Editor’s Note: Today, WRAL TechWire launches a new series, sponsored by commercial real estate firm JLL and other partners. The “Future of Work” is a series of reports that follow what’s happening in today’s economy, in the new world of work, where the region could see further growth and development, and on the future of the region, with in-depth looks at the office, industrial, and life science sectors. The first report is here, and this is the second companion piece.
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RALEIGH – The demand for high-quality space is high across the Triangle, even as employers remain uncertain about work location policies and the future of the labor market. And that demand for space is even greater in the industrial and life science sectors, data from commercial real estate firm JLL shows.
How low? In the industrial sector, across all classes, the vacancy rate in the Triangle is 1.6 percent.
And while there are, as of the end of 2021, nearly 7.5 million square feet of industrial real estate under construction, “demand is far outpacing supply, especially toward the center of the market in RTP, said Brett Cox, research manager at JLL, in an interview with WRAL TechWire.
While the average lease rate across each class reached $5.38 per square foot by the end of 2021, said Cox, prime locations are now fetching $7.25 per square foot.
Special report: The future of the Triangle’s economy hinges on its spaces
What’s in demand right now
Some occupiers value the central location within the region, and others value the proximity to the region’s strong life science and biopharmaceutical manufacturing companies. Others are demonstrating willingness to occupy space along Interstate 40, toward Greensboro or Wilmington, said Cox, in what has become “a landlord-friendly market.”
And in the life sciences, demand is strong as well, and is expected to grow in 2022 and beyond. The Triangle, for instance, was ranked as the nation’s fourth-best life sciences cluster by JLL in a recent report.
As demand is high, there are a number of projects underway in the region. That includes the conversion of existing facilities as well as the construction of brand new buildings. Take a project that will convert a former big box store in Garner into life science space, for instance. Or another that will transform a former Kroger into lab space. And in Holly Springs, both Amgen and FUJIFILM Diosynth-Biotechnologies are constructing new facilities.
A foundation for growth
And with demand for space, of all types, outpacing the supply, what’s happening now in the region is likely to set the foundation for the growth capacity of the area’s economy for decades to come.
Economists are watching and observing, too. In an interview, Dr. Michael Walden, an economist and a regular WRAL TechWire contributor, told WRAL TechWire that there are two areas of the market that will be tracked closely in the years to come.
First, said Walden, economists will investigate how the composition of commercial space will evolve. Second, there will be a lot of focus on how the increase of remote and hybrid work environments will change each sector, and how that might change geographies in the Triangle and across the country.
For instance, said Walden, if the Triangle or North Carolina is relying on the in-migration of workers and households from other states or metropolitan areas to fill thousands of open jobs, how might other states and regions react to improve their competitive position, and what will that mean for the future of the North Carolina and the Triangle?
Is office space linked to company culture? These real estate experts think so.
Population, workforce changes
The population of the Triangle has also been growing steadily, said John Quinterno, a professor at Duke University, in an interview with WRAL TechWire.
That’s primarily due to the net movement of people from other parts of the country, and often, the world, to the Triangle.
According to Quinterno, between the 2010 and 2020 Decennial Censuses, the Triangle’s population increased by 22 percent, rising to 2.1 million persons from 1.7 million persons.
“This region accounted for roughly 40 percent of total population growth recorded in North Carolina over the last decade,” said Quinterno. “All that growth contributes to increased demand for physical space.”
And during that decade, the region’s labor force also increased, by about 215,000 people, said Quinterno.
But then, in early 2020, came the onset of the global COVID-19 pandemic.
This upended the labor market, changed or accelerated migratory patterns, and led to shifts in work location.
Even with North Carolina’s unemployment rate low, the pandemic-era labor market shifts still have an impact on the economy, as does the ongoing COVID-19 pandemic itself, Quinterno told WRAL TechWire earlier this month.
Now, as individuals and companies weigh their options when it comes to work and location, shifting migration patterns may well play a role in the future of the Triangle’s economy, affecting how—and where—people live, work, and recreate.
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Announcements rolling in
But there are more than just residential population growth and an increasing population as contributing factors to the future of the region’s economy.
There’s also a growing number of economic development projects, both expansion projects, new facility construction, and new site locations or headquarters, said Quinterno.
Ground-up announcements are moving to where they can get land, and traditionally-residential submarkets have benefited from that shift. Announcements that landed in RTP provide an array of options for employee housing because of its central location, but there will be continued demand for multi-family development as well.
“The announcements as a whole are now introducing more competition to the labor market,” said Kimarie Ankenbrand, managing director and Raleigh lead at JLL. “Workers have more options, so existing companies will need to step up to match their new competition. This isn’t just for compensation, but the overall experience and culture of the company as well.”
And what’s been announced in the past two years—including Apple’s planned 3,000 person campus, the $4 billion automotive plant from VinFast, Google’s 1,000 person engineering hub, new production facilities in Holly Springs from FUJIFILM Diosynth Biotechnologies and Amgen, relocation to the market from Science37, and expansion into the Triangle from Invitae, among many others—could be just a “first wave,” said Ankenbrand.
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Early innings of economic development
“Everyone has been talking about the Triangle for a while, but now companies are doing more than talking,” said Ankenbrand. “The market has been validated in the eyes of the rest of the country.”
And while the market cannot yet be described as “stable,” said Ankenbrand, given the current state of the labor market and the ongoing ramifications from the COVID-19 pandemic, it does have forward momentum that is observable, and it appears to be accelerating.
“Should the announced projects actually come to fruition and add the numbers of jobs claimed, the economic and social impacts on the region will be noteworthy, while also compounding long standing regional issues like transit, housing affordability, and displacement,” said Quinterno.
The momentum is building, said Ankenbrand, though “we are still in the early innings of the Raleigh-Durham market transformation.”
That rapid evolution shows the potential for an emerging market to turn into a mature one, alongside an evolving culture, said Cox. But as the area’s quality of life has traditionally been “one of the biggest selling points for the market,” said Cox, the future of the Triangle’s economy just may hinge on the region’s physical spaces.
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This editorial package was produced with funding support from JLL and other partners. WRAL TechWire retains full editorial control of all content.
