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Morgan Stanley analysts rank Raleigh top U.S. office market

Analysts with Morgan Stanley have ranked Raleigh as the strongest market for office supply and demand in a report issued Tuesday.

The analysts also upgraded Raleigh-based Highwoods Properties based in large part on the real estate investment trust’s strong presence in Raleigh, Nashville and Atlanta.

Morgan Stanley analysts Vance Edelson, Sumit Sharma and Ronald Kamdem looked at 11 indicators to rank 14 metropolitan areas. Those markets are where the publicly traded U.S. office REITs are most exposed.

“Raleigh tops the list with the right combination of robust demand and balanced supply, beating out major gateway markets that are still getting the investor attention,” the analysts wrote. “We’re bullish on these smaller, second tier markets, including Nashville, which we believe will attract more interest both from public REIT and private real estate investors seeking yield.”

Raleigh topped all other markets in office-using job growth, was top three in labor force and GDP growth and also had one of the lowest unemployment rates. Technology firms and startups are the strong growth sectors, and are helping to drive rents higher for urban work spaces.

At the other end of the list is Houston, which had the highest supply but has seen demand weaken as oil prices have declined. Washington D.C. achieve the lowest ranking because office leasing fluctuates with congressional activity, and the current gridlock could mean much less.

The analysts lauded Highwoods for its “Best Business District Strategy,” which involves increasing the company’s presence in Southeast markets that have the best demographic and economic trends and are thus likely to see stronger rent growth.

Highwoods is the largest office landlord in the Triangle, with 5 million square feet. The company also has 668,000 square feet under development, including its GlenLake V office building in Raleigh, a new MetLife headquarters in Cary and a headquarters building for Biologics in Cary.

Highwoods shares closed Tuesday at $45.43, up 36 cents. The stock is up 3 percent this year.

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Twitter: @brackendavid

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