Agenda - 03-13-2012 - 4b - Laserfiche WebLink

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8 Real Estate Analysis of IJNC Spin-Off Companies Overview This report presents the real estate needs and preferences of LTNC-CH spin-off companies, describes the properties they currently occupy in the Triangle area, and suggests options Orange County Economic Development (OCED) could pursue to attract and retain companies like these given their evolving space, facility and location requirements. Real Estate Context Although the national recovery continues and the Triangle area's performance is better than the national norm, commercial real estate markets here are oversupplied.l Office vacancy rates have doubled in the past 10 years to over 12%. Full service rents have remained flat for the same period at about $18.50/SF reflecting a decline in real terms. The market for flex spacez is similar with vacancy rates increasing to 12% and rent remaining flat at $9.15/SF. At mid-year 201 l, Orange County had 3.26 million SF of office space in 219 buildings. The vacancy rate was 12.5%, and the average quoted rent was $22.20/SF. Comparable figures for flex space were 675,592 SF in 48 buildings, 13.5% vacancy and $7.97/SF average rent.3 Office construction activity in the Triangle area is minimal reflecting the down cycle. Only 417,000 SF of office space is under construction this year compared to average annual deliveries of 2.0 million SF of office space for the past 30 yeaxs. No office or flex space is currently under construction in Orange County. Although forecasts point to an economic recovery, many believe that less space will be needed per office employee in the future. The long-standing rule of thumb has been 200-300 SF per office-using employee. Some predict that this standard will fall as space is organized in more open formats and as employees are given more flexibility to work outside the workplace. One particulaxly important question pertains to the location preferences of companies using office space. In the pre-2008 economy, most established companies preferred office space located in suburban business parks. As innovation, entrepreneurship and sustainability become increasingly important in the post-2012 economy, office space in urban areas is increasingly attractive, especially to knowledge-oriented companies. Urban environments offer the critical 1 The Triangle area includes the counties in the Raleigh-Cary metro area and the Durham-Chapel Hill metro area. This study focuses on the three core counties of Durham, Orange and Wake. Z Flex space is usually configured in four or more adjacent one-story bays combining office space (30%) in front and warehouse space (70%) to the rear. The warehouse space which can include lab space has at least 16-foot ceilings and a ground-level or elevated delivery platfonn. 3 All rental rates cited in this report are annual. CoStar Group is the primary source of data used in this section.