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 Ryan Gaylord, CCIM, SIOR, Executive Vice President of Corporate Services Division to share his thoughts on office trends.
To learn more about other property types click on land, life science, investment sales, retail, healthcare, flex, and warehouse.
Office market activity picked up in 2021 with positive job growth, a decline in sublease vacancy, and net positive absorption of 774,040 square feet. More and more companies, particularly regional and smaller firms, started to get more comfortable with what the new normal looked like and therefore were willing to make commitments to office space decisions.
Those that benefited the most in the office sector were some of the office landlords that capitalized on the incredible interest shown in our market. There were a number of record-setting office sales in the central business districts (Bloc , Captrust Tower and Citrix in Raleigh and Durham.ID in Durham) and in the RTP area with some lab type product (i.e. INQ & The Stitch). Some of the latter were unique in that they were adaptive re-use of older retail centers that were converted to creative office/lab areas and subsequently leased up on a long-term basis and flipped out for record profits in our market.
Some tenants took advantage of the market conditions to secure larger TI packages than I have ever seen in this market in my 16 years in the business. That said, the rents are significantly higher as well, so that is the trade-off.
I can’t say I would have predicted that the office sales would reach quite as high on a per square foot basis as our market achieved this past year, but I’m not overly surprised given the interest in this area at a national and global level.
One emerging trend we have seen in 2021 is we are continuing to see a flight to quality. The nicest newest towers which are rich in amenities are starting to really gain traction, whereas they were ghost-towns during 2020 and those landlords couldn’t “buy” a deal.
I see this trend continuing, but with a limited supply of newer product, the 2nd generation space will start to see a little more action.
My expectation for the Triangle market is that office deal velocity will continue to increase. You are seeing more and more professional services firms (i.e. law firms, engineering firms, etc.) commit to large blocks of space, which is an encouraging break from the only large deals we heard signed in 2020 being those associated with the life science industry. I fully expect life science to continue to grow in our area, but it is healthy for our market to see other industries start to get back into the office lease/absorption game as well.
The opportunities for tenants are at the newly delivered office buildings. These landlords are offering very aggressive tenant improvement packages and free rent to expedite the lease-up that was slowed by the pandemic. There will be an opportunity to capitalize on those, while they last. For landlords, if you take note of the amenities that are attracting tenants to the new towers, and analyze how to add amenities to older office product, that should position those landlords to compete well for tenants.
For sellers, the market is hot, so it’s a great time to evaluate your short and long-term plans. People are bullish on the Triangle’s office market and the expected come-back, so that puts sellers in the driver seat to make good returns on their investments. Also, there are some buy opportunities out there if you look, at our market compared to the competitor peer markets of Austin, Boston, & California. We are still a relatively inexpensive office option when compared to those other markets, which still presents good opportunities for those trying to get a foothold in this area from an investment perspective.
There are plenty of companies, particularly larger global ones, that are still trying to figure out the right “back-to-office” strategy. There are so many new dynamics at play with this pandemic it is difficult for global companies to make decisions. This is where more nimble organizations are better equipped, in many cases, to put in place a back-to-office strategy that works.
All companies are different and have various factors involved that drive decisions on whether or not to keep office space, go remote, do a hybrid approach, etc.
The pandemic has forced all companies to evaluate their overall real estate strategies inclusive of weighing costs vs. potential savings, analyzing space utilization metrics, employee preferences, and ultimately what is best for the long-term well-being of the company. The interesting takeaway from some of the biggest companies in the world is that those executives believe that “in office work” is a very important aspect of maintaining culture, continuing to innovate, and grow as an organization. While plenty of companies have right-sized their space needs over the past 24 months via restructures and subleases, what is exciting for this area is that two of the largest companies in the world, Apple and Google, have decided to double down on in-person office space in the Raleigh-Durham, NC market. That is a huge endorsement for this area and gets me very excited for the future growth and health of the office real estate market moving forward.
As you look ahead, planning your CRE goals for 2022, let our real estate advisors help guide you with insider market knowledge and experience.
Contact info for all our professionals can be found at
Access our full market reports here