Perspectives: Challenges

Perspectives: Challenges, opportunities

Matthew Cooke

Partner – Davis Moore Advisors We need to connect the Triangle in a better way. The ability to get to the major hubs and to the airport via the light rail would be a great asset to this area. There is always work going on with the highways and roads. That’s going to have to continue because the growth of the area.

Greg Hobbs

President & Founder – Hobbs Properties, Inc. Our suppliers and engineers are assuring us that there is a rise in manufacturing of raw materials and we should be able to source materials at a reasonable cost and lead time soon. Providing a firm rental rate until building costs can be locked in has been a challenge.

Scot Humphrey

Founding Principal – Edgewater Ventures Raleigh-Durham is a unique market from an institutional investor’s perspective. In many ways, we have three central business districts and then a lot of suburban bedroom communities around them. It is quite unique.

John Kelly

Principal, Market Leader – Foundry Commercial, LLC With office products, it’s not as clear yet as to how much product we’re going to see trade and come to market this year, as well as investor appetite. However, those who buy office assets at this point in time will likely do very well going forward.

John Linderman

Regional Managing Director – Avison Young Historically, we’ve been sort of discounted as a major market because of a lack of public transit and the lack of a single central core but the pandemic moved us to the top of the list as those previously perceived weaknesses became strengths.

Todd Saieed

CEO – Dewitt Carolinas In general, all our properties have operated fairly normally and multifamily has outperformed. There have been cases of tenants in office buildings who have needed help and support, which we’ve been happy to provide. I think that in our region the effects of the pandemic have been minimal compared with other parts of the country.

The strong demand for multifamily product helped keep the market stable.

( ) lot less hectic are some of the characteristics that make the Triangle attractive for migration. This is boosted by many education opportunities, the reasonable cost of living and the business-friendly economy,” said Scott O’ Brien, principal and director of the Chapel Hill office at Lord Aeck Sargent.

Despite the persisting pandemic challenges, optimism abounds for the multifamily sector in the Raleigh-Durham market. Strong macro factors such as population growth and a diverse industry mix anchored by the region’s education, tech and innovation ecosystem are set to usher in the Triangle’s post-COVID multifamily sector development wave.

“The Triangle area and its surrounding submarkets continue to be a highly sought-after area for multifamily investors and developers. We continue to see an increase in out-of-state institutional funds seeking

to deploy assets here. We are also starting to see the COVID-19 rebound effect on the multifamily sector with decreasing vacancy rates and increasing absorption rates. The Triangle’s strong population growth continues to benefit our market, particularly with the recent announcements of tech giants like Amazon, Apple, and Google coming into our region. Investors continue with their aggressive approach to secure land while being creative in tying up and closing multifamily opportunities in the area,” commercial real estate firm, Lee & Associates, said about the region’s outlook in its 2Q21 multifamily market overview.

Single-family rentals Though not tightly confined to the multifamily market, single-family rentals (SFR) have become extremely popular among developers and investors during the current real estate cycle. The strong rents performance seen in the apartment market is slated to open up opportunities for the single-family rental sector.

Despite the frenzied residential housing market, the lower initial investment needed for SFR-type properties compared to multifamily apartments poses opportunities for developers and investors seeking to tap into the housing demand inherent in a growing market such as Raleigh-Durham. The growing demand for housing coupled with greater resale opportunities makes SFR properties attractive for investors, according to Roofstock. “Since you can sell to both real estate investors and traditional homebuyers, single-family homes have a much larger buyer pool than apartment buildings and duplexes,” Roofstock said about the opportunities inherent in the SFR market.

As such local players are actively pursuing these

opportunities. “There is a new product that is becoming a new segment of our business: rental single-family homes,” said Preston Development Co. Owner Tim Smith, whose firm is actively building homes to buy and rent across the Triangle market, with a current focus on Chatham County. “They’ve become very popular because of the barriers to entry for new buyers looking to purchase a home as well as an intentional housing choice by many who for various reasons choose not to purchase a home but do not want to live in multifamily developments. By the time we get finished with Chatham Park, we will have close to 1,500 single-family rental units based on the project pipeline we are working on and building out. We anticipate this trend to gather quite a bit of speed,” Preston said.

Office The office sector showed flashes of recovery during 2Q21 in what otherwise has been an extremely disruptive cycle for this asset class. Largely buoyed by vaccine availability and by positive economic development activity, the office sector experienced positive net absorption rates for the first time since 2Q20, rates that mirrored pre-pandemic levels, with approximately 152,000 square feet of office space leased through the quarter, according to JLL’s 2Q21 Office Insight report. New deliveries drove vacancy rates slightly higher despite positive net absorption, however, finishing the quarter with a total vacancy rate of 14.7%.

Both concession and rents were flat throughout Q2 with direct rents staying at $29.25 per square foot with approximately 1,131,300 square feet of office space under construction as of Q2, JLL reported.

Whether wading through rent deferrals or making

Charlotte, Raleigh and Durham are three of the best cities for job modality flexibility.