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News release

Raleigh-Durham

Creative boomerangs back to Raleigh-Durham’s skylines

JLL’s 2017 Skyline report reveals creative tenants returning to downtown offices


Raleigh-Durham, July 18, 2017 – When it comes to premium office space across the United States and Canada, creative firms are doing what they do best: driving change. JLL's 2017 Skyline shows that creative's boomerang to this coveted space and the eighth straight year of occupancy growth are contributing to record rents and a landlord-friendly market. In Raleigh-Durham, tech tenants are driving these trends as companies such a LogMeIn and BitSight lease space in Skyline buildings, and Citrix plans to expand in Downtown Raleigh.

Skyline is JLL's annual look at office space within some of the tallest buildings in 57 markets across North America. Some highlights from this year's edition include:

  • Skyline vacancy within the Raleigh-Durham market remains below the national average at 7.1 percent, with vacancy of Trophy buildings – those ultra-premium office towers within a Skyline – at just 5.6 percent
     
  • Rents hit a record $30.59 per square foot, a 35.0 percent increase since 2012
  • ​Few Skyline properties have sold as investors continue to see properties increase in value
  • The construction pipeline remains healthy, having added 300,000 square feet in Q1 2017, and is 54.0% preleased

"We've seen a change in the tenants that make up the Skyline, especially as companies work to strategically position themselves to attract the highest caliber of talent," said Ashley Rogers, JLL Research Analyst.  "The revitalization of the CBD and an increase in amenity-heavy office buildings that incorporate creative space elements have attracted tenants ranging from technology headquarters and coworking spaces to advertising and media platforms."

Landlords on top, for now

The net change in occupied space, also called net absorption, increased by 35,450 square feet, meaning the Skyline market is now more than 92.0 percent occupied. However, we expect eight straight years of Skyline occupancy growth to ease soon as the market prepares for several large blocks of space to become available.

Nationally, Skyline vacancy sits at 12.9 percent – well below the overall national average of 14.5 percent. Just 10 percent of Trophy space (think Chicago's Willis Tower and New York's One World Trade Center) is available, giving landlords the upper hand. But that may change as we see a slow rise in vacancy in 2018.

A rising tide lifts all boats

Tenants still want that Skyline cache, which is why rents jumped to $30.59 per square foot on average. For those coveted few Trophy spaces, that premium goes to $32.56 per square foot. Newly renovated, The Chesterfield has the highest average Skyline asking rent of $35.00, and not far behind is The Dillon in Downtown Raleigh, with an average Skyline asking rent of $34.50. Thanks to demand, the Downtown Durham submarket hit a high note with the biggest year-over-year rent growth at +28.5 percent.

Buyers selectively target the skyline

"Skyline assets continue to attract companies seeking the tech talent that Raleigh-Durham's downtowns provide," said John MacDonell, JLL Agency Leasing. "In the last year, we've seen little turnover in the ownership of Skyline properties as investors look to take advantage of a hot market that has not yet peaked."

"Skyline assets continue to provide stable value, making them an incredibly attractive option for investors," said Jonathan Geanakos, President, JLL Capital Markets, Americas. "We've also seen a large increase in foreign investment into some of the trophy properties included in our Skyline portfolio over the last year over the last year and the beginning of this year. In addition, both foreign and domestic investors are finding secondary market real estate to be more readily available and at a relative discount."

So, just how much do investors love the Skyline?

  • Skyline acquisitions were up $21.2 million in 2016, representing an annual change of 36.9 percent in total sales
  • Charter Square in Downtown Raleigh sold for a Skyline record setting price of $322 per square foot

 

Construction moves forward

A healthy 936,549 square feet of Skyline space remains in the construction pipeline, up 33.6 percent since the end of 2016. The ground-breaking of several large projects and investor confidence in the market are the leading factors.

With the pipeline extending all the way into 2021— 1.3 million square feet is set to deliver in 2018 alone – and the potential for slower economic growth, we expect the Skyline to shift to neutral territory for landlords and tenants.

 

About the Skyline

Investors and tenants can access JLL's Skyline via a digital platform. The interactive website features JLL's exclusive market insights regarding office supply, demand, rents, leverage and investment into 57 markets across the United States and Canada. It gives users the ability to compare and contrast individual markets or multiples of markets, as well as individual properties or portfolios. In addition, the site offers videos and infographics, all of which are available via mobile access.

 

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At the end of the first quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 78,000. As of March 31, 2017, LaSalle Investment Management had $58.0 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com