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RALEIGH’S RALLY

The Research Triangle keeps welcoming new residents, retailers

BY SASCHA BRODSKY

The strength of the economy in North Carolina’s Research Triangle is attracting so many newcomers that locals jokingly refer to the town of Cary, just outside Raleigh, as an acronym for Containment Area for Relocated Yankees.

In fact, the new arrivals are coming from all over the country, not just the Yankee Northeast. But most important, and perhaps to no one’s surprise, retailers are following right behind.

By the end of this year, some 3 million square feet of new retail space will have entered the market since the beginning of last year, according to NAI Carolantic Realty, a local brokerage. The boom actually started in 2002 with the opening of two regional malls, which added some 2.3 million square feet. Before then, the Triangle hadn’t seen a new mall in 23 years.

The Triangle’s name derives from its shape, of course, and from the area’s many universities — including Duke, North Carolina State and the University of North Carolina at Chapel Hill — as well as its numerous high-tech and biotechnology companies. Raleigh anchors the base of the triangle on the east, and Chapel Hill on the west, with Durham at the northern tip.

Signs of economic health in the region, long considered an epicenter of technology and medical research, continue despite the tech bust of the late 1990s, says Grady Matthews, vice president of real estate development firm Crosland. He calls the Triangle a “bulletproof economy” because of the attributes peculiar to it.

“We are anchored by state government and so many research institutions,” he said. “We are seeing tremendous retail growth.”

Whether or not the region is outright bulletproof, the numbers demonstrate that it has surely been bullet resistant. Last year the median annual household income in Raleigh was $69,800, unchanged from the year before. The unemployment rate, meanwhile, was 3.3 percent (it was 5.4 percent nationally), compared with 4.7 percent in 2003. Local employers Cisco Systems, First Boston and Network Appliances have all announced job growth.

In 2004 Raleigh counted 322,211 inhabitants. About 19,000 people of the area total are last year’s arrivals. The high quality of life is the magnet, says Ted Abernathy, executive vice president of the Research Triangle Regional Partnership, an economic development group. Existing four-bedroom homes, for example, go for about $220,000 here, versus more than $1 million in Boston, he says.

Rooftop chasers
As new homes get built, though, retail developers “chase the rooftops” in search of new sites. One such burgeoning area lies northwest of Raleigh, around Cary, says Gary K. Joyner, a local real estate lawyer with Kilpatrick Stockton.

James Scofield, a Raleigh-based senior adviser at commercial real estate consulting firm Sperry Van Ness, agrees. “The suburban areas are developing with new housing construction and retail is following this,” Scofield said. “Northeast Wake County, where Raleigh is located, is the fastest-growing part of the area. We are seeing lots of new housing and shopping center development.” The second-fastest-growing area is the northwest of Raleigh, he adds.

The towns of Holly Spring and Apex, southwest of Raleigh, are high-growth too, Scofield says. “The land is more affordable, so we are seeing more home development, and we expect to see it followed by a lot of retail,” he said.

While the outer rings welcome new development, Raleigh’s core is undergoing an upgrade. Since the two large super-regional malls — the Streets at Southpoint, in Durham, and Triangle Town Center, in Raleigh — opened their doors, the region’s older malls are rushing for face-lifts to stay competitive, says Abernathy.

“The shopping centers are putting more money into the grounds and adding entertainment, such as music,” Abernathy said. “The point is, they need to draw people by doing something other than just putting in more stores.”

As the number of residents continues to grow and their wealth increases, upscale retailers are showing more and more interest, says Charles Lanier Jr., the senior leasing agent for Plaza Associates in Raleigh. “This a very affluent, educated area, and the bar has been raised.”

Saks opened an 80,000-square-foot, two-level Saks Fifth Avenue anchor store at The Richard E. Jacobs Group’s Triangle Town Center last fall. Fly-fishing outfitter Orvis opened a store there too, last November, its largest outside Vermont. In 2002 Nordstrom opened its first store in the area, at General Growth Properties’ Streets at Southpoint.

“We are starting to see more of the upper-end retailers, and I think we will see that trend continue,” said Scofield. Among the upscale shops planning to open in the North Hills Mall are Serotta’s, a Raleigh-based furrier, and Kerry Catherine Jewelry, also based in Raleigh. In the Triangle Town Center, a Spa by Mitchell’s is scheduled to open in May.

Who’s over-retailed?
Some have expressed concerns that the Raleigh market may be getting too much retail, but chain stores are not saying so. Saks wouldn’t release numbers, but spokeswoman Julia Bentley says the company is pleased with the way customers are responding to its new Raleigh store. “Generally, we look for midsized-to-larger metropolitan markets with a large, affluent customer base with a propensity to spend on fashion,” she said.

Meanwhile, the presence of a Nordstrom has helped make the Streets at Southpoint “the most leased mall in the area,” with occupancy near 100 percent, according to Chris Shigas, who handles the center’s media relations.

Raleigh-Durham has an active retail real estate transactions scene as well. Of the 18 centers that changed hands in Raleigh last year, five were built in the years since 1998. But even the older ones have their admirers, it seems. Most notably, The Shops of Cameron Village, a 655,000-square-foot town center built in 1949, sold for $118 million. “The older centers are being purchased to add value to them,” said Scofield.

Even with all the development, though, vacancy rates have remained at a relatively steady 5.9 percent in November (against 32 million square feet of new space), about even with the previous year’s 5.7 percent (against 29.8 million new square feet), according to Sperry Van Ness. Rents ranged between $150 per square foot and $200 per square foot, unchanged from the year before.

As in many other parts of the U.S., the rising cost of land is hindering construction around Raleigh, says Bruce G. Lynch, director of leasing at The Shopping Center Group, a Raleigh-based brokerage. Those costs mean that large sales volumes are needed to justify new projects. Further, local governments have been tightening their restrictions on development, often by requiring a mix of uses, particularly in greenfield areas, says Joyner.

None of this seems to be discouraging the developers, however. On the contrary, they find reasons for optimism. “There is increasing regulation,” Scofield acknowledged, “but there is no comparison to a place like California. This is still a great place to do business.”