New development continues as numerous Triangle downtown offices remain empty
Workers and employers are continuing to navigate the workplace three years after the pandemic changed the game.
Around 17% of offices in downtown Durham and Raleigh are vacant according to the Q4 2022 Market Report from Avison Young, a commercial real estate company.
"It's definitely the highest it's been a long time," said Kathy Gigac, the managing director of Avison Young.
The availability rate in the Triangle is the highest since 2006, when the company started tracking data, according to the latest report.
"A lot of the tenants are trying to find the right size," Gigac said. "The other trend that we're seeing that we're talking with our clients about is spaces that have amenities to kind of entice their employees to come back."
Baxter Walker, a commercial real estate advisor at Avison Young, said since the pandemic a lot of bigger companies started subleasing their spaces out to smaller companies as they figured out how and when their own workers would go back to in-person work settings.
"They put their space out for sublease because they really weren't ready to make a decision," Walker said. "There's a lot of sublease space on the market, which may be a good opportunity for some businesses... it may be a Band-Aid for some companies, but is certainly not the permanent solution."
Uncertain demand and high construction pricing are also leading office development to reach its lowest activity rate since 2015.
"It has slowed a little bit. I think a lot has come into play with that. Some of it's been financing and what's been happening with the interest rates. Construction costs have also played a key role," Gigac said. "We have a lot of subleases right now on the market. So they want to make sure that when they come out of the ground, they're going to be able to lease the space."
And for the developments that are underway, developers are reporting office leases are slow to be filled.
400H is a mixed-use development that is scheduled to open on Hillsborough Street this summer. Its developer said there are no confirmed tenants for the 150,000 square feet of office space yet.
"When you see that it's not necessarily a bad thing. It's just the right scenario hasn't played itself out yet," Walker said.
The Avison Young Q4 report also pointed to major developments like the Midtown Exchange, 541 Church at North Hills St., One North Hills Tower, and T3 American Tobacco South.
ABC11 reached out to each of the developers of the four projects and only One North Hills Tower confirmed they have a lease signed for office space when it opens this fall.
"I think there's going to have to be a little bit more leasing in some of these pockets before people are going to feel comfortable building new towers," Gigac said.
Gigac said there are fewer big companies buying entire buildings but there is still demand for 20,000-square-foot spaces.
Similarly, Avison Young's recent report found vacancy rates vary within the Triangle. Places like Six Forks Road, Southern Wake County, and the Glenwood/Creedmoor area have lower vacancy rates than the downtown areas.
Overall, Gigac and Walker remain optimistic that the era of the office is not dead yet.
"I'm not that concerned. I think we're going to be fine," Gigac said. "I think they're going to get filled. We're probably going to see a lot more movement in 2024. I think this is gonna be kind of a balance here."
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