raleigh submarket had the strongest absorption at 5%. Over 1.6 million square feet of office space are under construction with approximately 400,000 in the Cary submarket for MetLife.
Shopping Centers: Once again, the East Raleigh submarket had the highest shopping center vacancy during 2013 at 11%. The Cary/Morrisville area expects to have the most new construction in 2014 with just over 571,000 square feet, primarily in the Parkside Town Commons mixed-use project. Absorption was strong in most submarkets from 1 to 2%. Construction will be steady as this category will continue to improve. We believe absorption will keep up with construction and vacancy will remain around 4%.
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 2013, the Momentum Index rose with the increase in activity. Just over 18,000 units were sold and inventory dropped to just under 4,000 units…its lowest point since 2000. Construction is up 10% with average home prices up 3.8%. Growth continues as total volume of sales is up 30%, and listing time is down 19%. According to Barnes, construction activity will increase in 2014 and especially in outlying areas.
Multi-Family Market: The apartment market was very active in 2013 with vacancy at 5.9%. The highest reported vacancy was ten years ago when the rate reached 11.5%. Just over 9,000 units are under construction with an additional 11,000 proposed according to Karnes Research Company. Barnes predicts vacancy will go to 8% in 2014, the largest one year jump since 2001. Special thanks were given to the Triangle Apartment Association and Karnes Research Company 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 2013 was 64.6%, the highest level since 2006. Theaverage daily rate rose slightly to $86.71. During 2013, three hotels were built in Wake County, adding 278 rooms. Four more hotels are due to open in 2014 to add an additional 431 rooms.
Durham County also had three hotels open adding 424 rooms in 2013. According to Shelly Green, President & CEO of the Durham Convention & Visitors Bureau, three more hotels are scheduled to open in 2014 adding another 224 rooms.
NAI Carolantic is the Raleigh/Research Triangle area’s leading commercial real estate firm with seventeen 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 5,000 real estate professionals in over 400 offices around the world with regional management, global infrastructure, best practices and technology to provide clients with consistent, quality results. NAI Carolantic and NAI Global are trusted partners, committed to your long-term success. www.naicarolantic.com www.naiglobal.com
Vice President & Marketing Director
NAI Carolantic Realty, Inc.
Raleigh, North Carolina