Few people in the Raleigh-Durham market know as much about development and commercial real estate as Jim Anthony. He has been doing deals here for nearly 40 years.
After graduating from Duke, he went out west to get his MBA at USC, and then started in commercial real estate in Southern California. In 1983, he came back to work as director of leasing and management for Carolantic Realty, founded by legendary Triangle dealmaker Steve Stroud.
In 1987, Anthony started his own Raleigh-based firm, which joined Colliers International in 2010. In August, the Anthony firm went independent again, now operating as APG Capital.
I talked to him recently about real estate trends, particularly in the context of COVID-19. Here is some of what he says:
The office market
Rents are “generally speaking” headed down, according to Anthony, especially in downtowns and pricey districts like Raleigh’s North Hills. “I just don’t see $40 rents as being sustainable, and that’s what the new buildings have had to get.”
There is a debate about the future of the office, with many companies working from home since mid-March. There are doubts about the future of coworking, which was gobbling up space in the Triangle over the past few years.
“Everybody who’s been working from home is questioning why they need so much office space,” he says.
Now you will find experts who will say that post-pandemic, the office market will be OK here, with competitive rents to similar markets and significantly cheaper than the largest. We won’t know for a while.
Related to the office market is parking. Probably no business has more question marks, because it depends on the future of autonomous vehicles, ride-sharing and working from home. That’s all.
“I have been advocating that anyone who builds a parking deck right now should be building it for conversion to occupiable space.”
Business travel has been seriously impacted by COVID-19 and that has hurt many hotels.
Anthony estimates that “a quarter of all room-nights evaporated permanently.” Lower-end hotels, he says, are still doing business from, say, construction workers who come into town for the week, but “the expensive hotels are just getting mauled.”
“If you hit 45%, you’re doing really well if you’re a hotel right now. That’s down from, I guess it was, 67%-70% before COVID.”
What this means is that some hotels are probably going to go away, he says, particularly older ones. Anthony quoted a veteran innkeeper, who once told him: “The hotel market is never really overbuilt. It’s under demolished.”
E-commerce was already juicing the warehouse market nationally, and COVID-19 amped that up with the shop-from-home surge. Anthony says the warehouse market in the Triangle is “hot, way hot.”
And the Triangle is not really North Carolina’s distribution hub. “The true distribution market is Greensboro, and not here, because that’s the halfway point between Atlanta and DC. We’re off the beaten path a little bit.”
“So that just tells you all the more how hot the market is.”
What he finds particularly interesting is the “on-shoring” trend. The disruptions during the pandemic — as overseas plants shut down and borders closed — are prompting companies to return crucial supply chain elements here. “More and more of these economic developers will tell you about companies that are looking at empty buildings,” says Anthony. “They’re bringing stuff back home from overseas.”
This was the part of the conversation when he really got excited. When Anthony came back to the Triangle from California, Wake County’s population was around 327,000. The latest estimates put it over 1.1 million, basically tied with Mecklenburg. As a result, land for development is scarce, and so housing has moved out, farther than you might think unless you have been driving around, like Anthony has, along the highway corridors that extend beyond the Wake-Durham-Orange boundaries.
“Nashville, Rocky Mount, [and] Wilson are getting national homebuilder interest,” he says. “National homebuilders are taking positions up in Oxford because the Durham people don’t have any place that they can buy. Supply is so severely constrained there. Then you go (west) out 85 and 40, and you’ll find Mebane blowing up and Graham and Burlington blowing up.”
“Now Sanford has national homebuilders taking positions down there. And then I went down over the weekend 401 south of 55. Fuquay[-Varina]. Subdivision after subdivision. Tons of new homes being built in Angier. And positions now are being taken by the big boys in Lillington (in Harnett County, south of Wake). Then you go north and you look up [in] Youngsville (in Franklin County, north of Wake). Neighborhood after neighborhood.”
So that’s it. The Triangle, with its exurbs, now runs east-west from Rocky Mount to Burlington, north-south from Oxford down to Lillington. And if you don’t have to go into the office but one day a week or so – if ever – it’s not a terrible commute.