Tuesday, July 23, 2024

UNC System subleases prime office space in Raleigh

It says a lot about the state of the office real-estate market that the UNC System Office is getting its new home through a sublease of one of downtown Raleigh’s newest buildings.

Under a legislative mandate to move from Chapel Hill to Raleigh later this year, UNC System leaders are subleasing the top two floors of The Dillon office building in downtown’s Warehouse District from the insurance company Arch Capital, which rented four floors of the building in 2018.

Arch Capital terminated its incentives deal with the N.C. Department of Commerce earlier this year, citing a shift toward remote work and fewer in-person positions based in Raleigh, Triangle Business Journal reported.

Arch Capital’s downsizing opened up 51,000 square feet of prime office space for the UNC System’s leaders for the coming years, while work begins on a permanent building housing UNC, community colleges and the Department of Public Instruction next door to the Legislative Building on West Jones Street.

The sublease terms call for quarterly rent payments of $937,500. That works out to around $73 per square foot per year. The document was released through a public records request this week.

The sublease will run from October through September of 2026, with options to extend the term. That could prove handy because it’s unclear exactly when the new state-owned building will open. The agreement also includes 154 parking spaces for UNC employees in the building’s garage.

The cost of the move had prompted criticism from some UNC Board of Governors members, who noted that the staff had already moved from its longtime home off Raleigh Road in Chapel Hill to space in the Friday Center complex – both spaces owned by the university.

The cost per square foot is higher than the $41-per-square-foot lease rate listed for The Dillon building in Triangle Business Journal’s latest “Space” guide.

But UNC System spokesman Josh Ellis noted that the space comes fully furnished with parking included, and The Dillon sublease was among several downtown office buildings where UNC officials obtained quotes.

“The average cost for finished space in a short-term lease was, at minimum, $97 a square foot annually, which did not include parking – more expensive than the $73-per-square-foot annual cost of the System Office’s lease at The Dillon,” Ellis said in an email. “Short-term leases are generally more expensive.”

The legislature budgeted $15 million for the cost of the temporary Raleigh space.

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