Vacancies rise, tenants seek deals 

RALEIGH — Economic malaise has forced companies to slash jobs, killing demand for new offices, warehouses and other kinds of commercial real estate. And so once again Triangle landlords, who spent the early 2000s digging out of a glut following the technology bust, confront mounting distress.

“The commercial real estate market here faces its worst year” since the early 1990s, said Jimmy Barnes, president of NAI Carolantic Realty, a Raleigh real estate services firm.

It was the basic theme of Carolantic’s 24th annual Triangle Commercial Real Estate Conference at the RBC Center. The mood of Thursday’s event — somewhat somber, faintly hopeful — illustrated how quickly the region’s go-go pace has idled from a year ago, when the nation’s economic ills began to creep into a region that even the most guarded optimists believed was protected.

In the past few years, as companies expanded in or flocked to the Triangle, landlords have held the cards. On Thursday, Barnes spelled out the new reality: “It’s clearly a tenants’ and buyers’ market.”

Looking back on 2008 and ahead to 2009, Barnes said:

* The Triangle’s office vacancy rate ended the year at 13 percent, flat when compared with 2007. But vacancies are expected to rise this year. Landlords will compete with shrinking companies that are trying to cut losses by subleasing excess space. Rents could soften as a smaller pool of prospective tenants gain leverage.

* Vacancy rates in multipurpose industrial spaces, which include warehouses, manufacturing plants and flex space, climbed to 16 percent, from 11 percent at the end of 2007. Industrial landlords also are competing with more sublease space and slack demand.

* The region’s vacancy rate for shopping centers dropped to an eight-year low of 4 percent in 2008, from 7 percent in 2007. But more stores are expected to close this year as consumers continue to cut spending.

* A surge in construction forced the region’s apartment vacancy rate to climb to 8.7 percent from an eight-year low of 7.8 percent in 2007. Demand will remain strong, as would-be buyers continue to rent, and as newcomers try to sell homes elsewhere rather than take on a second mortgage. But rents aren’t expected to jump.

Carolantic also predicts:

* Home sales will remain slow, perhaps showing signs of recovery at the end of the year.

* Developers will continue to be stymied by stingy lenders. “Unless it’s a slam dunk, there’s probably some projects that will be mothballed in 2009 and into 2010,” Barnes said. “And there will be some that are canned altogether.”

* Investors unable to refinance loans may be pressed into selling low. Some land may sell for pennies on the dollar.

On the bright side, the region is expected to recover ahead of other parts of the country. “But as we work toward that recovery, we face several emerging challenges,” said E. Stephen Stroud, Carolantic’s chairman.

Strapped government budgets could slow the building of infrastructure, for instance.

Stroud called for more comprehensive growth governance to ensure an adequate water supply.

He urged banks to work with borrowers to help them survive.

And he said it was important for North Carolina to remain a right-to-work state.

He used a cartoon from The New Yorker magazine to illustrate his positions. It showed Santa Claus at the door of his North Pole workshop, announcing to his elves, “As of next March, because of conditions too advantageous to be ignored, I’m moving this shop to North Carolina.”

Found here.