RALEIGH – More than 2.2 million square feet of commercial office space was under construction in the first quarter of 2022, a new report shows, even as the overall vacancy rate in the region ticked up to above 13% in the office segment. Rents, meanwhile, continue to increase.
Also, no new office space that had been under construction was completed and delivered in the quarter, and a limited amount of new projects began.
That’s according to the latest Office MarketView report from commercial real estate firm CBRE|Raleigh, which tracks activity in Durham, Orange, and Wake Counties, as well as 15 submarkets in the region.
Negative net absorption
The Raleigh-Durham market experienced negative net absorption in the first quarter, as there were “several big block givebacks throughout the market and slowed leasing activity.”
But downtown Raleigh experienced the most absorption of any so-called submarket, with 72,900 square feet of absorption. Of note: the recently completed 301 Hillsborough building that houses Pendo’s headquarters leased an additional 26,000 square feet to the national law firm Nelson Mullins.
Meanwhile, the RTP/I-40 corridor saw the largest negative net absorption, at -155,000 square feet. That’s due to Credit Suisse placing 120,000 square feet up on the market and TKXS vacating 29,000 square feet at 1500 Perimeter Park, the report notes.
Channel Advisor is also downsizing, the report notes, moving from 116,000 square feet at Perimeter Four to 33,000 square feet at Perimeter Six.
“Certain pockets of the market had some bright spots during the first quarter. Class A++, highly amenitized buildings are in favor with tenants, while commodity office is moving slowly to come back,” said Brad Corsmeier, executive vice president at CBRE|Raleigh, in a statement. “However, we are still optimistic about the state of the market as companies continue their return to the office through 2022.”
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Vacancy increased, and so did lease rates
While total vacancy increased by 31 basis points, and now sits at 13.06%, Class A vacancy increased just 22 basis points and sits at 12.64%.
Despite the rise in vacancy rates, Class A lease rates have increased, and now average $31.45, which is up 3% from the prior quarter, the report finds.
It’s most expensive to lease Class A office space in Six Forks, Downtown Raleigh, North Hills, and Central Durham, according to the repot. Vacancy in the Six Forks submarket is 6.2%, the lowest vacancy rate of any submarket.
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Slowed activity, sublease space available
According to the report, there is currently more than 3 million square feet of sublease space available on the market. That includes what a statement from CBRE|Raleigh calls “several large blocks in the RTP/I-40 Corridor.”
The largest remaining subleases are from IBM, with 178,000 square feet, Duke Health, with 126,000 square feet, and IQVIA, with 106,000 square feet. In addition, the report highlights new additions to the sublease market of 485,000 square feet of space from GlaxoSmithKline and Duke Energy with 170,900 square feet.
“Occupiers continue to seek flexible scenarios or re-occupancy post-pandemic,” the report reads.
Still, the sublease market accounts for just 5.2% of the region’s overall office inventory.
