Real Deals

Real Deals: Downtown Raleigh, North Hills office projects jockey for tenants

dbracken@newsobserver.comSeptember 18, 2013 

If you’re a tenant in the market for new, centrally located office space in Raleigh, you’ve probably already received pitches from a trio of developers.

With three office projects moving ahead simultaneously – two in downtown and one at North Hills – the market is experiencing the type of horse race that has been extremely rare in recent years.

The competition among the projects is heightened by the fact that, while the economy is improving, the list of companies in the market for large blocks of space remains fairly limited.

“We all need preleasing, and we all think we have great locations, and it’s very healthy competition,” said Gregg Sandreuter, the developer behind the Edison office tower planned for the corner of South Wilmington and East Martin streets in downtown. “It’s an example of how companies want core, infill office space.”

The first building scheduled to come out of the ground is Dominion Realty Partners’ 11-story tower planned for the Charter Square site at the south end of Fayetteville Street.

This week the city of Raleigh announced that it was buying back the land from the Charter Square developers after they missed a Sept. 20 deadline to begin construction on the site. Dominion is now in negotiations with the city to buy the site where its 236,000-square-foot building will rise.

Andy Andrews, Dominion’s CEO and president, said this week that construction would begin in November even without any major preleasing announcements. Prudential Real Estate Investors announced itself as Dominion’s equity partner on the $54 million project in July, a move that was likely designed to give a boost to preleasing efforts.

“We have some folks that have committed; we’re just not willing to say their names,” Andrews said. “We’ve signed some (letters of intent) so we’re moving in the right direction.”

Kane Realty hopes to move ahead with an 18-story office tower at North Hills by early next year. The $82 million project, to be built on Six Forks Road between the 17-story CapTrust Tower and the First Citizens Bank building, will include 300,000 square feet.

CEO John Kane said the project needs about 30 percent of its space preleased. “We’re very close to that already,” he said.

Sandreuter’s project will be a mere three blocks away from Dominion’s Charter Square tower. The 13-story, 315,000-square-foot building is to be part of the larger Edison complex, which will occupy an entire block and also include two apartment complexes. Sandreuter said the project needs 25 percent to 50 percent of its office space preleased before moving forward.

Other competitors

While the three urban projects will likely face the stiffest competition from each other, they’ll also have to fend off other projects in the preleasing phase elsewhere in the city.

Highwoods Properties has proposed building a new office building at GlenLake; Grubb Ventures has plans for 3800 Glenwood, a 115,000-square-foot building just off Glenwood Avenue at the Beltline; and Prudential Real Estate Investors may soon close on property near PNC Arena where there is room for several new office buildings.

Urban vs. suburban rents

Rents for the two downtown buildings and the North Hills tower are likely to hover around $30 per square foot. Although they will certainly cost more than their more suburban competitors, the gap may not be as wide as it has historically been.

Increased construction costs and land acquisition costs have made it more expensive to build new office space no matter the location. Developers now are also under pressure to deliver certain returns to justify new construction.

If the gap does shrink, it may make it easier for tenants to justify the expense.

Bracken: 919-829-4548

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