Office vacancy in the Triangle is expected to bottom out in 2025
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Office vacancy rates in the Triangle are expected reach their peak next year before slowly beginning to improve.
Why it matters: About one-fifth of office space in the Triangle is vacant right now, as the pandemic era's push toward remote work becomes entrenched.
- That's put a strain on landlords, prevented new construction from getting off the ground and re-shaped office-heavy parts of the region, like its downtown cores.
Driving the news: Total vacancy rates in the area hit a record high of 19.8% in the second quarter of this year, according to new data from CBRE.
- CBRE said a batch of new offices opening without tenants and several subleases expiring caused the vacancy rate to increase.
- The largest office users to shrink their footprint in the past three months included IQVIA not renewing its lease at one of its RTP offices and the coworking companies WeWork and Spaces shrinking their offices in downtown Durham.
- Leasing activity has increased in recent months, but it tends to be existing office tenants renewing or relocating to smaller footprints.
Between the lines: The amount of empty space in the Triangle is expected to keep growing in the coming months before bottoming out next year, CBRE is forecasting.
- That is primarily being driven by the fact that construction has slowed down dramatically, with no new projects expected to break ground in the foreseeable future, Elizabeth Gates, research manager for CBRE's Raleigh office, told Axios.
- That will allow existing demand to finally make a dent on the existing vacancy rate — though it's not expected to dramatically improve.
What they're saying: "With the Fed expected to begin cutting interest rates later this year, economic activity and tenant demand are expected to pick up in 2025," Gates said in an email. "Given the structural challenges currently facing the office market, overall vacancy is unlikely to fall quickly, but it should begin heading in the right direction."
By the numbers: The largest new office leases in the past quarter were IXL Learning's 90,000-square-foot expansion at 1600 Perimeter Park Dr. in Morrisville and Audemars Piguet's 63,000-square-foot lease at Raleigh Iron Works.
- Key submarket vacancy rates were: 18.4% in downtown Raleigh, 20.4% in central Durham, 24.2% in midtown Raleigh and 21.9% in Research Triangle Park.