RALEIGH– January 23, 2009 – The economic downturn has buffeted the Triangle's real estate market, but strong coordinated action by the private and public sectors will encourage the swiftest recovery. That was the message delivered to more than 1,400 business and community leaders gathered Raleigh's RBC Center for the 24th Annual Triangle Commercial Real Estate Conference.

Considered the authoritative "state of the market" report on the Triangle's real estate sector, the conference has been presented by NAI Carolantic Realty each January for nearly a quarter-century and the report is closely followed.

This year's conference was themed "A New Direction." Attendees were urged to act together to keep the region strong, and were offered innovative approaches for fostering sustainable economic growth and opportunity.

Steve Stroud, SIOR, Chairman of NAI Carolantic Realty introduced invited guest speaker John Davies, CEO of the Baton Rouge Area Foundation. Mr. Davies commented on the importance of sustainability for future growth. He indicated these are times that demand creativity, courage and a commitment to those values that we all know and will make our communities stronger and better for the long haul. The Baton Rouge Area Foundation has grown from $5 million to more than $550 million in assets under Davies, and has been awarded more than $210 million in charitable grants. Under his leadership, the Foundation has undertaken ambitious initiatives with wide-ranging economic and social impacts across southern Louisiana. They have now turned their attention to our own region with the 400-acre walkable development currently called 5401 North located at I-540 and US 401N in Raleigh.

As in past conferences now spanning over two decades, Stroud commented that NAI Carolantic has taken an active role in the community for more than 37 years. “Now more than ever, we’re helping keep our region first and foremost in the minds of businesses looking to expand or relocate their operations from around the world, bolstered by NAI Global and our international team of over 5,000 professionals,” said Stroud. “The basics in our community are strong, and we will recover ahead of the rest of the country. But we will face several emerging challenges. Each presents us with an opportunity for collaboration and innovation.”

NAI Carolantic President Jimmy Barnes reviewed the past year’s commercial real estate landscape and offered Carolantic’s forecast for 2009. “Our market is changing monthly if not weekly. We expect vacancy to continue to rise and sublease space to increase in all categories as our market now becomes a tenant and buyer’s market,” said Barnes. “2009 will be a year of preparation, new beginnings…a time to work harder and smarter. Our adaptability has been a proven reason we always rebound before other areas.”

In a market of over 222 million square feet of office, multipurpose and shopping center space, almost 27 million square feet remained vacant at year-end. “Vacancy rose in the multipurpose sector, office vacancy remained the same, and retail actually dropped. We expect to see retail vacancy rise over the coming months due to additional store closings,” said Barnes. There is 3.4 million square feet of space is currently under construction for 2009 with the majority in the office category.

Barnes noted that some land tracts will trade at cents on the dollar during 2009 with minimal investment activity expected. With any resurgence of a positive economy, the residential markets will try to recover by year-end.

2009 Forecast and Category Summaries:
Highlights of Mr. Barnes’s commercial real estate presentation:

2009 Investor Outlook for Land:

• Land sales will be user driven
• More land opportunities than in the past
• Some price adjustments due to the sale of troubled assets
• Sellers willing to negotiate for the first time in years
• Time to buy if you have cash or the ability to service debt

2009 Investor Outlook for Income Property:

• Credit underwriting tightens
• Cap rates continue to rise
• More properties come to the market
• Investors will continue to proceed with caution
• But will still have great interest in the Triangle region
  

Summary: NAI Carolantic’s research showed a rise in area-wide vacancy rates in the multipurpose category from 13% in 2007 to 16% in 2008. This category includes warehouse, industrial and flex space. The office market maintained at 13% vacancy for 2007 and 2008, but expects to see 1.6 million square feet added in 2009. The shopping center category experienced a drop in vacancy from 7% in 2007 to 4% in 2008. However, we fully expect this number to rise given the downturn in the economy and store closings.

Absorption slowed in 2008 with the office category dropping from 4% in 2007 to 2% in 2008. The multipurpose category saw negative absorption down from 4% in 2007. The retail/shopping center category managed to have 3% absorption in 2008, rising 2% over 2007.

Multipurpose Highlights: Since 2001, the Research Triangle submarket, typically the most active corridor of the Triangle, has been hard hit with vacancies in the 20-30% range. 2007 was the third straight year of reduced vacancy levels in this submarket to 12%, down from 33% in 2003. However that changed in 2008 with vacancy rising to 16%. Absorption was -2%, the lowest since 2000. Over one million square feet were added to the market during 2008 with an additional 1.2 million under construction for 2009. In addition there is currently over one million square feet of sublease space. It is clearly becoming a tenant’s market.

Office Market: Once again in 2008, the Research Triangle submarket had the highest vacancy at 18% or approximately 2.9 million square feet. Cary followed with 15% vacant, up from 14% in 2007. Suburban Raleigh had no absorption during 2008, in part due to the almost one million square feet that were added during 2008. In total, over 2.5 million square feet were added to the market in 2008 with an additional 1.6 under construction for 2009. Just over one-half of this construction is speculative. The suburban Raleigh submarket has the most space under construction with approximately 720,000 square feet.

Shopping Centers: Over 1.4 million square feet of shopping center space was constructed during 2008 with the majority being in East Raleigh. Less than 600,000 square feet is expected to come on line during 2009 with minimal speculative construction. Over one-half of the new construction is slated for the Cary submarket. South Raleigh had the highest vacancy with 6% followed by Durham. Absorption was strongest in East Raleigh at 15%. We expect to continue to see a decline in consumer spending during 2009 and continued store closings.

Single-Family Housing: The NAI Carolantic’s Housing Momentum Index considers the annual new and pre-owned sales volume, subtracting year-end Multiple Listing Service inventory to track sales momentum. The housing market continued to decline in 2008 with home sales dropping to its lowest point in five years. The Momentum Index has not reported this drop in activity since the early ‘90’s. The residential market will be slow to recover due to record unemployment and the forecast for minimal to no job growth for 2009.

Apartment Market: Due to an increase in apartment construction, vacancy rose slightly from 7.8% in 2007 to 8.7% in 2008. Over 3,254 apartments were added and almost 3,000 are expected to be built during 2009. Apartments will benefit from many that have to rent as they wait to sell their homes in other cities hit hard by the credit crunch. Barnes predicted that due to construction not exceeding levels of 2007 and 2008, absorption will keep up and vacancy will remain stable at 8%. However, 2009 will not be a year where owners can raise rental rates. Barnes referenced the Triangle Apartment Association and Karnes Research Company for providing their information on the apartment market.

Hotel Market: According to Dennis Edwards, President and CEO of the Greater Raleigh Convention and Visitors Bureau, there has been an increased interest in building new hotels in the Raleigh area and especially of the full-service variety, more so than in well over a decade. Hotel occupancy for 2009 is expected to be around 58.5%, down slightly from the 59% in 2008, however the average daily rate increased 3.7% over 2007 to $86.83. During 2009, seven hotels are scheduled to be built in Wake and Durham counties adding approximately 668 rooms.

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NAI Carolantic is the Raleigh/Research Triangle area’s leading commercial real estate firm with sixteen brokers, a full-service property management division, as well as an experienced marketing and research division. Established in 1972, NAI Carolantic is a member firm of NAI, the leading international provider of commercial real estate services and solutions. NAI has over 5,000 real estate professionals in over 325 markets worldwide serving corporate, institutional and government clients through its offices strategically located in major, secondary and tertiary markets. NAI is the leader in real estate technology and provides a sophisticated online transaction and portfolio management system to manage assignments and existing locations.