John Kane views North Hills as a worthy rival to the Triangle’s biotech hot spots.
While New York, San Francisco and other big cities are facing rising office and housing vacancies and declining leasing rates, Raleigh developer John Kane keeps pressing on the gas in the state capital. He apparently missed the memo on office real estate’s troubled outlook.
In January, Kane Realty announced his latest venture, a $1 billion “innovation district” in North Hills intended to challenge neighboring Durham and Research Triangle Park for leases in the growing life-sciences market. The 33-acre project will be mixed use with a proposed 18-story tower, 200 apartments and a 20,000-square-foot food hall. It will offer what the company calls an “unprecedented amount of green space” and connect to the Capital Area Greenway System, eventually providing access to city parks and more than 100 miles of trails.
“Raleigh is the fastest-growing city in the Triangle but doesn’t have life sciences,” Kane says. He aims to change that.
The life-sciences project places Kane at the center of one of the hottest segments of the commercial real estate market, but also brings him head-to-head with some strong regional competitors. Durham has long been home to multiple biotechnology companies, many spun out of Duke University. Research Triangle Park boasts blue-chip tenants including GlaxoSmithKline, Iqvia and Biogen. It’s also home to the North Carolina Biotechnology Center, the nation’s first state-funded nonprofit group created in 1984 to fund smaller firms in the life-sciences sector.
Since 1959, RTP has been legendarily successful in attracting major corporations and research facilities to the region, burnishing the state’s reputation globally. But Kane notes the idea of an “isolated research center” is perhaps in need of some refurbishment.
Kane is betting on lifestyle, a theme that flows through nearly all his properties. “Mixed use provides a better work environment to attract top talent,” Kane says. “That’s really where the competition is, getting the best people.” While RTP has been great for the region, at present its “rental rates are the lowest, and its vacancies are the highest,” something he attributes to growing commute times and fewer lifestyle amenities found in other multiuse properties.
RTP is not sitting still. Scott Levitan, president and CEO of the Research Triangle Foundation, points to recent and planned improvements designed to modernize the park’s appeal. These include the Frontier, 500,000 square feet of coworking space carved out of the former IBM campus and intended to appeal to emerging technology companies. Amenities include online yoga classes. The Boxyard, a food and retail destination scheduled to open this year, will offer a “new palette of flavors, sounds and experiences unique to the Triangle, set against a backdrop of repurposed shipping containers.”
Then there’s Hub RTP, also under development, which will ultimately include 550 units of housing, 30,000 to 40,000 square feet of retail and 1 million square feet of office space. Levitan says it will be a “town center for RTP.” The project is rolling out on a timeline similar to Kane’s innovation center. Levitan says that Hub RTP will be a dense, mixed-used development, with construction starting in 2022. “It has a very cool feel about it, which is what companies want.”
Levitan emphasizes that he does not view RTP as competing directly with Kane for tenants, instead taking a “rising tide floats all boats” approach. “[The region] would be disadvantaged if there was only one option [for tenants],” he says.
Kane’s latest North Hills project joins other ambitious efforts by his company. In December, the Raleigh City Council approved the rezoning necessary for a 140-acre project on Raleigh’s south side that could ultimately include as much as 12 million square feet of office space, 16,000 rental apartments, 9 million square feet of retail, and a soccer stadium and entertainment complex. Called Downtown South, the project is a partnership with N.C. Football Club owner Steve Malik and Raleigh Raised Development, a minority-owned company. Total investment could reach $2 billion.
Kane says his company is also involved in planning for the proposed Park City South near the Dorothea Dix Park site in south Raleigh, though the scope of its work is not set. The project is led by Merge Capital, whose managing partner Chris Woody is a Raleigh homebuilder and developer. Plans call for 1 million square feet of office and industrial space, 312,500 square feet of retail, a hotel and 975 residential units.
Meanwhile, back at North Hills, Kane is exorcizing the decades-old ghost of J.C. Penney, replacing it with about 720,000 square feet of mixed-use space in his One North Hills project announced last fall. The site’s residential tower, offices and ground-floor retail entail an estimated cost of $350 million.
It’s a lot, but Kane is convinced that Raleigh and the Triangle are riding a long-term winning streak, one that will take the region well into the 21st century. He’s not just offering office space or a place to sleep; he’s providing access to a “lifestyle” for talented millennials looking for interesting space to live and work.
The pandemic and the popular trend of working from home have unmoored many high-value employees from their West Coast homes to places such as Austin, Texas; Miami; and North Carolina. Some are coming to Raleigh and the Triangle. Many will, Kane hopes, end up living and working at his properties. Between 2019 and 2020, the state added nearly 100,000 residents, according to the U.S. Census Bureau. Raleigh was rated as the second-fastest growing large metropolitan area from 2010 to 2019, adding more than 260,000 residents, or growth of 23%, and trailing only Austin. About 70% of Raleigh’s growth was attributable to net migration — more people moving in than out. (Charlotte ranked eighth with 17.5% growth.)
Still, RTP remains the dominant force in the region’s life-sciences industry with about 450 biotech companies located in and around the park, according to the Cushman and Wakefield real estate firm. In early March, Biogen said it will expand its large RTP campus with a $200 million gene-therapy plant, showing the park’s continued draw.
Durham also has deep roots in life sciences, and its growing downtown has its own funky lifestyle appeal. Like Levitan, Geoff Durham, president and CEO of the Durham Chamber of Commerce, is not concerned with more competition. “There’s more than enough business to go around,” he says. He notes that about “80% of the Research Triangle Park is in Durham,” as is Duke University, one of the major drivers of growth in the state’s life-sciences industry.
Perhaps there is enough opportunity for everyone. JLL, a global real estate-services firm, has called Raleigh-Durham a “magnet” for life sciences. Newmark, another real estate advisory firm, reports that U.S. health care venture funding rose 38% last year to $29.9 billion. Biotech was the fastest-growing category, up 56.6%, followed by drug and pharmaceutical, up 50.2% year-over-year.
These venture capital-funded startups will need a place to hang all those new lab coats, and the Triangle is near the top of everybody’s list, ranking No. 5 in real estate firm CBRE’s accounting of the largest life-science markets in the U.S. Cushman estimates there’s about 10 million square feet of lab space in the Raleigh-Durham area with a 10.7% vacancy rate. The firm recently put the pipeline for new space at 980,000 square feet, 8% higher than 18 months ago. It counts about 6,900 life-sciences employees in the Triangle, up 84% from 2010.
But it’s not all smooth sailing. Competition for projects is increasing, such as the 330,000-square-foot MTX One tower under development by Raleigh-based Dewitt Carolinas, a mile and a half east of North Hills. Working from home seems set to continue on some level, putting pressure on demand for office space. Kane’s Downtown South project has faced pushback with critics citing everything from stormwater management to an insufficient allocation to affordable housing. Last December, Major League Soccer chose Charlotte for its first franchise in the state, making it less likely that Raleigh will land a team in the dominant U.S. men’s soccer league anytime soon.
None of this discourages Kane or even slows him down much. Downtown South received a vote of confidence at a December city council meeting when Raleigh Mayor Mary-Ann Baldwin said, “[Downtown South] is about humanity and who we are as a city. And [in] southeast Raleigh, there have been a lot of promises made but not a lot of promises kept.” Keeping that particular promise will likely require funding from the city — including a proposed floating of $240 million in tax increment financing bonds, a first for Raleigh — but Kane is confident it can be worked out.
Of course when times are good, there is always money. On a macro basis, things are looking up. Goldman Sachs projects U.S. gross domestic product of 8% for 2021, and other forecasters are similarly optimistic. At the same time, the pandemic has brought home the importance of investing in the life-sciences industry.
For his part, Kane likes the hand he’s playing. Of Raleigh, Durham and Chapel Hill, he says, “These are very different markets. But Raleigh and Wake County are where the growth is.” ■
