Research & Forecast Report RALEIGH-DURHAM | INDUSTRIAL Q3 2016 Strong Q3 Positions Triangle Industrial Market for Healthy 2016 Finish Emily Bostic Research Associate | Raleigh-Durham Key Takeaways > Average asking rental rates have continued to rise in response to increasing demand and low supply in the Triangle. The remaining 550,000 + square feet of industrial space that is expected to deliver has significant prelease commitments creating an intense environment for tenants looking for space. > The Triangle’s overall year-to-date total net absorption reached 604,904 square feet during the third quarter of 2016. Due to lack of available space in the market, net absorption is well below the total net gain that was reported in 2015. > The Raleigh-Durham region should expect to see the pace of increased demand continue to climb well into 2017 which in turn will keep vacancies on the decline. > Investment sales volume among both warehouse and flex markets continues to rise in the Triangle region. In response to increasing asking rates, investors should expect rising prices in the fourth quarter and into 2017. Total sales activity among the Triangle’s industrial market was $170.9 million at the end of the third quarter. Market Overview As of August 2016, the Triangle unemployment rate was reported at 4.4%, 0.5% lower than the national unemployment rate. Wake County added 2,795 jobs (in 14 new companies and 28 expanding companies) adding a total investment of $224,100,000 from January 1, 2016 to September 30, 2016. Raleigh was recently named #3 Best City for Jobs and the #2 Hottest Spot for Tech Jobs in September’s Forbes magazine. Raleigh is home to over 500 startup companies and in the last three years alone, startups in Raleigh have raised over $300 million in venture capital investment. Summary Statistics Q3 2016 Regional Industrial Market Raleigh Durham Flex Market Raleigh Durham Warehouse Market Vacancy Rate 9.6% 3.8% Change From Q3 2015 (basis points) -0.5 1.9 YTD Absorption (Square Feet) (436,195) 728,262 Under Construction (Square Feet) 74,978 481,000 Deliveries (Square Feet) 51,679 115,500 Total Square Feet 27,2768,722 41,837,816 Asking Rents Per Square Foot Per Year Average Quoted $13.22 FSG $5.01 NNN Change from Q3 2015 $1.47 $0.43 Market Indicators Relative to prior period Raleigh-Durham Q3 2015 Raleigh-Durham Q3 2016 VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE
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Research & Forecast Report
RALEIGH-DURHAM | INDUSTRIAL Q3 2016
Strong Q3 Positions Triangle Industrial Market for Healthy 2016 Finish Emily Bostic Research Associate | Raleigh-Durham
Key Takeaways > Average asking rental rates have continued to rise in response to increasing demand and low supply in the Triangle. The remaining 550,000 + square feet of industrial space that is expected to deliver has significant prelease commitments creating an intense environment for tenants looking for space.
> The Triangle’s overall year-to-date total net absorption reached 604,904 square feet during the third quarter of 2016. Due to lack of available space in the market, net absorption is well below the total net gain that was reported in 2015.
> The Raleigh-Durham region should expect to see the pace of increased demand continue to climb well into 2017 which in turn will keep vacancies on the decline.
> Investment sales volume among both warehouse and flex markets continues to rise in the Triangle region. In response to increasing asking rates, investors should expect rising prices in the fourth quarter and into 2017. Total sales activity among the Triangle’s industrial market was $170.9 million at the end of the third quarter.
Market OverviewAs of August 2016, the Triangle unemployment rate was reported at 4.4%, 0.5% lower than the national unemployment rate. Wake County added 2,795 jobs (in 14 new companies and 28 expanding companies) adding a total investment of $224,100,000 from January 1, 2016 to September 30, 2016. Raleigh was recently named #3 Best City for Jobs and the #2 Hottest Spot for Tech Jobs in September’s Forbes magazine. Raleigh is home to over 500 startup companies and in the last three years alone, startups in Raleigh have raised over $300 million in venture capital investment.
2 Raleigh-Durham Research Report | Q3 2016 | Industrial Market | Colliers International
Absorption & Leasing Activity > Total year-to-date net absorption of 604,904 SF was reported in the industrial market at the close of the third quarter 2016, sustaining a four year steady increase in total net absorption in the Triangle.
> Johnston County led the warehouse sector in the year-to-date net absorption of 339,202 SF that was occupied at the close of the third quarter. The Northeast Wake county submarket didn’t fall far behind, posting year-to-date net absorption totals of 173,079 SF.
> Northeast Wake County experienced the most positive year-to-date flex absorption at the close of the third quarter with a combined 130,888 SF. The Southern Wake county submarket also reported strong year-to-date flex absorption totals with 77,134 SF leased in the third quarter.
> The largest tenant gain in the Triangle’s industrial market during the third quarter was Amazon’s occupancy of 324,838 SF at CenterPointe I in the RTP | I-40 submarket.
> USPS also occupied 126,136 SF at Research Tri-Center North, also located in the RTP-I-40 submarket during the third quarter.
Vacancy & Availability > The overall industrial vacancy rate in the Raleigh-Durham market for the third quarter was reported at 5.0% with just over 5.1 million SF of total inventory reporting vacant.
> Over 2.6 million SF of flex space was reported vacant during the third quarter of 2016. The flex vacancy rate of 9.6% continues to stabilize after the downsizing of GlaxoSmithKline’s Research Triangle Park campus in the previous second quarter 2016.
> In the third quarter, 1.5 million SF of warehouse space was reported vacant, resulting in a 3.6% vacancy rate. This rate was down almost 4 percentage points from the beginning of 2015.
> Year-to-date warehouse vacancy was reported at 3.7%, down from 4.2% in 2015. Overall year-to-date flex vacancy was reported at 9.7% in the Triangle during the third quarter.
Rental Rates > The average quoted rental rate for the overall industrial market was $7.04 per square foot at the end of the third quarter 2016, which represents a $0.73 increase since the end of the third quarter 2015.
> The average full service rental rate in the Triangle’s flex sector was $13.22 per square foot, up from $10.45 reported at the beginning of 2015. Flex rents will continue to rise as the Triangle’s office market continues to put increasing rental pressures on tenants, creating a push towards flex office space.
> The overall NNN rental rate in the Triangle’s warehouse sector was $5.01, up $0.43 from the third quarter of 2015.
Source: Colliers Research, CoStar Group
Source: Colliers Research, CoStar Group
0.0%
2.0%
4.0%
6.0%
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10.0%
12.0%
0
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2012 2013 2014 2015 YTD
Absorption Vacancy
Historical Absorption and Vacancy
Average Asking Rates by Market Type
Source: Colliers Research, CoStar Group
$-
$2.00
$4.00
$6.00
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$10.00
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2012 2013 2014 2015 YTD
Warehouse
Flex
Bulk
Flex
Warehouse
Bulk
FlexVacancy % =
7.9
BulkVacancy % =
7.4
WarehouseVacancy % =
7.4
Triangle Vacancy by Industrial Property Type
3 Raleigh-Durham Research Report | Q3 2016 | Industrial Market | Colliers International
Tri-Center III & IV RTP | I-40 Warehouse 272,400 $10,200,000 $38.00 Trinity Capital
*NOTE: Part of portfolio sale.
Investment Activity & Construction > The overall Triangle industrial market reported a total of 1,157,424 square feet in construction starts at the close of the third quarter. Year-to-date construction totals were over 1.2 million SF in 15 new buildings. The largest development that is currently under construction is in the Southeast Wake County submarket at the Greenfield North Parkway building. The property will add an additional 151,000 SF of new industrial space in the second quarter of 2017.
> Total sales activity among the Triangle’s industrial market was $170.9 million at the end of the third quarter. During the third quarter of 2016, there were 16 properties totalling 2,649,755 SF that sold at an average of $63.00 per square foot.
> The most notable investment sales transaction of the third quarter was the portfolio sale of the Tech Distribution Center and the Research Tri-Center North warehouse buildings, both located in the RTP | I-40 submarket. In July, Principal RE Investors purchased both buildings (448,385 total square feet) from Stoltz RE Partners for $35.0 million.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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