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business owners in town that articulated that the weekend [of Widespread Panic July 16-18] was one of their best weekends ever, even more so than a River Fest or an Azalea Festival or Fourth of July,” said Craig, who is a board member with the Wilmington Area Hospitality Association.
The business is taking advantage of its former top-floor events space to use as a taproom to accommodate more customers coming during the tourist season, and now, show nights.
Craig said that she foresees Live Oak Bank Pavilion helping to rebound business lost during the pandemic last year.
Staffing availability still is a concern at the brewery and throughout the downtown restaurant scene, she said. And employees are working more hours to keep up with demand from concertgoers.
“There’s definitely been an uptick in sales and need for more labor because of the venue,” she said.
Craig is also board president of the Cape Fear Craft Beer Alliance, which is working to bring local beer to shows.
One thing the alliance is hopeful for is the continued conversation around local craft beer being offered at Live Nation venues Live Oak Bank Pavilion and Greenfield Lake Amphitheater, Craig said.
Beer Barrio owner Hayley Jensen said her North Front Street restaurant is preparing for even more business ahead during weekday concerts and outside the normal tourist season.
And while more out-of-town clientele is coming in from the venue, Jensen hopes to still keep the locals downtown. She said that during the concerts, there’s plenty of restaurants and bars that still could use business.
“I think a lot of locals were avoiding downtown. So then the concertgoers kind of displaced what would have been our normal traffic,” Jensen said. “I just want to make sure that locals know that you don’t have to avoid downtown just because there’s a show.”
Future impacts of the venue should also translate into even more business and real estate development, Saffo said.
“A lot of our businesses have been concentrated within the CBD [Central Business District] and near the front of Market Street, but I see with this park, the potential for additional businesses to opening up in the Fourth Street corridor, closer to the park, and along the Nutt Street corridor,” Saffo said.
That would also translate to more temporary, part-time and full-time jobs, as well as a boost in gig jobs like for Uber, he said.
“It’s a big game-changer. We’ve seen a dramatic tax base increase in the northern riverfront area … And we’re starting to see a significant transformation of downtown Wilmington to a 24-hour downtown where people are working, people are living and people are playing,” Saffo said.
Another hotel will likely come downtown in the future to offset the wave of concert activity on top of the area’s normal tourism, Saffo said.
For many downtown hotels room rates ran in excess of $400 a night during the weekend of Widespread Panic’s tour.
Such rates, which fluctuate based on demand, are expected to drive up room occupancy tax revenues, the majority of which support beach nourishment with a smaller portion supporting travel and tourism marketing, the Wilmington Convention Center and some beach capital projects.
The business isn’t only going to downtown hotels.
“We are hearing from various lodging properties throughout the county that concertgoers were among the guests staying at their properties,” said Kim Hufham, president and CEO of the New Hanover County Tourism Development Authority, doing business as Wilmington and Beaches CVB. “The new riverfront amphitheater serves to elevate Wilmington’s reputation as a live music/ arts destination.”
The first round of concerts was eye-opening for both businesses and short-term rental owners, said Terry Espy, president of the Downtown Business Alliance.
“We knew it was going to be an asset. But everyone is still figuring out what they are looking at,” Espy said.
Espy, who also owns Wilmington-based brokerage and real estate firm MoMentum Companies, also expects more eyes on Wilmington as a place to invest in commercial real estate.
“We are getting a ton of interest in downtown Wilmington. Our challenge is we don’t have a lot of space available,” Espy said. “It’s good for the city.”
Holly Childs, president and CEO of Wilmington Downtown Inc., has also noticed people clamoring for space downtown just within the first few weeks of the venue opening.
Developers from out of state are looking to invest in Wilmington, she said. And the city, and its downtown real estate, are becoming even more of a hot market.
Childs expects not only growth beside the concert venue but also in other outlier districts.
“It spreads throughout the city and up in the Northside. I’m very excited for the continued development of North Fourth Street and what that concert venue is going to mean up there. There is just a lot of opportunity,” Childs said.
Downtown Wilmington has been elevated to a new level now, being able to offer the type of national music venue that can bring in largely followed national acts like Widespread Panic, she said.
“Live Nation has really created this tremendous energy and buzz around Riverfront Park,” Childs said. “I think we’re going to see lots more of this ahead.”
PHOTO BY MICHAEL CLINE SPENCER Downtown dollars: Crowds at the July performances of Widespread Panic boosted area businesses.
ful DISCUSSIONS
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CAN BUILDING SUPPLIES KEEP PACE WITH DEMAND: A LOCAL PERSPECTIVE
STEVE ANDERSON
Owner and Developer, SAMM Properties
SAM BLAIR
General Manager, Baker Roofing Company
KEN DULL
President, McKinley Building Co.
DAVID RIZZO Market Executive, First Carolina Bank
Throughout the Cape Fear Region, demand for development and construction has steadily increased even throughout the pandemic and continuous supply chain strains. Our area’s ability to continue to meet the demand that growth brings has been a testament to the strength of our community and the resilience of our local leaders in the industry. Here is what a few local leaders had to share about building material supply and demand in our region.
What is different about the building material market now versus two years ago?
KEN DULL: There is just so much volatility in the marketplace right now, not only in pricing but also in delivery of materials. Steel and wood have increased dramatically but it is everything from resin for piping, paint, to doors. Pricing and scheduling a job are much more challenging and therefore takes more time to get accurate numbers. Furthermore, there is an increased need for communication between all members on the team, including the owner, GC, design team, and sub-contractor team.
DAVID RIZZO: Certainly, we did not see the disruption in the supply chain two years ago that was brought about by the pandemic. Demand in our region was still strong two years ago but not nearly as high as it is presently, so there is pressure on material pricing from both the supply side and demand side. In addition, there was a demand spike for many building materials during the shutdown of 2020 – this was one of the unintended consequences of the pandemic. Many home and business owners decided to take on renovation/ improvement products while at home. Low interest rates and consumer demand have really exacerbated the supply side problem. Lead times for obtaining many materials are longer and contracted delivery dates are much harder to put in place. The time it is taking for materials to get in the hands of builders is very prob-
KEN DULL
President, McKinely Building Co.
DAVID RIZZO
Market Executive First Carolina Bank
lematic – managing expectations with clients is becoming more and more difficult from that standpoint. It’s amazing to be in a market and an area that is experiencing the growth that we are here in Wilmington when you consider where we were at this time last year. We slammed the brakes on the economy, we have all of these factors converging that are affecting construction, and we still see people coming here and businesses expanding here. It is truly a testament to our great city.
SAM BLAIR: The biggest difference for the market now versus two years ago is the availability of materials. In 20182019, orders and lead time for materials (specifically in the roofing industry) were consistent, and orders were able to be filled. Currently, we are seeing lead times for commercial roofing materials extend beyond the norm, which is much more challenging for our customers to plan for. This demand has strained the raw material providers to the point that manufacturers and distribution are struggling to provide goods within their estimated lead times. In turn, almost all trades are seeing price increases. This pricing fluctuation has increased the stress on our partners as we work together to find the best solution for their buildings and developments. These factors have sometimes led to changes in design depending on both material availability and overall pricing.
How has the COVID-19 pandemic affected construction demand?
STEVE ANDERSON: Starting in the second quarter until the end of 2020, we were in a holding pattern as many people were due to so many unknowns. Our top priority was finishing construction on Bradley Creek Station so the clients who were already signed up with us could move in and start to operate. Outside of the clients we already had committed at Bradley Creek Station, demand softened as expected until the first quarter of 2021 at which point it was like someone turned on the lights. We filled all our available space, which at the time was a substantial amount, in a matter of weeks. That’s really a testament to the vaccine, and businesses started planning for space needs because they knew it would be several months before they could occupy a new space with lead times for design and construction.
BLAIR: When the COVID-19 pandemic first began to cause shutdowns across our great state and footprint, we expected a slowdown in the construction demand. That slow down never really materialized. Some trades even ramped up, (especially in the residential market). We saw our own customers continue with future planning and roofing needs, all while managing this crisis for themselves and their employees. The pandemic brought about additional needs for our hospitals and healthcare partners, and other customers saw the lessened occupancy rates of their buildings as a great time to make improvements to their current buildings/infrastructure. In hindsight, if 1-1 1/2 years ago, you would have told me how busy we would be during the upcoming pandemic, I am not sure I would have believed you. well as our friends in the Triangle), the pandemic had a very strong impact on residential construction demand just because of the number of people who wanted to exit urban areas in favor of NC. For commercial demand, it really depends on the project and sector. Multi family is still a very strong property type, and we are seeing a strong pipeline of projects from our multi-family development clients. Hospitality and retail are two sectors that may be a little slower on a macro level. The movement towards working remotely had many worried about the future of the office market but I’m one who believes that most people want to work in an office environment, and I have confidence that office will remain a strong and viable property type. Bradley Creek Station is a perfect example – it is home to First Carolina Bank’s Wilmington office and was delivered in the middle of 2020. It’s an 80,000 square foot building that is now completely full which is remarkable given the timing of the building’s delivery but also speaks to the demand for high quality office space. There are several office projects in various stages of development in our region and I have seen strong activity in other of First Carolina Bank’s market areas as well.
DULL: Demand is very high for construction currently. The pandemic has accelerated some macro trends such as the need for more warehouse space as e-commerce continues to grow. The pandemic has also accelerated population migrations and I believe we all feel the energy from new people moving to our area at a faster rate. All these folks need a place to live and demand services.
Is the volatility in material markets solely a function of supply and demand, or is there more at play?
DULL: It depends on the material. For example, with resin, it is due to the refineries in Texas being closed last winter due to the ice storms and some of it is due to macro events such as the Suez Canal fiasco earlier this year. For a large part it is due to contractions in supply as mills were shut down; coupled with increases in demand which have shifted the equilibrium axis of prices out. The amount of liquidity the government has pumped into the economy and a limited workforce due to emergency unemployment benefits still being paid in NC until September have also contributed to price increases.
BLAIR: This current volatility is much more than just supply and demand. The construction industry as a whole has always been on the late end of any economic change. When the Housing Bubble/Market Crash in 2008 happened, the construction industry was busy and stayed busy through the beginning of that crisis. When you have current contracts and buildings ongoing, that work continues. We see the biggest dip on the backend of any economic change as our developers and partners pause on future projects. This same dynamic is happening now. When the pandemic hit, it shut down shipping, ports, manufacturing, and material distribution. Turning all those parts back on took time and the stop/
start of our raw material industries and manufacturing is a large part of the current supply issue. Labor availability is the other half of the challenge. People could not go to work and then it was not clear who or what was the safest way to go back to work. There were so many unknowns on the front end of this pandemic it created a lot of confusion and challenges to getting the manufacturing of our raw goods back up and running.
RIZZO: There is more at play in that there are more demand drivers now than what we would see in a typical “bull” market for real estate (low interest rates, market liquidity, and an exodus from urban areas into our market). Supply and demand really control the market but there are different inputs on both the supply and demand side. Right now, there is clearly volatility and it’s harder to find equilibrium in the markets. There are signs that the market is becoming less volatile, and many believe that this will continue into next year. We’ve talked a lot about pricing but not as much about the bottlenecks created by lack of inventory and shipping issues. There were weather events earlier this year (the deep freeze in Texas in February) that caused several manufacturers to shut down and this made an already bad situation even worse. I think that, because of the aftereffects of COVID, the material markets are more sensitive to disruption (like weather, etc.) than they would be otherwise.
Have all building sectors been uniformly affected by market volatility – government, commercial, residential?
RIZZO: First Carolina Bank is very active in both commercial and residential lending, and I would say that the volatility has been similar in both sectors on a percentage basis. Commercial projects are typically more complex and more expensive so the price increases may be more evident there. The government is not as constrained by price and huge increases in government building spending are proceeding despite the volatility in input pricing. I think we can safely say that costs have increased across the board, but the severity of these increases vary by project.
DULL: Yes, I believe so. DULL: Yes. Steel seems to be one of the worst hit due to large companies such as Amazon and Wal-Mart buying up a large percentage of the world supply to build out their distribution networks just as supply is contracting. Not only has the price tripled, but the lead time is 9 – 12 months.
BLAIR: While some building materials have been affected more than others, it has been consistent across the board with delays and pricing issues. Most everyone is familiar with the increased prices for lumber. At one point, lumber was up 348% year over year. While this is the extreme, there are not many building materials that have not seen some increase or delay. Our major materials have increased, and we have worked hard to offset those increases for our customers with scope revisions or other options. It is a challenge each day, but every little bit helps in this current market.
BLAIR: From our perspective, material volatility has affected all the building sectors evenly. When the prices of goods are rising and supply is dwindling, no one building sector is immune to those market conditions. Recently, while reviewing current status with our suppliers, it seems the materials are starting to level out and the ability to plan for the future is more certain. The lead times have not greatly improved, but they are leveling off (some are
showing improvements), which gives everyone the ability to make a more concrete plan. Some of the first material shortages are starting to rebound. Specific to commercial roofing, in March/April 2021, we really started to hear about shortages and delayed shipments. By June, we knew our industry had some challenges ahead of it. Even now, we are starting to see more guaranteed ship dates and a comfort level from our distribution partners on when they are going to be able to provide the needed materials for a job.
STEVE ANDERSON
Owner and Developer, SAMM Properties
Have some building materials been affected more than others? Is there anything unique about how material market volatility is affecting Southeastern NC?
BLAIR: Baker Roofing covers the majority of the Southeast US, in addition to Southeastern NC. Through all our markets, we have seen the same volatility and challenges. Our distributors provide raw and finished materials throughout the country so a change anywhere can have an effect here. For example, the freeze in Texas in February caused shutdowns for (3) of the plants that produce our adhesives. This natural disaster was completely outside of the Southeastern footprint but had lasting effects on our material availability. More specifically for Wilmington, the current and continuing population growth locally within the last two years has caused more demand for all goods and services.
DULL: Not necessarily unique to Southeastern NC, but states that have ended the emergency unemployment benefits like South Carolina seem to have more efficient and normalized supply chains.
What are the financial impacts of the current building environment on the end user?
ANDERSON: Commercial and residential development obviously have distinct differences, but the two that have been especially apparent lately are the supply and demand and the cost of materials. The price of lumber sent everyone into a frenzy when it skyrocketed seemingly overnight. We all sat back and thought for sure this would be the cause of a slowdown in the housing market because of the price increases that buyers would see. That notion was quickly put to rest and the residential market continued to get hotter, not only in our local market because of the amount of inbound moves we saw over the past year, but all over the country. It was though buyers did not have any concern with the fact they were paying more for a house because of the cost of materials. For the commercial aspect and specific to SAMM Properties investments, it will be difficult to gage what effect material cost will have until we start construction on our new projects in the coming months. Bradley Creek Station was halfway through construction when Covid arrived so our price was already locked in so we did not have to account for rising cost in our leasing/sale rates. We are currently in the process of pricing several new buildings so now we will really be able to examine the difference of cost in certain categories.
RIZZO: I’m not sure that we really know the answer to that question yet only because of the historically low interest rate environment and because there is so much liquidity in the system
right now. I’m certain that builders, residential and commercial alike, are having some tough conversations with their clients regarding pricing but my sense is that, more often than not, end users are moving forward with projects because the financing costs are so low and because demand is so high. For commercial users, longer lead and delivery times mean more carrying costs. Banks partnering with commercial clients on projects now have to be mindful of this and flexible in terms of structuring construction loans. There is a lot of perceived value in Southeastern NC for those moving here for the first time, and those of us who have been here for a while know what a wonderful place this is. As costs continue to increase, however, the expense of owning and renting will also increase and at some point, higher prices will mean less demand.
BLAIR: The financial impacts for the end user are a real consideration right now. Businesses create maintenance and construction budgets year(s) in advance and a significant change in material cost and availability can stress those budgets. Baker Roofing works hard to help building owners and property managers manage these budgets with any means possible. We strive to provide accurate long-term budgets and more immediate services for extending the building’s life expectancy in relation to the building envelope.
DULL: Higher cost buildings; as well as adjustments to scope and delivery date.
How has access to capital changed as a result of the pandemic and has material pricing affected the commercial loan process?
RIZZO: First Carolina Bank continued to grow despite the shutdown of 2020. Coming out of the pandemic, we have seen a steady pipeline of new construction projects and I would say that our process for underwriting these projects has not changed as a result of COVID. We are so fortunate to live and work in an area that is in high demand – as long as people and companies want to be based in Wilmington, there will need to be infrastructure (homes, offices, retail, etc.) to support them. As a North Carolina based bank, all of our decisions are made locally. It is critically important to have people who not only understand our markets but who live in our markets making decisions that impact our clients. Many banks stopped their lending activity altogether during COVID (outside of PPP lending) and have been slow to ramp up. Because we continued to grow and help our customers throughout the pandemic, First Carolina Bank is well positioned to meet market demand going forward. “
How has the building industry permanently changed in the wake of the COVID-19 pandemic?
BLAIR: The building industry has continued to embrace newer technology and management opportunities over the last 20 years. We have transformed from paper blueprints and large plan tables to digital building files, BIM integration, and field crews having all the plans on tablets. This change continued with the social distancing requirements from COVID-19. Crews are more capable of documentation on their phones, meetings via ZOOM or TEAMS. However, there will always be the need for our teams of developers, builders, clients, and tradesmen to be able to meet on a jobsite and review the pertinent issues. That face-to-face relationship will be even more important as we reengage and move back to a normal business operation. DULL: I think it is too early to make a prediction on a permanent change; but I do think that Southeastern NC and therefore the building industry will economically be a net winner because of COVID. RIZZO: I am not sure “permanent” is the word I would choose here. Markets adapt, as do consumers. Banks will also adapt, or pivot, to meet the needs of customers. This is where I feel First Carolina Bank has an advantage over some of our competitors in the marketplace as we are better able to quickly and nimbly pivot and make decisions more efficiently. I do believe that there will be lessons learned across the board resulting from the pandemic and that there will be safeguards put in place to better prepare all of us going forward.
How have, or how could, governments – local, state, federal – respond to address the effects of material market volatility?
RIZZO: The market is still going to be determined by supply and demand economics, but more stable and predictable trade policies would help offset volatility as would a reduction of tariffs on certain raw material imports.
DULL: It is well past time for the emergency unemployment benefits to end. Every restaurant in town has a help wanted sign in the window and this percolates throughout the labor force, which has a negative impact on supply chains.
SAM BLAIR
General Manager, Baker Roofing Company
What impact has the current market stressors had on building design trends?
DULL: Value engineering projects to meet a budget is more important than ever. From the ground up, the design of a project should utilize materials that have less price volatility and are more readily available.
ANDERSON: There are two main forces driving design trends — material cost and availability of material, both being critical factors when designing a building. SAMM is currently in the design phase with over 240,000 square feet of retail and office space, and for the first time we are having to closely look at the availability of certain products to see if it meets our timeline and budget. We hope to see improvements in material cost and availability as we move through 2021.
How can banks aid in the economic recovery and with new construction in our region?
RIZZO:All of the growth that we’ve talked about is going to require capital so there will definitely be a role for banks to play going forward. The Payroll Protection Program (PPP) was a lifeline to many businesses at the height of the pandemic – banks stepped up then and will step up now to provide funding for new residen-
tial and commercial projects that will keep our community growing and vibrant. It is so important for banks and their key decision makers to realize that our market is different from others in the state, and I would urge borrowers to ask their lenders early on where decisions are made that could impact the loan approval process. Flexibility will be a very important factor for borrowers to consider given the uncertainty that exists now with the supply chain. Customers have enough to worry about with waiting for many of the deliverables needed to start or complete a project, so they definitely don’t want to wait on their bank on top of that!
Considering these market challenges, are there still opportunities for builders and buyers in Southeastern North Carolina?
RIZZO: Absolutely. It has become abundantly clear that Southeastern NC is a highly desirable place to live and work – Wilmington was highlighted multiple times on national news as one of the top places where people were relocating (primarily from the Northeast) in 2020. The real opportunities will likely be to our north and south – Brunswick County has been the fastest growing county in the state for some time now and this will likely continue. We’ve also seen tremendous growth in Hampstead and north along the Highway 17 corridor. There will be opportunities for residential contractors to support the demand for housing and also for commercial developers as there will be infrastructure needed to accommodate more residents. DULL: Absolutely. There is so much energy in our community right now as more and more people move to this area. Supply chains will catch up and markets will stabilize in the next 12 months.
BLAIR: Yes. The population growth in Southeastern NC is one of the main driving factors to show that there are still great opportunities for builders and buyers. This area and market will never stop being an ideal place to live. The standard of living, relative cost of housing, and the work opportunities are great drivers for people wanting to relocate here. The foresight and investments in the Port of Wilmington, infrastructure along 421, and the partnership between NHRMC and Novant Health are huge steps to continue opportunities for all types of commercial buyers and builders.
ANDERSON: Absolutely, and that answer shouldn’t be a surprise for anyone. When everything slowed to a halt from the second quarter of 2020, it caused a pent up demand that I don’t believe many people anticipated. Wilmington saw many people relocate here during Covid and with that came existing business owners bringing their businesses with them and entrepreneurs seeing opportunities to start new businesses. For SAMM, it caused a substantial supply and demand issue. We went from plenty of available space at the end of 2020 to being totally out of space in the second quarter of 2021, and the phone was still ringing constantly for people wanting space in our developments and we had nothing available.
What are your predictions for the future of our local building market?
RIZZO: Our local building market should remain strong due to the continued influx of people. The Triangle has seen many companies open regional offices as well and I think that will also help continue to drive demand in Wilmington. We have such a tremendous value proposition to offer residents and business owners – the Atlantic Ocean and our beaches sell themselves and we have a great school system that includes UNCW and CFCC. I see continued growth, particularly to our immediate south and I see First Carolina Bank as an important participant in that growth. There will be challenges and there will be a slowdown in the broader economy at some point, but my feeling is that Wilmington will be somewhat insulated from this if for no other reason than the continued demand for people who want to live here. We can take the lessons that we learned from COVID and apply them in the future which should make us all better at what we do.
ANDERSON: I predict the commercial market will continue to get stronger. You are starting to read more announcements about businesses getting back to the office, and more importantly people are excited about getting back to the office as virtual and remote work has been taxing on many and created “zoom fatigue.” We still need to navigate material cost and shortages, but again I think as we progress through the year you will start to see relief for both
BLAIR: Two years ago, no one saw a pandemic sweeping across our region, country, and world. Our businesses responded and we are seeing the efforts of that work as we work back to normalcy. We expect the building market to continue growing for the next 5-10 years. There are always chances for small dips within that period, but Southeastern NC has shown it is a growing community. The investments from Novant are going to be a key contributor in multiple markets. The material volatility is already improving, and we expect our suppliers/distributors to catch up within Q1 2022. Our community has had a challenging two years, but we are headed in the right direction.
DULL: The future for the next 5 – 10 years is very bright for SENC.
What is the current demand for office space as a result of the pandemic?
ANDERSON: We are seeing increasing demand in our area. We are now in the design and planning phase for several new Class A office and retail developments in our region. For Wilmington specifically, there is a pent-up demand for new Class A office space and not enough inventory. Businesses that have already been in Wilmington are continuing to grow, and now you have additional factors with people moving their businesses to Wilmington and entrepreneurs recognizing new opportunities. The supply for new Class A office space will need time to catch up to the current demand. We are currently planning projects in Leland, Raleigh and Charleston in addition to Wilmington. In all four markets we are seeing and hearing that people are getting back to the office and there is an increasing demand for office space, especially new Class A space. Our timing is advantageous since we can give clients the ability to design their space from a blank canvas. Clients are taking into account the lessons Covid taught us in addition to new enhancements that will make the office more versatile for work and collaboration.
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