Roundtable: Outlook and trends William Allen, Partner, Trinity Partners

®oundtable:

Outlook and trends

Industry leaders discuss the characteristics that make Raleigh-Durham unique and what the future might hold in the commercial real estate sector.

William Allen

Partner Trinity Partners

What makes the Raleigh-Durham region unique compared to other areas? Raleigh is the state’s capital city and is the center of local and state government. We also have the world-renowned Research Triangle Park (RTP), which has been the region’s biggest catalyst for growth and economic development since its formation in the 1960s. Then there are our three major universities: North Carolina State, Duke and UNC Chapel Hill, which together provide what is one of the most attractive things about our region: a strong education system and a home-grown, educated workforce that is central to attracting companies to this region.

What changes typify the local commercial market? COVID and the resulting government mandated shutdowns have made it impossible to physically occupy office space. This has created a complete breakdown in the typical landlord-tenant dynamic, with most leaseholders not being able to make any real estate decisions due to such uncertainty. The long-term outlook as to re-occupancy, utilization of space and hiring is in a state of flux and if any decisions are being made, most of those are short-term decisions. Investment grade real estate cannot survive based on a temporary, short-term outlook.

Which of your services have grown in demand? Our largest area of growth has been taking on additional property management assignments. We’ve added nearly 2 million square feet of industrial and office space to our portfolio just in the last year. I would attribute this to the continued attractiveness of our market from outside investment.

Andy Andrews

CEO Dominion Realty Partners

What makes the Triangle-area market attractive? From a business perspective, you would have to say that the area has grown due to the number of students that we have graduating on an annual basis. I think there are above 25,000 kids who are graduating in this geographic area every year. That gives you a feeder for all these companies to hire raw talent and they all seem to want to be here. It started a while back, with the Research Triangle Park, and it’s just grown exponentially. The Sun Belt is where everyone wants to relocate to, and we couldn’t be doing what we’re doing without our location. Those two factors combined make us one of the top-tier geographic areas in the country.

What sustainability features have you seen become mainstream? There is a circular answer here. We started doing green development in 2007, before people really knew what LEED stood for. Now all of our buildings have some certification for green. We check these boxes. Saying that, the one area that really needs to improve is education. The general public, whether they are an apartment renter or an office tenant, doesn’t really understand what these certifications mean. Today, it’s a very interesting topic. It’s foremost on the minds of all the buyers of our real estate. All of our buyers require their purchases to be certified. Now, back that step up: Do all the office tenants mandate that they work in a green-certified office building? The answer is certainly not. They should be, especially after COVID. You’re using less water, less energy and it provides a healthier work or live environment all around. It’s simply a smart life decision to occupy green product.

Robbie Ferris

CEO SfL+a Architects

What are the trends in the demand for your services? We’ve always been very passionate about the design of energy-positive, carbon-neutral buildings. Historically, the market for that has not been large. It’s very much a niche market. The pandemic raised awareness about the interior environment, particularly in-door air quality. Along with that, we saw awareness about issues related to carbon neutrality, energy conservation and sustainability. I see those trends as happening at the same time. We track the number of clients that have carbon-neutrality goals, large companies that have published those goals. About three years ago, there were 100 or fewer of those companies in the country and now we have identified up to 500 companies with carbon-neutrality goals. I think that is another role for artificial intelligence: helping us identify those clients. As companies get smaller, they tend not to publish their carbon-neutrality goals.

The trend toward sustainable, carbon-neutral buildings is going to grow dramatically. I think this awareness is here to stay and that is a very positive development for our industry.

How is your company capitalizing on the influx of residents and businesses relocating to the region? We do a lot of school and university buildings. Now, we’re trying to move toward the corporate design market. As people move in, they need schools, they need universities and they need places to work. We’re not focused on single-family housing or hospitals. We have very distinct markets. With population growth, those markets will improve for us and for lots of other people.

Ted Klinck

President & CEO Highwoods Properties

Which office asset class will be challenged in the future? High-quality buildings in great locations will perform well over time. Commodity class-B and class-C buildings in secondary locations may experience reduced demand.

What market factors will you be watching? The biggest unknown in the office sector right now is what a flexible workspace means. What we are hearing from our customers is that most CEOs want their employees back in the office for at least some portion of the work week. Most companies have found that they’re better together when in the office but, at the same time, employees want flexibility so it will be interesting to see how the return to work plays out over time.

What does Highwoods’ project pipeline look like? We want to continue to grow our Raleigh portfolio through both acquisitions and development as the city is consistently ranked as one of the top markets in the United States with long-term growth trends that far outpace national averages. Throughout the pandemic, Raleigh continued to see a number of high-profile job announcements, including announcements from Apple and Google and we anticipate this will continue. We spent the pandemic making sure we had buildings designed on most of our land to be in position to take advantage of new development opportunities. With respect to specific transactions, we delivered a 125,000 square foot, 100% leased office building earlier this year and we’re under contract to buy a portfolio of assets which includes two high quality office buildings in Raleigh, one in North Hills and one in the CBD. We’re big believers in the Triangle.