2023 Triangle Market Overview and 2024 Forecast: OFFICE

February 16th, 2024

Office Trends and OutlookRyan Gaylord NAI Tri Properties photo

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 2023 to activities we anticipate in 2024.

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, investment sales, retail, flex, and warehouse.

What are the key market drivers? How have the different real estate sectors performed?

Key market drivers for this area that influence office space needs are the prevalence of remote work, population growth, quality of life, cost of living, proximity to healthcare and world-class collegiate institutions, and notoriety of the Research Triangle Park. Although remote work is typically viewed negatively, one could put a positive spin on it in that this area had a huge influx of people who, when given the opportunity to work remotely, opted to move to Raleigh. The net result is that a lot of people live here now but might work remotely for another company elsewhere. If those companies end up laying off remote workers, that would result in this area being rich in talent to back-fill any open positions locally.

Office continues to lag behind the other sectors from an overall deal activity perspective, but we continue to see improvement quarter after quarter. Remote work has a negative impact on office leasing volume. Still, certain industries (i.e., engineers, law firms, real estate related, and other professional service firms) are largely, if not entirely, back in the office, which has helped maintain a certain threshold of in-office workers in the area. Pharma (non-lab users) and Technology companies, in particular, continue to embrace the work-from-home mentality, which has greatly impacted office utilization.

What was unique about 2023? And were there any milestones for this property type?

Deal size and deal velocity continued to increase. We are not back to where we were pre-pandemic, but this market continues to be resilient, and companies continue to view this area as an attractive place to work and recruit future employees.

After countless quarters of increases in total sublease space on the market, that figure finally topped out and actually dropped. This is a positive sign. Some of this is due to sublease expirations hitting the end of the natural lease term, but others were due to subleases getting signed and/or tenants re-occupying the space previously marketed for sublease.

Who were the big “winners” in this property type?

The “winners” were those landlords who had the foresight to invest in common area amenities and, in some cases, the lucky ones who timed the delivery of new, nicer buildings at a time when flight to quality was still the trend. The newest, nicest buildings, which were highly amenitized, continued to see good leasing activity.

Do you see any new emerging trends?

“Flight to quality” continues to be a trend, as well as companies right-sizing their space needs after adjusting to the new norms of daily in-office attendance. I think well-located suburban continues to do well while urban/downtown office markets continue to lag in overall leasing activity. Growth will continue to occur in suburban areas that are well-located with nearby amenities. Nodes such as North Hills and other mixed-use projects should continue to be attractive to companies moving into the area.

What do you anticipate for 2024?

I predict we’ll see more and more companies pressing to bring employees back to the office. There are a lot of notable blue-chip companies that are being vocal about this now, and I expect those trends to continue.

Where do you see opportunities in your property type for Raleigh, Durham, and the greater Triangle?

For office tenants, there are still great opportunities to secure favorable concession packages from owners. On the investor/owner side, there will be buying opportunities to scoop up properties with high vacancies for a discount. Just like anything else, the current office market is cyclical. For those willing to take on a Class B and C type building project, retrofit, add amenities, and have the patience to see the re-lease-up process through, there will be some good opportunities to create value and turn a profit some years down the road.

In our market, what challenges are there in this property type?

Class B and C properties will continue to struggle. The “flight to quality” trend is resulting in companies rolling out of larger footprints into smaller spaces, many times in newer, nicer properties. This leaves some of the older properties with high vacancies that have to be addressed in some way.

What factors are you seeing drive CRE decisions in this property type?

Some hungry landlords are really rolling out the red carpet for tenants. Landlords generally are not budging much off rates, but they offer higher than typical TI allowances and free rent packages to entice tenants to move forward with leases.

What do you love about working with this property type?

Each deal and tenant is different, and each deal has its own set of unique challenges that we have to overcome. It has been fun to learn and observe, alongside our clients, industry peers, etc., workplace preferences, trends, and how those have evolved over the past few years. Each industry is different, and each firm is unique in how it deals with its teams and coming into the office.


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