3/9/23 Raleigh Mastermind Group Meeting

Raleigh March 2023 Key Take Aways

• Nick Leverett of CoStar presented a Triangle Update:
• The U.S. Population is shifting to lower cost states. NC saw 1.3% growth and is in the top 10 for growth, ahead of GA, TN. Raleigh is the driver of statewide growth; it’s the 2^nd fastest major metro for growth in 2022. Raleigh is far above the job growth it had pre-pandemic.
• Triangle apartment demand increased sharply in 2020-21 and then fell. Q4 2022 absorption was negative, a first since 2013. Supply and demand have been out of balance in last few years. Vacancy rates shot up. Raleigh has 15K units coming to market, which is 13% of share of inventory. We have demand recovering, but not enough for new supply. Vacancy to rise through 2023-24, then peak, stabilize and come down.
• Rent Growth peaked in mid-2022; rent declined for 2^nd half of 2022. Raleigh was the U.S. metro with steepest decline in rent growth. Rent growth will bump along. Raleigh has 4^th lowest rent growth at .7%. Properties offering concessions increased in recent months.
• Office is the most uncertain sector, facing the impact of remote and hybrid work. There is 4.5x sublease space available than pre-pandemic. CoStar expects vacancy to climb and plateau. Office asking rents have grown, but data is not inflation-adjusted and doesn’t include concessions. The terms are also down, so net effective rent will be lower. Office transaction volume held up in 2020-21 but experienced a steep decline in 2022.
• Activity has picked up in Industrial; there is new supply and absorption, and vacancy is steady with slight decline. We’ve seen 8.5M SF of industrial construction in the Triangle. Rent growth will stay positive but continue to decline due to new supply. Industrial transaction volume is increasing.
• The Triangle’s retail market is tight; rent growth may have peaked but is projected to be stable.
• Lee & Associates’ Marlene Spritzer said the Triangle sublease space is in large chunks. The sublease market for smaller spaces is tighter.
• Hunter Stewart of Lee & Associates advises making leasing easy whether industrial, retail or office; tenant will pay more if it is turnkey. He has not seen slowdown for land for multifamily.
• Lee & Associates’ Scott Hadley, Investors Title’s Steve Brown, and Terracon’s Joe Starr discussed the impact of robust growth on the municipalities of the Triangle’s outlying counties and the ability of these counties to manage the workload.
• Richard Oldham of Sanford Contractors and Kevin Scanlon of Lee-Moore Capital reviewed how Sanford is helping other communities with water and sewer needs. Richard said Sanford will serve Chatham County, Holly Springs and Fuquay Varina.
• Eric Vernon of Wyrick Robbins is interested in the impact of the reduction in Certificate of Need (CON) system included in the recently passed Medicaid expansion.