There are very few real estate markets in the Triangle today where a landlord, faced with an expiring lease from a high-quality tenant with good credit, could expect to renew that lease without providing some concessions.
Maybe the landlord agrees to make some improvements or to provide a few months of free rent.
Unless, of course, the landlord happens to own warehouse space in the Interstate 40 corridor around Research Triangle Park.
Once known for having one of the highest vacancy rates in the country, this market is today one of the healthiest.
Duke Realty was able to raise a tenant's rent in one of its warehouses last year while providing no concessions.
"I'm not having that conversation" with tenants in Duke's office properties , notes Jeff Sheehan, a senior vice president with the company in Morrisville.
Duke owns nearly 2 million square feet of warehouse space in the Triangle, and this year the company's portfolio reached a milestone when it became 100 percent leased.
The I-40/RTP corridor is home to the bulk of the Triangle's warehouse space, accounting for about half the region's 18 million square feet of inventory.
The submarket's vacancy rate was 10.8 percent in the first quarter of this year, down from 11.4 percent a year ago, according to Karnes Research, a Raleigh firm that tracks commercial real estate trends.
Rental rates increased 2 percent over that period to $4.94 per square foot.
Pain, then gain
The submarket's health can partially be explained by the immense pain it suffered in the middle of the last decade, when the technology sector's implosion left landlords with lots of empty space.
In 2004, the vacancy rate for warehouse buildings was above 35 percent. National industrial developers, who had helped flood the market with speculative warehouse space, departed and have yet to return.
"Truly, I don't think any body's built a speculative warehouse building in the I-40 submarket in seven, eight years," Sheehan said. "And that's turned out to be a really healthy thing for the market."
Although warehouses may not be the sexiest segment of commercial real estate, they offer landlords certain advantages.
Unlike office buildings - where a landlord may spend lots of money retrofitting a space only to have that tenant leave when the lease is up - the layout in a warehouse usually doesn't change much from tenant to tenant.
Typically, about 5 percent to 20 percent of a warehouse building is office space that may need to be renovated for a new tenant.
"For a renewal or a new deal, the capital expenditures that you have to put into it as a percent of the rent you're going to get back is traditionally a lot lower than office," Sheehan said.
High cost of land
It's unlikely that any warehouse space will be built anytime soon in the RTP area, where land is prohibitively expensive and difficult to acquire.
To make a new building financially viable, a developer would need to be able to charge rents that are closer to $6 per square foot, said Chris Norvell, a broker with Cassidy Turley in Raleigh.
Eventually, he said, the market will reach a point where speculative construction has to occur to meet demand.
"Once that happens I think you're going to see a dramatic rent increase in all spaces," he said. "We're just not there yet."
The I-40/RTP area isn't the only submarket where vacant warehouse space is in short supply.
Norvell said the market for newer, Class A warehouse space is even tighter in eastern Wake County, where vacancy rates at Duke Realty's Walnut Creek Business Park and Craig Davis Properties' Greenfield North Business Park are hovering around 3 percent.
Attracting investors
Such low vacancy rates are increasing investor interest in the Triangle warehouse properties that are on the market.
Cassidy Turley is handling the marketing of two industrial properties: Keith Corp's 309,000-square-foot Implus Building on T.W. Alexander Drive in Durham, and Greenfield North in Garner near the I-40 and U.S. 70 interchange.
The 228-acre Greenfield North is home to a half dozen buildings, including a Golden State Foods distribution center and the headquarters for Butterball.
While neither deal has closed, Norvell said there's no shortage of interested buyers.
"We've had very good response," he said.
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