Flex retail spaces are increasingly being leased across the Triangle as the region’s overall retail market grows following years of stagnancy, developers said.

These properties are typically adaptable sites that combine a retail sales or storefront area with industrial components like backroom storage, warehousing or production space. Some retail tenants in these flex spaces are also offering entertainment or activities like indoor pickleball courts and go-kart tracks.

“Small-bay flex is probably the hottest asset class right now,” Vincenzo Verdino, principal at CityPlat, said at Bisnow’s Triangle Construction, Development and Design Conference last month.

Consumers are seeking unique retail experiences, David Gorman, principal at Lock7 Development, told Bisnow in an interview. And tenants are looking for industrial-type space that has a forward-facing retail angle.

Small-bay flex buildings have high ceilings and ample space needed for industrial activities. He added that, sometimes, these flex properties feature one retail tenant and one industrial tenant. 

“In the same project, you might have a true industrial user, like a plumbing supply company, in the same building as a pickleball gym or softball academy,” Gorman said. “In the Triangle, there’s a newfound interest in projects that blend the retail and industrial product types.” 

Smaller retail sites in general are “especially competitive” in the Raleigh area, according to a recent Colliers report. Vacancy for buildings under 10K SF was at approximately 1.6% in the second quarter, compared with 2.9% for larger buildings. 

“A lot of the retail we're seeing now are smaller, neighborhood-focused, almost mom-and-pop type retail” that is single-story with surface-level parking, so customers can easily shop and not face the inconvenience of having to enter a garage or navigate a mall, Gorman said.  

Gorman added that small, neighborhood service retail businesses, like banks, dental offices and daycare centers, are often adapted from obsolete, single-story offices.

Verdino said at the event that just a few years ago, CityPlat would not have had interest in a single-story office building. But now that local retail is on the rise, the opportunity to nab an office building at low cost and convert it into another property type is lucrative.

“It’s attractive to a certain segment of opportunistic groups who are looking ... to convert, in this instance, to flex retail,” he said. 

The Triangle region is seeing significant demand for retail in general this year.

“There was not a lot of retail built for a long period,” Gorman said, largely because developers were focused on building out residential sites. “Now that there have been so many new homes built and the population continues to grow, there's strong demand for retail.”

Lock7’s Harvest District mixed-use project in Fuquay Varina, which Gorman said encompasses 51K SF of retail, is seeing an influx of lease signings now that it is under construction, even though rents are higher than they were when the project began.

Earlier this year, Raleigh was ranked among the top retail markets in the country by Marcus & Millichap. The Raleigh area’s retail market remained strong in the second quarter, with overall vacancy at 2.59%, slightly up from the previous quarter, according to the Colliers report.  

CityPlat “just purchased a portfolio of retail assets” in a $37M acquisition, Verdino said. And six new retail businesses — among them a mini-golf venue, BoxLunch branch, pet store, hair salon and Crunch Fitness — are coming to the Triangle, The News & Observer reported last week.

Looking ahead, Gorman said that if the Triangle region wants to get back to its pre-Covid retail levels, more dense development is needed to support the growing population. He said the highly anticipated new convention center, part of the downtown area’s redevelopment into a mixed-use entertainment district with myriad retail options, should aid in market growth.

“Retail is generally very popular when you're entitling projects with jurisdictions,” he said. “They want people to be able to shop and eat in their communities, and they want the tax revenue, both from sales and because the property taxes are higher on commercial property.”