Welcome to the 2008
NC-CCIM
Triangle Market
Forecast
Triangle
Office Market
Thomas “Skip” Hill, CCIM
Vice President, Raleigh
Highwoods Properties, Inc.
Wall Street vs. Main Street
“What became clear after only a few sessions was a
marked difference from the doom and gloom we hear
about to what is actually happening at property level.
A large number of CEO’s, across all property types
and the world, have not yet seen a significant
slowdown or marked decrease in rents or
occupancies. The CEO’s are likely describing what
they are seeing and however, the reality is that
weaker conditions are likely or the horizon.”
Five Emerging Themes
1. Real estate fundamentals are not yet indicative of
current economic uncertainty/weakness (national
perspective)
2. Cap rate trajectory is unclear
3. Development has shifted from a source of growth to
a source of risk
4. Valuations and the impact of financial services
weakness remains uncertain
5. Liquidity is king
Highwoods Triangle Division
Office Profile
•
•
•
•
•
•
•
•
•
5M SF owned, leased and managed
Over 500 tenants
Mixture of Class A/Class B properties
91.5% HIW occupancy vs. 87.1% Triangle occupancy (as of
12/31/07)
Dispositions 1.2M SF +/- (2004 – present)
Development 900K SF +/- (2004 - present)
Joint venture and wholly-owned facilities
200 acres land holdings (develop approx. 2M SF of office)
Selectively searching for acquisitions
Skip’s Top Ten Expectations
Triangle Office Market for 2008
10. New office developments will slow, but not stop
9. Demand will slow, but will remain steady
8. Triangle will continue to enjoy regional recession “insulation” (not
“immunity”)
7. Government and universities to have significant impact on real
estate development
6. Rental rates remain flat in 2008 but increase in 2009-2010
5. Free rent/concessions will continue throughout the year
4. New office developers less likely to enter Triangle
3. Continued trends for mixed-use/densification
2. “Wait and See” year with slow progress for Triangle
1. Tar Heels take the Blue Devils in the finals of NCAA
Triangle
Industrial/Flex Market
Ed Brown, CCIM, SIOR
NAI Carolantic Realty
The Triangle
Industrial/Flex Market
The Triangle Industrial/Flex Market
Triangle
Retail Market
Vijay Shah, CCIM
Rivercrest Realty Investors
The Triangle Retail Market
New Proposed Mixed-Use Centers
PROJECT LOCATION
Park West Morrisville
Village
North Hills Raleigh
Expansion
East 54
Chapel Hill
Buckhorn
Village
Chapel Hill
Plantation
Point
Raleigh
Waverly
Cary
Place
Parkside
Cary
Town
Commons
Broadstone Apex
Station
AVAILABLE SF PSF RETAIL TICAM
ADDRESS
ANCHOR
TYPE
Office 300,000 Low 30's
$5.00 Cary Pkwy and (not yet
Mixed Use
Retail 700,000
NC 54
announced)
145,000 Retail low to mid still being Six Forks Rd.
not disclosing Mixed Use
275,000 Office
$30's formulated and 440
at this time
140 Hotel
Rooms
400 Residential
Units and 200
CRCC units
60,000
$29
$4.51 Hwy 54 $ 15
(not yet
Mixed Use
501 Chapel Hill, announced)
NC
1.1 million
early
early Interstate 40-85 Wish list: Ikea Mall/Powe
stages
stages and Buckhorn and Cabela's r Center
Road on the
Outdoor
and Mixed
western edge of Furniture
Use
the county.
391,132 $23 -$25
$3.40 US Hwy 1 and BJ's, Circuit
Retail
540
City, Marshalls,
Dollar Tree
170,000 $32-$36
$6.50 Kildaire Farm Whole Foods Mixed use
and Tryon
(55,000 sf)
700,000
Cary/RTP
(not yet
Mixed use
announced)
350,000
Rt 55 and Hwy 1 Super WalMart
DEVELOPER NOTES
Casto/1st
Carolina
Kane Realty 40% Pre Leased
Renaissance
Raleigh to come
East/West
Partners
East/West
Partners &
Fugo
Cypress
Equities Lots
of Vacancy
Zapolski &
Rudd
Kite
Fall 09
Development
Mixed use Kite
Development
The Triangle Retail Market
New Retailers
Retailer
Type
Location
Sq. footage
Badcock Furniture
Furniture
Garner
20,000 sf
Trader Joe's
Grocery
Chapel Hill, Cary
20,000 sf
Fresh Market
Expansion
Grocery
Chapel Hill, Cary
18-25,000 sf
Bloom
Grocery
Raleigh, Wake
Forest
38-40,000 sf
HH Gregg
Appliance &
Electronics
Raleigh
28-35,000 sf
Martin & Osa
Clothing
Crabtree Valley
Mall - Raleigh
Other
Bankruptcies
Similar to Whole
Foods, subsidiary of
Food Lion
Hollywood Video/ Movie
Gallery
Friedman's Jewelers
Spin-off of American
Eagle
The Sharper Image
Zales Jewelers
New Restaurants
Fleming's Prime
Steakhouse
The Original SoupMan
Lillian Vernon
Crabtree Valley Mall
Fast Casual
McCormick & Schmick's Seafood
Raleigh and Durham
Crabtree Valley Mall
Franchise
The Triangle Retail Market
Triangle Retail Supply and Demand Trends
Triangle Retail Vacancy Trends
Triangle Average Retail Rents by Submarket
Triangle
Multifamily Market
Jim Scofield, SIOR
JBMRA/Sperry Van Ness International
The Triangle Apartment Market
The Triangle Compared to Other Major Markets
800,000
Property Size Breakdown
250
700,000
200
600,000
0-99
500,000
100-249
150
# Units
400,000
250-499
300,000
100
> 500
200,000
50
100,000
0
0-99
100-249
> 500
#3
#2
250-499
# UNITS
Ho
u
st
on
Ch
ic
ag
o
#4
Da
lla
s
#5
At
la
#4
nt
a
2
Tr
i
a
#4
ng
3
le
Ch
ar
lo
tte
#1
Lo
s
An
ge
le
s
0
90,878 Units
Property Age Breakdown
109
213
144
1996 & Newer
1980 - 1995
Before 1980
Apartment Operations
Vacancy by Submarket
Vacancy
16.00%
14.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Sep-00 Sep-00
Sep-01 Sep-01
Sep-02 Sep-02
Sep-03 Sep-03
Sep-04 Sep-04
Sep-05 Sep-05
Sep-06 Sep-06
Sep-07 Sep-07
Triangle
Triangle Wake
Wake Durham
Durham
Orange
Orange
Concessions
% Annual Rent Growth
3
90.00%
80.00%
2.5
70.00%
2
60.00%
50.00%
1.5
40.00%
1
30.00%
20.00%
0.5
10.00%
0
$9,600/Unit Average Annual Rent ($800/mo)
$3,250/Unit Average Annual Expenses
7
6
7
ep
-0
S
M
ar
-0
6
ep
-0
S
5
% Communities Offering Concessions
M
ar
-0
4
5
ep
-0
S
M
ar
-0
3
4
ep
-0
S
M
ar
-0
2
3
ep
-0
S
M
ar
-0
ep
-0
S
M
ar
-0
2
0.00%
# Mos Free
Apartment Development
Completions
4000
3500
3000
2500
2000
1500
1000
2007 Completions
2008 Under Construction & Planned
500
0
Vacancy
7000
14.00%
6000
12.00%
10.00%
5000
8.00%
4000
6.00%
4.00%
3000
2.00%
2000
07
07
ar
-
Se
p-
06
M
06
Se
p-
05
ar
M
05
Se
p-
04
ar
M
04
Se
p-
03
ar
M
03
Se
p-
02
ar
M
M
ar
-
1000
Se
p-
02
0.00%
0
Durham Orange
Concessions
90.00%
2.5
70.00%
60.00%
2
50.00%
1.5
40.00%
30.00%
1
20.00%
0.5
10.00%
7
7
ep
-0
M
ar
-0
# Mos Free
S
6
6
ep
-0
S
5
% Communities Offering Concessions
M
ar
-0
4
5
ep
-0
S
M
ar
-0
4
ep
-0
3
ep
-0
S
M
ar
-0
ep
-0
3
0
2
0.00%
S
Planned
2
Under Construction
M
ar
-0
Completions
3
80.00%
S
Wake
M
ar
-0
Triangle
Apartment Investments
Average CAP Rate
7.00%
6.54%
Total Apartment Sales
$1,200,000,000
5.86%
6.00%
5.42%
5.41%
5.79%
5.00%
$1,086,648,500
4.00%
$1,000,000,000
3.00%
$776,115,500
$800,000,000
$764,758,106
2.00%
1.00%
$600,000,000
$469,179,528
0.00%
$400,000,000
$326,407,500
2004
2005
2006
2007
$200,000,000
$0
2004
2005
2006
2007
2008 YTD
$/Unit
National Averages
$90,000
$75,437
$80,762
$81,561
2006
2007
2008 YTD
$80,000
$70,000
$66,968
$64,403
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2004
2005
2008 YTD
INVESTMENTS
Salvatore “Sam” DiFranco,
CCIM, SIOR,CEA
The One Source for Commercial Real Estate
Wanted:
Value add, income producing, upside potential
with credit tenants, under market rental rates
in great locations?
Instead of:
Over priced, empty / partially leased, under
performing junk…..
There are not any fire sales for good
commercial properties
2007 Record Year
for Triangle Real Estate
•
•
•
•
Office
Multi Family
Retail
Industrial
Total
Increase of 49% over 2006
$ 977M
$ 991M
$ 620M
$ 483M
$ 3,071B
2008 Outlook
• Debt market has changed the players
• Supply and demand
• Buyers’ capacity and sellers’
expectations to reset
• Cap rates no longer compressing
• 1031 / New administration?
• More fundamental and less financial
engineering
Commercial Real Estate Fundamentals
Still Healthy
• Credit concerns rooted in the sub-prime
residential problems
• Commercial delinquencies < 1%
• Cash and equity buyers will benefit
• Foreign investors (4X) active in US
• Quality, location and operations will
dictate value
STOP: Reading the newspapers
STOP: Watching the business news
START: Enjoying the resiliency of the
Triangle market and all it has to offer
UNDERSTAND
CRE continues to outperform the
stock market and remains an
attractive investment vehicle due to
its stability and opportunity for
diversification
Thank You!