Grubb Properties expects new Chapel Hill office building to ride COVID-19 recovery
A Charlotte development company is positioning itself to kick start Chapel Hill’s long-dormant office market just as the Triangle could emerge from a COVID-19 slump.
Grubb Properties erected the last steel beams in early July at The Gwendolyn, a 106,000-square-foot office building in the Glen Lennox neighborhood in Chapel Hill. The building, on track to finish in early 2021, is named for Gwendolyn Harrison, the first African-American woman to attend nearby UNC-Chapel Hill.
It will be just the third office building constructed in Chapel Hill since 2009, despite a red-hot office market that has delivered 1.7 million square feet of office space to the Triangle in the last year, with another 3.1 million square feet under construction.
The Gwendolyn also will be the first of several office buildings in the 140-acre, 1950s-era Glen Lennox neighborhood, located at the corner of N.C. 54 and Fordham Boulevard. The plan is to preserve 70 acres while creating up to 3 million square feet of offices, shops, apartments and a hotel.
Grubb Properties touts the redevelopment as environmentally friendly, with a goal of reducing Glen Lennox’s carbon footprint and cutting car traffic in half by 2030.
In addition to meeting LEED energy standards, The Gwendolyn also will have heating and air-conditioning systems that could employ charged filters or ultraviolet and ionization treatment systems, and touchless entry features for the post-COVID normal, said Joe Dye, executive vice president for Grubb Properties.
The interior spaces and furniture systems will be designed for physical distancing, with 5,000- to 7,000-square-foot suites on the ground floor, and smaller, town hall-style offices, plus shared conference rooms and break areas, on the second floor. That will appeal to many potential tenants in Chapel Hill, Dye said.
The third and fourth floors are blank slates at this point, and they’re also looking for a local coffee and sandwich shop for the ground-floor cafe, Dye said.
“We wanted to be proactive in terms of generating leasing activity but it’s also because of the environment we’re in,” Dye said. “We’re trying to set the table for companies who can make ready decisions — if I need to move or want to move, they have a ready space to move into given our current climate.”
Grubb Properties also is wrapping up the 215-unit Link Apartments Linden next door, which will share a parking deck with The Gwendolyn.
The apartments could be pre-leased later this year and feature state-of-the-art cycle and fitness centers, a saltwater pool, yoga studio and cybercafe. A nearby community clubhouse has incorporated bricks from cottages that were demolished and wood from trees felled for redevelopment in its design.
Construction could start next summer on the Village Center, a mix of uses that will wrap around the Glen Lennox shopping center on N.C. 54, Dye said.
Chapel Hill office revival
The Gwendolyn and additional downtown projects could ignite a long-dormant office market, Chapel Hill officials have said. The town is partnering with Grubb Properties to make that happen.
Last year, the Town Council approved a $2.2 million, performance-based tax incentive to help launch construction of The Gwendolyn. The deal requires the developer to meet tax revenue and job creation goals in return for tax savings.
This year, the town is working with Grubb Properties to make significant changes to the 100 block of East Rosemary Street.
Grubb Properties bought the former CVS building, which fronts Frnaklin and Rosemary streets, in 2019 and has embarked on a major renovation using the federal Opportunity Zone tax program.
Now, the developer is working with the town to build a new public parking deck on East Rosemary Street. The town would own the new, 1,100-space parking deck and give the existing Wallace Parking Deck to Grubb Properties in return.
If the Town Council approves the deal this fall, Grubb Properties could move to demolish the Wallace deck and build 200,000 square feet of wet lab and office space. The project also would add two small parks, a pop-up market and pedestrian improvements.
Grubb Properties is talking with UNC and other potential tenants about both projects, Dye said, but the market is slow and cautious right now because of COVID-19. That won’t last forever, he said, because the Triangle “is a very resilient market.”
“We’re trying to position this building and the downtown building to really capture that market coming out,” Dye said. “There’s a lot of conversations we’ve had, both local and new to market, and I think the interest is there.”
Leasing, vacancy rates
The Triangle’s office market was at its strongest position in years when the coronavirus hit, Elizabeth Gates, senior vice president for research at commercial real estate company Avison Young, told The N&O.
She noted a Moody’s Analytics report in May that listed Raleigh and Durham among the top 10 cities best positioned to recover from the pandemic.
Although COVID-19’s full impact on the office market won’t be evident for some time, the outlook is much less dire than for hotel and retail properties, she said.
Avison Young’s just-released, second-quarter office market report shows office leasing activity fell 56% from the same period in 2019, marking the lowest number of leases signed since early 2007.
Second-quarter office vacancy rates rose only slightly over the first four months of the year to 12.9%, the report noted. Gates and Fred Dickens, senior vice president at Trademark Properties, said many tenants are biding their time with short-term lease renewals.
COVID-19 recovery
However, there have been some large leases, Gates said, including Duke University’s 275,000 square feet at Parmer RTP, GRAIL Inc.’s 200,000 square feet at the Park Point campus, and UNC’s 50,000 square feet at The Parkline — formerly the Blue Cross Blue Shield building — in Chapel Hill.
“If (companies) know that their growth needs are going to demand that they move, they might go ahead and do that,” she said, “but in this sort of a situation, where nobody knows where the economy is going, how fast it is going to get there, how much space are they going to need realistically, if they could put the brakes on, they did.”
Dickens said he’s also getting more interest in Class B space offering less-dense, suburban locations and a lower cost, but also parking and outdoor areas for employees.
“We’re getting calls from people from New York and (Los Angeles) in the last couple of weeks who wanted to be out of a (dense) business area and not to go to shared parking decks,” Dickens said. “It’s more control over where your people have to interact with people from other companies, opportunities to potentially be a single occupant of a building, control of who comes in and out, and restrooms and all the other amenities are not shared.”
He and Gates expressed optimism that the market will return to normal next year, and many employees will return to the office.
“I think when we come out of the other side of this, people are going to be craving (a central place to collaborate and bond), and I think that employees are going to recognize the importance of it,” Gates said.
