February 14th, 2022
Each year, our industry experts evaluate and review the Raleigh, Durham, and greater Triangle commercial real estate market’s annual performance. We share activity and trends from the market data we analyzed and experienced in 2021 to activities we anticipate in 2022.
What are the key market drivers? How have the different real estate sectors performed?
In this segment, we interviewed Jimmy Barnes, SIOR, Executive Vice President to share his thoughts on flex trends.
To learn more about other property types click on office, land, life science, investment sales, retail, healthcare, and warehouse.
The storyline for 2021 was the redevelopment of several large flex projects to the Life Sciences use. This created a higher demand for true Flex projects as existing tenants in these new Life Sciences projects were getting kicked out at lease expiration. As Life Sciences rental rates are significantly higher, this also created a rise in flex rental rates across the board.
Winners in the flex property type were Landlords in 2021, as activity stayed strong and rental rates increased due to the Life Sciences transformation as mentioned before. While it already existed in our market, I don’t know that anyone predicted the Life Sciences growth that we have seen. It developed quickly and is expected to continue.
There continues to be demand for flex space and accordingly, there have been several new developers entering the market. Most notably is Merritt Properties out of Maryland. It has new developments totaling well over a million square feet in RTP, North Raleigh/Wake Forest, Knightdale, and most recently announced in Chapel Hill.
Wigeon Capital also entered the market in the high-growth area of I-40/Hwy 70 in Garner. As there is a lack of inventory in the central Triangle RTP/RDU area and higher prices, Garner is one of the hottest industrial markets benefiting from accessibility and high residential growth as the Triangle expands. Wigeon has half a million square feet planned in Greenfield Business Park at Hwy 70 and I-40.
We expect continued growth in 2022 as Covid has had minimal effect on the flex property type. Many of the tenants are in the service industry where demand is strong in the Triangle.
With continued demand and increasing rental rates, older existing properties create opportunities for owners and investors. Often these older properties are well located and therefore with some updating of the properties, rental rates can be increased as much as 20%, creating a good long-term (and even short-term) investment. Renters looking for financial opportunities will have to look to surrounding communities for rent relief. Properties for sale of this type are scarce, so sellers hold the cards here. There is not a better time to be a seller due to rising construction costs, increasing rental rates, low interest rates, and minimal supply.
Challenges will continue for tenants as there is an overall 8.41% vacancy with several submarkets having no vacancy at all. We are seeing tenants forced to pay higher rates with minimal choices and concessions. Many tenants are also considering alternate locations over their preferred and in some cases waiting for new properties to be delivered.
Developers continue to be faced with increasing construction costs, labor shortages, and supply chain interruptions. As an example, standard items such as loading dock doors can be hard to get quickly.
Demand for this property type is being driven by the population growth in the Region. Many flex tenants service or supply products in the tech industry, construction industry, life sciences, and residential industries.
The flex product type provides the ability to work with many different types of companies each having their own needs within their space.
As you look ahead, planning your CRE goals for 2022, let our real estate advisors help guide you with insider market knowledge and experience.
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