Commercial real estate is down, but Triangle had 2 of the top US office deals in 2023
In this post-pandemic era of hybrid work and surging interest rates, the Triangle’s office vacancy rates are at record highs. But it’s not all doom and gloom.
Raleigh-Durham’s market claimed two of the nation’s top 50 priciest office deals of 2023, according to CommericalCafe’s newest report. (The report used CommercialEdge data on deals for office buildings larger than 25,000 square feet.)
The $132.9 million sale of the 12-story Midtown Plaza in Raleigh’s Park District ranked 23rd by sale price. Texas-based Crescent Real Estate purchased the property at 305 Church at North Hills Street from Lionstone Investments last December.
Completed in 2017, the 329,747-square-foot office building is fully leased. Tenants include Altera, Gilead Sciences and Fifth Third Bank.
In Durham, Duke University’s The Carmichael and Research Labs buildings also made the cut.
Built in 1926 as part of the Liggett & Meyers cigarette factory complex, Boston-based Longfellow Real Estate Partners transformed the former tobacco warehouse into office and laboratory space in 2014.
In February 2023, they sold the 165,774-square-foot property to Brookfield Properties. With a closing price of $113 million, it ranked 30th on the list.
The report’s author, Diana Sabau, told The N&O that the Triangle’s “significant presence” on the list shows the region’s ability to produce, even in challenging times, “highly sought-after office assets” that attract both local and out-of-state investors.
In 2022, she noted, the region produced three entries on the top 50 list, two of which were portfolios.
The highest-ranking was the Bloc 83 Portfolio in 20th place. The office complex went for almost three times the price of the Midtown Plaza; the other two assets fetched “nearly double the price of the most expensive Triangle office sale of 2023,” she said.
What closed the deal?
Both nationally and in the Triangle, commercial real estate is hurting.
The total sales value for the top 50 office deals dipped by 67% year-over-year to reach $8.7 billion, the report found.
In Raleigh-Durham, direct vacancy rose to 15%, according to CBRE Raleigh Research’s 2023 fourth-quarter market report. Overall vacancy rose to 19%, the highest level registered since 2004, the report said.
Despite these challenges, investors remain bullish on the region’s long-term prospects, said CBRE Raleigh’s senior research analyst Elizabeth Gates.
Midtown Plaza’s location, in particular, made it a “prime target.” Near North Hills’ revitalized Main District, it’s surrounded by apartments, hotels, restaurants and retail, she said.
“It’s the type of location currently in demand: premium space with on-site amenities. The seller’s ability to provide financing also supported the sale price,” she added.
Ryan Clutter, JLL Capital Market’s senior managing director in the Carolinas office, helped broker the deal. He attributed the eye-watering price tag to its “mark-to-market” potential.
“Rental rates for Class A office spaces in North Hills have already increased by 27% since 2017,” he said in a January release shortly after the deal closed.
In Durham, The Carmichael and Research Lab Buildings also proved investor-worthy.
For starters, they’re life science properties rather than traditional office buildings, said Gary Hill, a senior leasing agent with Avison Young in Chapel Hill. That includes wet labs, which are costly to build out and often command higher prices, he said.
Both buildings are also fully leased by a high-profile tenant like Duke, which observers say also factored into the price.
“These are unique buildings that had more than just your typical office use,” Hill said in an email.
Nationally, Manhattan had the most expensive office deal with the sale of two Wharton Properties buildings on Fifth Avenue. Italian fashion house Prada purchased 720 and 724 Fifth Ave. for $822 million in December.
This story was originally published March 4, 2024 at 7:00 AM with the headline "Commercial real estate is down, but Triangle had 2 of the top US office deals in 2023."
