When Highwoods Properties announced last week that it had signed Duke Medicine to occupy all 60,000 square feet of its Riverbirch building, it was just the sort of news the Triangle's real estate market needed.
Highwoods is spending $12.7 million to turn the 23-year-old building into a medical office building, which means Riverbirch will no longer be counted among the glut of empty, older office buildings in and around Research Triangle Park.
Nearly a third of the 10 million square feet of office space in the RTP submarket is more than 20 years old. The space had a vacancy rate of 42 percent in the first quarter, according to a Grubb & Ellis Thomas Linderman Graham survey.
That was more than twice the vacancy rate of the park's newer space and well above the 25 percent rate for the entire submarket.
"I think the vacancy rates are misleading," said John Stubbs, a broker at Jones Lang LaSalle, who represents tenants in the Triangle. "You've got to peel out some of this old space. Some of it is just outdated, and without a major rehab people aren't going to lease it."
The question of what to do with aging office buildings is particularly relevant in and around RTP, because many of the properties are still in very desirable locations.
As a generation of space reaches the end of its usefulness, owners must decide whether rehabbing a property will make it competitive with newer properties that may be more aesthetically pleasing. The Riverbirch building's location, off Page Road near Interstate 40, was a major factor in Highwoods decision to reposition it. Riverbirch had sat empty since Quintiles Transnational left for its new corporate headquarters in Durham's Imperial Center last year.
Highwoods is among the few landlords that can spend the money to improve old buildings. A big reason for its financial health is its strategy of selling older assets.
Some of RTP's aging office buildings are being swallowed up by expanding companies that need space or land.
Syngenta Biotechnology recently said it plans to demolish an 110,000-square-foot building on Davis Drive that it bought late last year. The building dates to the late 1960s and was bought with 50 acres of undeveloped land next to Syngenta's campus.
LED maker Cree paid $2.9 million last month for an empty 59,000-square-foot building near its Durham headquarters. Built in 1986, the building is part of the Pinnacle Point Office Park.
Pinnacle Point was built in the late 1980s for IBM. The park's four buildings contain 280,000 square feet of space that was vacant in the first quarter, the Grubb & Ellis survey shows. Cree plans to shift workers from its sales and marketing, legal and customer service departments there.
GSK's $70 million rehab
An ambitious renovation project is being undertaken by GlaxoSmithKIine, which plans to spend $70 million to modernize buildings on its RTP campus. Spokesman Robert Sutton said some of the buildings date back to the typewriter era.
"Technology has developed in leaps and bounds, and yet the actual work spaces in which people are interacting have not really been updated at all," he said. "The goal is to create more collaborative work spaces that are conducive to people sharing ideas and communicating, rather than solid walls and doors."
This year GSK announced it would leave about 11 million square feet of office space, or 13 percent of its global real estate portfolio, over five years to cut costs and make more efficient use of space.
GSK owns or leases about 40 buildings and 3.85 million square feet in the Triangle. Although the modernization effort is expected to make some of that expendable, Sutton said the company has not identified what space in its portfolio will no longer be needed.
"We don't really know specifically which departments are going to be going into which space," Sutton said.
