North Carolina's office market shows signs of life
Add Axios as your preferred source to
see more of our stories on Google.
Photo: Courtesy of Kane Realty/Visit Raleigh
After hitting the doldrums in the years after the pandemic, demand for office space in the Triangle and Charlotte appears to be picking up momentum.
Why it matters: Vacancy rates at office towers from downtowns to suburban office parks spiked after the pandemic as companies downsized and offered workers greater flexibility for remote work. Those rates remain elevated six years after the first COVID shutdowns.
- But that freeze in the office market appears to be thawing. Office-based jobs are growing, state data shows, at a time when office construction has slowed, limiting options for companies seeking new space.
Yes, but: At the same time, growing layoffs in tech jobs due to AI could slow that growth.
Zoom in: Since last year, the state has landed pledges from companies for more than 7,500 office-based jobs, according to Lee Lilley, North Carolina's commerce secretary, and more projects are considering the state.
- The majority of those are in Mecklenburg County and come with new office commitments, including SMBC Bank, Scout Motors and Daimler Truck Financial Services.
- The Triangle is seeing it, too, including expansions from Aspida in Durham and Ralliant and BuildOps in Raleigh, among others.
What they're saying: "It's been a very real return of office-based projects" for the first time since before COVID-19, Lilley told Axios. "I don't want (to) extrapolate and say this is because companies have decided to move away from remote work."
- "There is a sense that companies in the post-COVID era took a break on large office projects to see how the market would shape up," he added.
By the numbers: CBRE, a real estate services firm, agrees that the trend is real.
- The company is tracking 2.9 million square feet of demand from companies considering new leases in the Triangle.
- That is the highest level since before the pandemic, Brad Corsmeier, of CBRE's Raleigh office, told Axios.
- Data in Charlotte shows a similar trend, Axios Charlotte reported.
Between the lines: The Triangle's 20.2% office vacancy rate is expected to keep falling this year, according to Corsmeier.
- That's in part because there are no office buildings under construction or coming online, limiting the number of places companies can consider.
Case in point: Many companies are flocking to younger neighborhoods for sleek, new offices and desirable amenities. Take North Hills, arguably the Triangle's hottest office market, for example.
- With the One North Hills office tower now 100% leased, Kane Realty's Tower 5 and Dewitt Carolinas' The Exchange will likely get a boost from being the newest tower in the district with space available.
- Corsmeier predicts current trends could lead to the construction of new offices returning next year. "If you have an entitled site [in North Hills, Midtown Raleigh or downtown Raleigh], you'd be smart to dust off your plans and maybe consider a pre-lease campaign later in this year," he said.
Who's hot; who's not: Corsmeier says that Midtown Raleigh, which includes North Hills, as well as downtown Raleigh and the Glenwood Avenue corridor have the most momentum in the region from companies.
- Downtown Durham, however, has struggled to regain the same activity being seen in Raleigh, he added.
- The Cary submarket has the highest vacancy rate of any in the Triangle.