RESEARCH TRIANGLE PARK – If Amazon is looking for lower-cost rates for office space, Raleigh-Durham rates as a very reasonable option among the major metropolitan areas being considered for the HQ2 project. Apple may have already decided cheaper rents is one reasons why it is reportedly nearing the selection of the Triangle for a new campus. Given the scale of the projects, the savings for each tech giant could be substantial when compared to other cities.
A review of office space costs per square foot data compiled by corporate real estate services firm Jones Lang LaSalle, or JLL, finds that the Raleigh-Durham market offers rates lower than all but four of the 19 U.S. metro areas being considered by Amazon. Costs also are vastly cheaper than what Amazon already faces in its home city of Seattle.
Average rates rose slightly in the second quarter to $25.23 from $24.61 in the first three months of the year. But those costs are well below the $38.26 average in Seattle, the $59.99 going rate in the Washington, D.C. area and well under Raleigh rival Austin, Texas, at $38.65.
“That’s what you call a competitive differentiator,” declared Charles Hayes, the former longtime CEO of the Research Triangle Regional Partnership, when told about the numbers. “That’s big dollars – huge!”
Lower office space costs adds to other strengths that the Triangle lures businesses with, including quality of life, education, lower taxes and quality of the region’s workforce.
“There are many reasons why we are in the final 20 for Amazon,” Hayes said.
JLL’s latest report points out that growth continues even as decisions about Amazon and Apple are still looming.
“Halfway through 2018, the Raleigh-Durham office market is showing no sign of slowing down,” JLL wrote.
Countering that current leasing advantage, however, is a very low vacancy rate. And rates will be going up, JLL predicted.
Yet offsetting that fact is in Raleigh-Durham more than 2.6 million square feet of new space is under construction. The building boom, which JLL says has been producing 1 million or more square feet a year in each of the last several years, is another good sign for the Triangle, according to Hayes, who has been involved in corporate recruiting for decades.
“The vacancy rate and the amount of construction are signs of the strength of the market,” Hayes said.
Cost of business savings
When one considers that Amazon is looking to occupy 8 million square feet of space over 10 years, dollars saved on leases add up to significant numbers very quickly.
Among the 19 metro HQ2 candidates in the US, only Columbus ($19.89), Indianapolis ($20.33), Pittsburgh ($24.04) and Atlanta ($24.46) come in lower.
Those rates are bargain basement to Los Angeles ($41.40), Chicago ($41.50), Denver ($41.61) and D.C.
So the math adds up to a Triangle advantage:
- 8 million square feet in the Triangle at $25 (for rounding purposes) PSF equals $200 million a year
- 8 million square feet in the D.C. area at $60 (for rounding purposes) PSF equals $480 million a year
When considering office space, businesses must factor that in as a “major cost of doing business,” Hayes said. “It’s pretty impactful.”
The reasonable office space costs are another advantage for the Triangle in the Amazon chase, others being No. 1 in lower local taxes, reasonable home costs and rents, and quality of life as documented in several recent studies.
- Visiting CEO: Raleigh has more available talent than any other finalist for Amazon’s HQ2
- Raleigh ranks No. 1 for housing, quality of life in new Amazon HQ2 site study
- Report: Amazon HQ2, Apple projects would drive up already rising Triangle home prices, rents
- Sources: Apple campus decision remains tied up in NC politics
Yet the amount of available space is a disadvantage.
At 10 percent, the open space in Raleigh-Durham matches that of Seattle and is a percentage point less than D.C. It is substantially lower than Dallas (18.7 percent), Pittsburgh (17.6), Atlanta (17.5) and Indianapolis (17.4). Austin, Nashville, Philadelphia, Boston, Miami, Chicago and Los Angeles also have higher rates.
While Apple could very well announce a decision to build a new corporate campus in the Triangle at any moment, the timeline is a bit longer for HQ2. Amazon continues its site vetting process with a cut down from 20 finalists, including the Triangle, still weeks away and a final winner to be declared sometime later this year.
The crane business
JLL in its most recent report about Raleigh-Durham voiced considerable praise.
“As one crane comes down, another pops up,” JLL says – a point that Triangle residents can attest too, given the ever-changing “cranescape” in Downtown Raleigh, Durham and Raleigh’s North Hills.
“After 2017’s staggering 1.7 million square feet of deliveries, Raleigh-Durham’s development activity isn’t slowing down. With 2.6 million square feet now under development, 2018 is ramping up to be one of the market’s busiest years yet,” JLL says. “Since 2014, an average
of 1.0 million square feet has delivered each year. At this rate, RaleighDurham’s office inventory will exceed 50 million square feet by 2020.”
And tech is driving much of that growth, JLL notes.
The fact so much square footage is being built right certainly seems to demonstrate that the Triangle has the capacity to meet demand for the 1 million square feet or so a year HQ2 might require.
Real estate developer John Kane, whose Kane Realty is a force factor in Downtown Raleigh and North Hills, said when the Amazon process was announced that the Triangle could meet the demand for more office space.
When word get out about contracts, Kane said construction firms will load up and “head for the Triangle.”