Duke Energy's plan to acquire Progress Energy has caused a great deal of anxiety within the Raleigh business community, and the real estate industry is no exception.
In addition to being the only Fortune 500 company headquartered in Raleigh, Progress is far and away the largest tenant in downtown Raleigh.
The company leases a majority of the space in two towers that contain roughly 800,000 square feet.
Even though the merged company, which will be based in Charlotte, has promised to maintain a sizable presence in Raleigh, some reduction is inevitable.
"Eventually, there will be a smaller footprint here," Progress CEO Bill Johnson said Wednesday during a meeting with News & Observer editors and reporters. "Will it be one building or two? I don't know the answer to that question."
Progress occupies space in two of downtown's tallest buildings, both of which were fully leased in the third quarter, according to a Grubb & Ellis Thomas Linderman Graham survey of Triangle office space.
Any reduction of the company's space needs would quickly change the dynamic in downtown Raleigh, one of the best performing office submarkets in North Carolina and South Carolina.
Its vacancy rate stood at 5.6percent at the end of the third quarter, Karnes Research reports. That was the lowest in the Triangle and far below the 18.5 percent rate for the entire region.
The downtown submarket had a total of 193,000 square feet of available space, a figure that could more than triple under a scenario where Progress exits entirely from one of its buildings.
Its 21-story headquarters on Fayetteville Street was built in 1977. It includes 440,000 square feet and is owned by Hawthorn Associates.
Two Progress Tower, a 19-story building on Davie Street, was built in 2004. It includes 366,000 square feet and is owned by J.P. Morgan Trust Co.
J.P. Morgan is leasing Two Progress Tower back to Progress under a deal signed in 2003. The lease agreement includes a clause stating that, in the event of a merger, the lease transfers to the new company, according to Wake County property records.
Though some downtown boosters have said the merger could free space downtown for a new large tenant, those folks clearly aren't in the leasing business.
The number of companies in a position to take on a chunk of space now are few.
The merger could have implications for investment sales in downtown. If a sizable amount of space comes available for sublease, it could cause potential buyers to reassess the value of property in downtown.
The timing of the merger is particularly tough for The Simpson Organization, the Atlanta investment group that is trying to sell One Bank of America Plaza, the 17-story tower that sits next to Progress' headquarters.
Jim Anthony, a Raleigh real estate investor, said at this point no one knows what the merger will mean, which itself has consequences.
"Right now it has an impact because there's an anxiety factor," he said. "That's an impact."
There's also the possibility that other developments could ultimately offset any reductions Progress makes in downtown. Red Hat said this week that it will build a new headquarters in Wake County, and it is considering several sites downtown.
Staff writer Alan M. Wolf contributed to this report.
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