March 1st, 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 Greg Sanchez, SIOR, CEO to share his thoughts on investment sale trends.
To learn more about other property types click on office, land, life science, retail, healthcare, flex, or warehouse.
2021 saw an influx of out-of-state (and even out of the country) investors coming to this market. This, combined with extremely low interest rates, led to record sales prices across property types. Every sale seemed to break a previous record. One notable sale was the Bloc83 transaction in downtown Raleigh. City Office REIT of Canada purchased the multi-tower, mixed-use development for $330 million, representing the largest single real estate transaction in Downtown Raleigh history.
Sellers were the big winners in 2021. Nearly every marketed sale was getting multiple competitive offers, with sellers able to dictate sale terms to potential buyers. In off-market transactions, many sellers were still able to achieve and exceed pricing goals.
The industrial property sector saw record low cap rates, with some properties trading at a sub 4. These low cap rates have forced some institutional investors to move to the office sector, where they could achieve a more significant upside.
Investors looking to purchase office buildings were also winners in 2021. The office investment market was relatively cool to start in 2021; therefore, some investors were able to purchase office buildings at an attractive price. As more people return to the office, we expect the sales price of office buildings to continue to rise.
This isn’t a “new” trend, but Raleigh-Durham is exceptionally well positioned for continued growth and continued investment well into the future when compared to other markets. Every day it seems like a new company is announcing a move to the Triangle. While historically low for most asset classes in our market, cap rates are still higher in the Triangle than in first-tier markets such as NYC or LA, which will continue to attract outside investors.
Although interest rates are projected to increase, this will not in the short-term affect institutional buyers’ interest in this area nor their capability to purchase aggressively. We anticipate that the trends of 2021 will continue into 2022. Interest rates are beginning to tick up, but the Raleigh-Durham market is extremely well positioned for continued growth. Investors will benefit from rising rental rates as well as rising construction costs.
Buyers with a long-term investment strategy will be well positioned to take advantage of the changing market. Rising rental rates coupled with rising construction costs will bode well for investors.
The Triangle investment sales market has been highly competitive over the past 12 to 18 months. Several challenges investors will face include increased competition of buyers as more money has been attracted to our market, more buyers than sellers, difficulty finding value add properties, and extremely low cap rates.
We have seen buyers looking to combat these challenges by coming out with aggressive offers in order to win deals as well as seeking off market opportunities.
Most CRE decisions are being driven by future market outlook. As investors are confident in the long-term values of most asset classes, sellers are able to achieve record pricing, as buyers are betting on the future.
No two deals are the same. We are always learning, solving new problems, and figuring out ways to maximize value for our clients. It’s essential to be flexible in the face of an ever-changing market.
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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