The future of the Triangle's commercial real estate market

Commercial real estate is a dynamic market, influenced by many factors that can be challenging to predict. Over the past year, rising interest rates, office utilization and economic uncertainty have shaped commercial real estate performance.

In retrospect, interest rates were one of the industry's biggest challenges in 2023. "If you look back a year ago, most people thought that interest rates would ease this year. We have yet to see that. It's encouraging that they have stabilized, but I think the downward movement has not happened as most people had anticipated," said Tom Fritsch, senior managing director of CBRE's Raleigh and Triad offices. The current Effective Federal Funds Rate remains at a range of 5.25% to 5.50%, however, the Federal Reserve projects interest rates decreasing throughout 2024.

Another theme that emerged was office utilization. "Even though we are almost four years removed from when the pandemic first disrupted traditional work standards, many companies are still trying to figure out what the future of their office space and utilization looks like. The industry as a whole is seeking clarity in how companies manage their employees, in the office versus working remotely," continued Fritsch. As of August, office vacancies within the Triangle reached 18.1%, almost double that of 2018.

In the long term, Fritsch predicts that the commercial real estate market is poised for growth. "I do believe the long-term outlook for the Triangle is excellent. And when I say that, I think about three main asset classes: office, industrial, and retail," he said.

In the short term, there are still obstacles to overcome, such as increasing office vacancies, subleases expiring, and new construction deliveries. Despite these challenges, inflation has begun to ease and we continue to benefit from in-migration. Fritsch anticipates that interest rates will decrease in the year ahead.

Another bright spot is the significant levels of investment entering into the region from major, multinational companies such as Toyota and Disney. "There continues to be an immense amount of investment dollars being made by significant companies in North Carolina. We are talking about billions of dollars and thousands of jobs," said Fritsch. In December, Disney announced plans to build a 1,500-acre residential community, which will likely spur the need for new commercial properties to support the growing population.

As a whole, the state continues to benefit tremendously from the influx of people and businesses looking to make a home for themselves in North Carolina. As companies move in, bringing jobs and employment opportunities, residents need places to shop, which is one of the reasons that retail is alive and well in the Triangle.