RTP's vacancy rate hits 27%

When cell phone maker Sony Ericsson announced last week that it will shut down its Research Triangle Park operations within a year, it became the latest high-profile tenant to reduce its presence in the region's signature industrial park.

Sony Ericsson's departure was not entirely unexpected - the company has struggled for years to compete in the global handset market - but the news only added to the pain being inflicted on RTP by this recession.

The office vacancy rate in RTP, including available sublease space, stood at 27.2percent in the third quarter, according to the Raleigh research firm Grubb & Ellis/Thomas Linderman Graham. That's up 34 percent from the same period last year and the highest it has been since the tech bubble burst, which caused RTP's vacancy rate to top 30 percent in 2003.

To be sure, things are very different from earlier this decade, when RTP saw more than 800,000 square feet of sublease space come on the market. The park had just 139,000 square feet of sublease space available in the third quarter of this year, meaning this time around direct vacancy is the problem.

If there is more uncertainty about RTP's ability to bounce back quickly from this downturn, it stems from the desire of more and more companies to be in urban centers instead of suburban office parks.

The revitalization efforts going on in places like Raleigh's downtown and North Hills areas, and downtown Durham have given companies more options.

"Over the last number of years, our market has really started to mature and become more diverse in terms of product type," said Jeff Sheehan, a senior vice president at Duke Realty in Morrisville.

This year, The Law Offices of James Scott Farrin and Burt's Bees, a maker of natural beauty products, both moved their offices from near RTP to downtown Durham.

Sheehan said the Triangle office market's increased diversity does not necessarily make RTP less attractive, as lots of companies want to be in a campus-type setting. "I'm not prepared to say the old park model is dead, per se, but it's certainly not for everyone," he said.

Smedes York, a developer who sits on the board of the Research Triangle Foundation, RTP's governing body, said there's no question the park needs to evolve in the coming years to remain competitive.

In particular, he said, there needs to be more opportunities for park employees to interact on a daily basis. "We need more gathering places in the park, even some residential," he said. "You'd still have your campuses, but they'd be better connected."

York said he doesn't think the park's current setup is hindering its ability to attract new companies.

"I don't think there's any serious issue today," he said. "But I think it really relates to five years, 10 years, 20 years out."

Revision goals

The Research Triangle Foundation continues to look at possible revisions to RTP's covenants and restrictions, its zoning laws and the state legislation that created the park, said CEO Rick Weddle.

The goal of any revisions, Weddle said, will be "to enable us to, as we come out of this downturn, to be able to support redevelopment and more intense development in certain areas."

RTP has always been about attracting very large companies and very small companies, he said.

The recession has reduced the number of potential big deals but "we still see very good activity in the start-up business."

One of Sony Ericsson's corporate parents, Sweden'sEricsson, first opened operations in RTP in 1991. The company hasn't said what it plans to do with Sony Ericsson's 193,000-square-foot building, which it owns.

If Ericsson puts the building up for sale, the Research Triangle Foundation will have first refusal. The foundation historically has bought back undeveloped land but not office buildings. Credit Suisse, for example, recently sold back about 35 undeveloped acres - half the property it purchased in 2006 - to the foundation after concluding that it has ample room for expansion in its facility.

The foundation has nearly 600 acres left to sell in the 7,000-acre park.

The news wasn't all bad for RTP last week. Highwoods Properties announced that the General Services Organization has leased 68,000 square feet of office space in RTP for use by the Social Security Administration.

John Stubbs, a broker at Jones Lang LaSalle, who represents tenants in the Triangle, said it would be a mistake to interpret the latest bad news as a sign that RTP is losing its luster.

"The long-term prospects are good," Stubbs said. "We've just had some bad news here recently. It's just part of the recession."

Stubbs noted that RTP is the central site if you want to draw people from all parts of the Triangle.

"It's a centerpiece that allows you to hire all different types of employees," he said.

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