The 17.8 million square feet that comprise the small Triad general purpose, multi-tenant office market are divided among the region’s three major cities and other areas as well. No single submarket hosts more existing inventory than the 3.5 million square feet that comprise the Airport submarket west of Greensboro. Farther west, the West/Northwest Forsyth County submarket that includes areas of Winston-Salem and areas to that city’s northwest is nearly the same size. Downtown Greensboro hosts only 2.1 million square feet.
While there are some indications of growing tenant interest (see Special Real Estate Factors), the market continues to struggle. Net absorption at negative 124,000 square feet through the first half of the year, nearly all of which occurred during first quarter, lifted the vacancy rate to 21.3%, a gain of 80 basis points year-over-year and the peak to-date of the current cycle. If matters proceed as expected, however, the latest rate may be the cyclical high. Positive net absorption of 12,000 square feet over the two-month July-August span lowered the rate to 21.2%. Additional declines are expected over the remainder of the year. Rent growth rates, minimally positive overall since 2011, are slowly increasing. At $16.25 psf and $12.97 psf, asking and effective averages for second quarter were unchanged and down 0.1% (one cent) for the period but were up 0.2% each (four cents each) since year-end 2011, following gains of 0.2% and 0.4% all told in 2011. Each rate had added an additional penny by the end of August. Construction of competitive general purpose office space is nowhere to be found. No space of this type have completed since 32,000 square feet delivered in 2009. No projects were underway and planning is limited.
Reis’ mid-September report on individual construction projects reports only two small buildings under construction: a 12,000-square-foot headquarters for Carolina Donor Services broke ground in August in Winston-Salem for completion in January 2013. And the 30,000-square-foot Kernersville Medical Office project in Kernersville, east of Winston-Salem, got its start in September. Kernersville, however, has become a new focus of developer interest.
The positive activity as seen in July-August should continue; modest positive net absorption over the remainder of the year should reduce (but not eliminate) the losses suffered during the first half. Vacancy should remain above 20.0% well into 2013. Rent growth at about 1.0% is anticipated for 2012 all told. Recovery should show additional advancement next year.