Commercial real estate in the Triad saw continued growth in Q3, despite nationwide economic whiplash from rising interest rates and inflation. Vacancy rates declined in the office, retail and industrial sectors in the Greensboro, Winston-Salem and High Point regions, and demand rates continued the upward trend shown in the first half of 2022.
Back to work in the Triad
Ongoing employer navigation of the post-pandemic balance between remote and in-person work is driving trends in the office space sector. Office space vacancy is 12.9%, continuing the downward trend for the year, and asking rates rose to $17.89 per square foot, a year-over-year increase of nearly 6%. New office construction slowed slightly in Q3, with 208,000 square feet under construction.
Toyota Battery Manufacturing, Noregon Systems and Apex Analytix signed leases, spurring strong Q3 activity and the highest lease absorption rate since 2015. Toyota intends to use the space until construction is complete on its $3.8 billion advanced manufacturing campus in Randolph County.
The robust office sector performance in Q3 does not indicate a long-term trend in the Triad, according to Greg Wilson, executive vice president at CBRE|Triad. He sounded a cautionary note: “The office market will continue to be turbulent as companies determine how to best utilize office space post-pandemic.”
Steady retail rebound in the Triad
The recovery of the retail market after the disruption of the pandemic continues in the Triad. Activity remains strong with a declining vacancy rate to 6.1%, and an average asking rate increase to $13.91 in the first half of the year, a year-over-year increase of nearly 15%.
When Toyota, VinFast, Wolfspeed and SteriTek announced plans this year to expand capacity and create more jobs in North Carolina, the news created a ripple effect in the Triad retail market, said Christy Smith, senior associate at CBRE|Triad, said.
“The recent economic announcements seem to have boosted confidence in the Triad area,” she said. “We are seeing new-to-market users looking at retail sites here after opening locations in Charlotte and Raleigh. We remain cautiously optimistic that these trends will continue into 2023.”
Similar to previous quarters, the most active retail tenants are quick-service restaurants with drive-thru or pickup windows, restaurants seeking outdoor dining areas, financial institutions, car washes, auto services and medical users, Smith said.
Record low vacancy in Triad industrial sector
Active tenant demand continues to drive strong fundamentals in the industrial market in the Triad, with the vacancy rate hitting an all-time low of 3.9% in the third quarter.
“This is the lowest it’s been since CBRE started tracking the industrial market in the Triad,” said Dodson Schenck, managing director of industrial services at CBRE|Triad. “Companies are occupying more space than they have historically, which is driving down the percentage of vacant space.”
Of the 5,941,000 square feet of industrial space under construction in the Triad, 4.3 million is speculative, or built without a tenant commitment. Schenck noted that the vacancy rate could rise slightly in 2023 as the underlying facilities go on the market. “While we expect tenants to lease the space over time, we may see a period where vacancy rates increase somewhat, but will generally remain low relative to recent years,” he said.
Population, job growth set to invigorate the market
The trend toward business and population growth in North Carolina and the Southeast in general will continue to drive demand for commercial real estate in the Triad, Schenck said. New and expanded trade in the area brings the need for additional space for related businesses.
“This will result in suppliers, providers and customers clustering in the Triad,” Schenck said.