Abstract: The commercial real estate market continues to be strong in the Triad region of North Carolina. The industrial, office and retail sectors have all shown increases in asking rates despite slight increases across the board in vacancies.
This article was written for our sponsor CBRE
While asking rates continue to increase across multiple markets, other numbers show the Triad is experiencing mixed trends. Overall, the industrial sector remains strong, the office sector is facing challenges as people continue to find the new normal in hybrid scheduling, and the retail sector shows strong signs of recovery.
The industrial sector in the Triad is the strongest of the three commercial real estate sectors, with low vacancy rates, rising asking rates, and a healthy pipeline of new development. While it was just a marginal shift, the average asking rate for industrial space in the Triad is now $6.57 per sq. ft., up 0.5% quarter-over-quarter but up over 48% since Q2 2020.
Vacancy rose 128 basis points to end Q3 at 5.1%, which marks the highest market vacancy in three years. However, 4.4 million sq. ft. of construction is underway and Q3 deliveries totaled 1.54 million sq. ft.
“The continued rise of asking rates show that demand is still present in the Triad industrial market despite an increase in vacancy. With nearly 2.7 million sq. ft. of new industrial space scheduled to deliver in the fourth quarter, we’re anticipating absorption to remain positive and vacancy to edge slightly higher,” said CBRE Managing Director of Industrial Services Dodson Schenck. The robust demand for industrial space is being driven by several factors, including the growth of e-commerce, the expansion of manufacturing operations, and the relocation of businesses to the Triad. The Triad is a prime location for industrial users due to its central location in the Southeast, its proximity to major transportation corridors, and its favorable business climate.
The office sector in the Triad, true to trends throughout the country, is facing some challenges, with rising vacancy rates and declining net absorption. Overall vacancy in the Triad has reached a cyclical high at 16.1%, increasing 30 basis points quarter-over-quarter and up 314 basis points year-over-year. Net absorption was negative 4,000 sq. ft., which marks the third straight quarter of negative demand.
The challenges facing the office sector are being driven by a number of factors, including the shift to hybrid work, the decline of traditional office space users, and the oversupply of office space in some submarkets. However, there are some positive signs in the office sector, such as the continuing rise in average asking rates for high-quality office space.
CBRE Executive Vice President, Greg Wilson said, “In the current environment, the office dynamics are changing weekly, so it is important for office occupiers to use knowledgeable brokers to help them navigate the evolving market.”
In fact, despite the increase in vacancy, the overall average asking rate increased 11.2% year-over-year to $19.89 per sq. ft. It’s a trend that Wilson expects will continue.
“Demand for high quality, Class A space with desirable amenities is a major driver impacting tenants’ size requirements in the office market. We expect the trend of increasing vacancies to continue the next 18-24 months as companies continue to determine hybrid work and make their long term office decisions,” he said.
“The Triad retail market remains resilient in strong. We are seeing robust activity from retailers who have new-to-market concepts and want to establish a presence in our market,” said Christy Smith, Senior Associate at CBRE.
The retail sector in the Triad continues to show signs of recovery, with positive absorption and increasing asking rates. Average asking rates increased by 14.5% year-over-year to $14.53 per sq. ft.
The recovery in the retail sector is being driven by a number of factors, including the return of shoppers to brick-and-mortar stores, the growth of e-commerce retailers with physical stores, the development of new retail centers and, as Smith noted, new-to-market concepts, especially quick service restaurants. The Triad is a prime location for both retail and new concepts as the population is on the rise, the economy remains strong and the proactive economic development which has drawn investors to increase and expand crowd-drawing sports and arts venues.
Christy Smith, Senior Associate at CBRE, said, “We are encouraged by the amount of out-of-state retailers looking at the Triad market after identifying locations in Charlotte and Raleigh, She added, “We understand that location determines the success of retail businesses and the Triad market offers opportunities for these growing businesses.”
The overall outlook for the commercial real estate market in the Triad region is positive. The industrial sector is expected to remain strong, the office sector is expected to stabilize, and the retail sector is expected to continue to recover. The Triad is a desirable location for businesses and residents, and its commercial real estate market is well-positioned for future growth.
This article was written for our sponsor CBRE