• 52 Missing Middle subdivisions submitted for approval
• 195 Accessory Dwelling Units (ADU) applications
• 98 townhouse unit applications

Sources indicate that industrial building sales in the region are occurring frequently and at increasingly higher prices. For instance, a fully-leased warehouse in Raleigh recently sold for $14.4 million, almost triple its previous sale price. This trend suggests that the demand from manufacturers is driving up property values in the industrial sector, making it an attractive investment opportunity.

The manufacturing boom’s impact extends beyond industrial real estate. The influx of new workers associated with these manufacturing facilities is creating a ripple effect across other CRE sectors.  The increased demand for housing is fueling the need for more residential real estate development, as seen in the numerous reports of new apartment and townhome projects in areas experiencing manufacturing growth, such as Wilson, Hillsborough, and Cary.   The growing population of workers will also drive demand for retail spaces, restaurants, and entertainment options, potentially benefiting those commercial real estate sectors.  Last, the expansion of supporting industries, such as logistics and supply chain management, further contributes to the demand for various types of commercial properties.

While the outlook for CRE growth in North Carolina appears promising, several factors could influence the market’s trajectory. The ongoing workforce shortage in the state, highlighted by the competition for skilled labor among companies like Wolfspeed and Toyota, could impact the pace of manufacturing expansion and, consequently, the demand for CRE. The broader economic climate, including interest rate fluctuations, inflation, and potential recessionary pressures, will also play a role in shaping the CRE market’s future.

The Federal Reserve’s decision on September 18th to lower the target range for the federal funds rate by half a percentage point has been met with optimism by many in the commercial real estate  industry. This rate cut, characterized as more aggressive than anticipated, is expected to provide a much-needed boost to the industry following a period of significant challenges.

Here’s a look at the potential impact of interest rate cuts on the CRE sector:

• Easing the Credit Crunch: The aggressive interest rate hikes implemented by the Federal Reserve beginning in 2022 to combat inflation significantly impacted CRE dealmaking. High interest rates made it difficult to secure financing for buying, selling, refinancing, or developing properties. The recent rate cut, along with the possibility of additional cuts in the coming months, is anticipated to unlock liquidity in CRE financing. This renewed access to capital could potentially revive deals that were stalled due to the high cost of borrowing.

• A Boost to Certain Sectors: While the overall impact of the rate cuts is positive, certain CRE sectors are expected to benefit more than others.  Multifamily stands to gain significantly from the recent rate cut, as many multifamily loans are structured with floating rates. Lower rates could translate into lower monthly payments for borrowers and potentially stimulate investment activity in this sector.  Industrial real estate is also expected to benefit from the rate cuts. Strong fundamentals within the industrial sector, driven by factors like the growth of e-commerce and near-shoring, suggest continued demand in this area, even in a fluctuating interest rate environment.  The office sector, on the other hand, faces significant uncertainty. High vacancy rates, fueled by the rise of remote work, coupled with concerns about the long-term viability of traditional office spaces, make this sector less likely to experience immediate relief from the rate cuts. Experts believe that more significant changes, beyond interest rate reductions, are needed to address the fundamental challenges facing the office market.

It’s important to note that while the rate cuts are viewed as a positive step, they are not a cure-all for the challenges facing the CRE industry.   Delinquencies Remain a Concern. Despite the recent rate cut, CRE loan delinquencies continue to rise. The gap between the interest rates on existing loans and those on new loans remains significant, posing refinancing challenges for some borrowers. This difference in rates is unlikely to be fully bridged by a single rate cut, suggesting that some level of distress within the market will persist.

Broader economic factors, such as inflation, insurance costs, and real estate taxes, continue to exert pressure on the CRE market. These factors, combined with existing occupancy issues and cash flow concerns, can create significant challenges for property owners, particularly those with lower-quality assets or those facing upcoming debt maturities.

While the long-term effects of the rate cuts are yet to be fully realized, the overall sentiment within the CRE industry is cautiously optimistic.  The rate cut is seen as a crucial first step in potentially shifting the industry toward recovery by mid-2025. Experts suggest that it may take time for the full impact of this and subsequent rate cuts to be reflected in market activity. However, it’s crucial to acknowledge the significant distress already present in the market. While the rate cuts offer some relief, a full recovery will likely necessitate a combination of factors, including sustained economic stability, ongoing adjustments to property valuations, and a willingness from both borrowers and lenders to navigate the evolving CRE landscape.

Today, the Regional Transportation Alliance (RTA) business coalition hosted an event at the Umstead Hotel & Spa in Cary to welcome Pedro Heilbron, CEO of Copa Airlines.

Copa Airlines will launch international service from Raleigh-Durham International Airport to Panama City in June of this year. The airline has the biggest international network among Latin America-based airlines. According to the Condé Nast Traveler 2023 Readers’ Choice Awards, Copa Airlines is noted as being the most punctual airline in the Americas and the only carrier from the Western Hemisphere to feature among the top 15 international airlines in the world. Copa Airlines services 85 destinations in 32 countries in North, Central, and South America and the Caribbean, linked via the Hub of the Americas® in Panama City, Panama.

Heilbron spoke to the growth and transformation of the airline and the growing Raleigh/Durham market. His hope for Copa’s new route through Raleigh-Durham is that it will “bring Latin America much closer to the Research Triangle area, strengthening business and cultural ties between our regions. We also hope this new route provides the opportunity for more American tourists to visit Panama and enjoy the wonders our country has to offer.”

Michael Landguth, CEO of the Raleigh-Durham Airport Authority, Ellis Hankins, Chair of the Raleigh-Durham Airport Authority Board, and other leaders from RTA were also in attendance. York is proud to be a sponsor of the RTA and continuing to connect with both the local business community and regional leaders.

City of Raleigh has selected Omni Hotels to develop a convention hotel in downtown.

The new hotel is anticipated to include 550 guest rooms and 55,000 SF of meeting space. The hotel will also feature several food and beverage outlets, a rooftop pool, a signature Mokara spa, and a fitness center.

Omni posted on their website that the property will be built on an over one-acre lot across from the Raleigh Convention Center and Martin Marietta Center for the Performing Arts at the end of Fayetteville Street. It is expected to open in 2027.

A recent report released by Wake County Economic Development lists 21 companies collectively investing over a quarter billion dollars and creating nearly 1,200 jobs during the reporting period of October 1, 2022 – June 1, 2023.  Below are the largest “new jobs” creators from the report:

COMPANY                                       INDUSTRY                                                       NEW JOBS

View the full report to learn more about new jobs and companies investing in Wake County.

Last month, Oak City CRE (Commercial Real Estate) asked a group of Raleigh brokers to share their guesses about where the Raleigh market is going to be in 3Q 2023. 24 brokers responded. That survey resulted in the first Raleigh CRE Crystal Ball Report. This unique report is meant to try and look into the future.

The brokers project a tenant market for leasing activity and a buyer market for asset sales in 3Q 2023. For the leasing market, the report predicts that office will be a strong tenant market and industrial will be a strong landlord market. For the asset sales market, the data shows that office will be a strong buyer market and industrial will be a strong seller market.

The report also includes a Leader Board that ranks brokerage firms by the number of qualified submissions they send in for the survey. York Properties tied for 5th place.

Oak City CRE is an online platform created by Jed Byrne to connect and identify any projects he creates related to Raleigh and North Carolina. In addition to a blog, A/E/C job board, and upcoming events page, Oak City CRE offers the Top Five, a weekly real estate newsletter focused on development in Raleigh that curates a list of the top five pieces of CRE content that Jed finds. Jed also runs the DirtNC Podcast, where he talks about the “places and spaces of North Carolina and the people who make them awesome.”

Read the full report here: 3Q2023 Crystal Ball Report Final.

According to a recent CoStar report, the Raleigh retail market is seeing high demand and limited supply as a result of population growth and strong consumer spending. Net absorption over the past year has been around 190,000 SF, while move-outs have been lower than average. However, only -490,000 SF of new retail space has been delivered in the same time period. This has led to historic lows in vacancies and availabilities at 2.2% and 3.1%, respectively.   The report states multiple tenant leasing agents have commented that the market’s absorption would be significantly higher if more space were available for tenants to move into. There is a particular lack of second-generation space, and first-generation space is challenging for tenants to move into due to expensive upfits and long construction schedules. Raleigh’s steady population growth supports the construction pipeline, which is currently the largest it has been in over a decade, with 1.9 million SF of retail space under construction.

Tenant-rep broker, Robert Hoyt, attended a TRAOBA meeting yesterday called “How the Triangle Stacks Up to Other Metros”. Because TRAOBA is Office focused there was some discussion on the state of the office market (bullets below) by the panel.

Panel Members:  Heath Chapman-CBRE; Hooker Manning-Kane; Mat Winters-JLL

State of the Office Market 

• Activity slowly coming back
• They are seeing larger groups touring the market for requirements in late 2021
• Office landlords are all doing well as there have been nominal defaults
• Tenants are able to do business remotely and have been paying rent while only occupying 10% or less of their space
• Any rent relief or deferral requests (few and far between and all at the outset of the lockdown) went away after tenants were asked to provide how the pandemic was impacting their business (nominal impact other than the overall economic slowdown)
• There is a large amount of sublease space hitting the market
• Tenants are trying to determine post pandemic space needs
  • Do they need less space as they have more remote workers?
  • Do they need more space to increase social distancing (and decrease density)?
• Rental Rates have not been negatively impacted; however landlord concessions have increased (in the form of abatement and higher TI allowances)
• Both Heath and Hooker expect a quick recovery once a vaccine has been widely distributed.

One panel member with the Raleigh Chamber shared the attached study done by the Raleigh Chamber and the Wake County Economic Development team.  Overarching message: “The Raleigh metro is the best performing metro in the U.S. and continues to remain one of the top places for business and careers…”

Here are a few of our favorite accolades from the report:

#3 BEST PLACE IN AMERICA TO START A BUSINESS
RALEIGH, NC | INC | 2018

#6 MOST INCLUSIVE METRO IN THE U.S.
RALEIGH, NC | BROOKINGS INSTITUTE | 2019

TOP 10 GLOBAL HUB FOR LIFE SCIENCE INNOVATION
HICKORY & ASSOCIATES | APRIL 2019

#1 STATE FOR WOMEN IN TECH
NORTH CAROLINA | NC TECH | 2019

#3 BEST QUALITY OF LIFE IN THE WORLD
RALEIGH, NC | NUMBEO.COM | 2019