Downtown office market healthy
Downtown Durham is one of the healthiest submarkets for office space in the Triangle region, officials with a commercial real estate firm said in an interview Wednesday.
The vacancy rate for downtown Durham office space at the end of the year was 12.7 percent, including vacancies in subleased space, according to information from the Raleigh-Durham office of the Toronto-based commercial real estate firm Avison Young.
The organization released its 8th annual commercial real estate forecast Wednesday. The firm released presentation materials following a presentation in Cary.
Downtown Durham’s year-end office vacancy rate was above downtown Raleigh’s, which was at 10.7 percent, including subleased space. It also appeared to be above the Brier Creek submarket’s, according to the presentation materials.
But it was below suburban Durham’s rate of 22 percent, and below the 27 percent rate for the organization’s large office submarket that includes the Research Triangle Park and areas adjacent to the park and the Interstate 40 corridor.
John Linderman, managing director of Raleigh-Durham operations for Avison Young, said suburban Durham’s office vacancy rate was impacted by vacancies in north Durham. Elizabeth Gates, principal in marketing and research for the firm’s office here, said there is vacant, older Class B space in that area.
Linderman also said the submarket that includes RTP has blocks of space in the heart of the business park that haven’t been leased, including space previously occupied by Sony Ericsson. The company announced in 2009 that it was shutting down its North American park headquarters.
Erin Monda, communications director at the Research Triangle Foundation of North Carolina that manages the RTP, sent an email that said that most of the space in the business park is owner-occupied. The 27 percent vacancy rate may not have accounted for owner-occupied space, the email said.
The park’s office space is 71 percent occupied, with more than 7 million square feet, and nearly all vacancies are in the leased space, the email from Monda, which compiled information from different foundation officials, said. The vacancy rate of all owned and leased space is 13.4 percent, according to the email.
The bulk of the park’s vacant space is in the Park Center and in property previously occupied by Sony Ericsson. That accounts for about 78 percent of the total vacant office space in the park, the email said.
“These buildings are configured for large tenants and are very specialized spaces,” Monda’s email said. “And of course, we’re hoping our major redevelopment effort will attract the sort of innovative, large-scale company that would prefer such an expansive campus.”
RTP foundation officials unveiled in November a new master plan for the park that included three proposed clusters of high-density development. That included a plan to redevelop buildings in the Park Center
For all office space in Durham, Orange and Wake counties, Avison Young Raleigh-Durham reported a year-end vacancy rate of 18.3 percent. Gates said that the overall Triangle office vacancy rate is still elevated, but is declining.
“This is our third year of positive absorption,” she said. “So more tenants are moving into space (than) out of space, but it’s happening at a rate that’s not as robust as we’ve seen in positive recoveries.”
Linderman described a trend toward more prestigious office space that he said occurs during an economic downturn. The company is expecting a shortage of prime, Class A leasing options by the year’s end, allowing average rental rates to rise.
“There’s been other options, so people have moved to nicer space,” he said.
Linderman added that the health of the downtown Durham submarket is evidenced by the leasing announcements for the Diamond View III building, a 130,000 square-foot building that’s under construction near American Tobacco downtown.
Previously it was announced that FHI 360 would be occupying about 95,000 of 130,000 square feet in the building.