With Raleigh office market still hot, local developer continues to build on speculation

Dominion Realty Partners is feeling confident in Raleigh.

The Raleigh development company just kicked off its latest project in the city — built entirely upon the speculation that if they build it, they will come. The “they,” in this case, being companies looking for large amounts of brand-new office space.

It’s the third straight building Dominion has built on speculation in Raleigh, and this is the only market where the company is currently doing that. Dominion focuses mainly on the Raleigh, Charlotte and Richmond, Va., markets.

“You don’t see a lot of (speculative building) right now” because the banks have been pulling back on financing projects, said Chris Carlino, a director at Dominion Realty Partners.

But “if you speak to most of the brokers (in Raleigh), a lot of tenants are having trouble finding space,” Carlino said. “It is a testament to a market that continues to do well. There is this mentality that if a tenant sees a space that they like — and even if it doesn’t check all the boxes —there is no guarantee that space will be available in one to three months” because of how many people are in the market.

More than 2.6 million square feet of office space is now under construction in the Triangle, according to the most recent report from real estate services firm JLL, and the Triangle’s total vacancy rate has crept up to 12.1 percent from 10.7 percent last year with so much construction.

But the JLL report also says that new spaces will still be in demand because “with an unemployment rate of 3.5 percent, talent attraction continues to be a top concern for tenants in the Raleigh-Durham market” so “to boost their competitive edge, companies are increasingly looking for creative space.”

In West Raleigh and downtown Raleigh, the vacancy rates are hovering around 8 percent, and in downtown Durham vacancy rates are at 2.4 percent, according to the JLL report.

Dominion’s newest project — a building called Wade V in the Wade Office Park development near PNC Arena — will be a six-story, 209,000-square-foot building. It will be the biggest of the five buildings in that office park, which have all been built by Dominion.

Wade III and IV were also both built on speculation and have leased well, Carlino said. Every building there is over 93 percent leased. Dominion is also building FNB Tower in downtown Raleigh right now — though that building was not built on speculation. Carlino added that FNB Tower is already over 62 percent pre-leased, which is “ahead of schedule.”

Dominion is partnering with Prudential Global Investment Management to finance Wade V, the same firm that helped them with building IV. Regions Bank is providing the construction financing. Wade V is expected to be completed spring 2020.

“There is a lot of people trying to get things out of the ground right now,” Carlino said. But “tenants have a really hard time committing to moving their offices until they see something coming out of the ground.

“FNB Tower sat vacant for a number of years, even though there was lots of interest from companies in moving downtown ... but tenants were skeptical to committing, thinking it might never get out of the ground. Once you see steel going up, interest really picks up.”

Dominion isn’t the only firm having success with finding tenants to fill the new buildings going up.

Earlier this week, Heritage Properties announced that Capital Bank would be relocating its Raleigh operations to the new One Glenwood tower at Glenwood Avenue and Hillsborough Street. Adding the bank, put the 10-story building over 80 percent leased, with more than four months until it would be open to tenants.

Heritage said the success of One Glenwood has given the company confidence to continue building in the downtown area, and the company has already submitted plans for another 10-story building adjacent to One Glenwood.

And John Kane’s most recent project in downtown Raleigh, The Dillon, is already 96 percent leased, after landing financial services firm Arch Capital as a tenant earlier this year.

Kane, on the back of the success of The Dillon, is also forging ahead with more construction downtown. His company recently submitted plans for building up to 20 stories on the Clancy & Theys property on Cabarrus Street

This story was originally published October 24, 2018 at 6:00 AM.