Zombie buildings: A pair of Raleigh properties show trend afflicting downtowns

For generations, the former News & Observer building in downtown Raleigh was a font for what was happening in the Triangle and North Carolina.

Now, five years after the McClatchy newspaper chain sold the building for $22 million and moved the News & Observer staff to leased space several blocks away, the empty, 67-year-old building is still telling a story. This time it’s an account of how downtown Raleigh, like many midsize and larger cities, is finding its recovery from the pandemic office-worker exodus stymied by a rise in interest rates that has put new commercial real estate investments in limbo.

Depending on how long the investment freeze lasts, the former newspaper building may headline a new downtown trend – zombie office buildings. In July, Raleigh has an office vacancy rate of 20 percent, double to national average, according to the real estate analytics company Trepp.

The building at 215 S. McDowell St. sits on a prime 3.3 acre site across from Nash Square. It takes up most of a city block in the heart of downtown.

Just before the pandemic hit North Carolina in early 2020, the City Council approved rezoning the site for buildings up to 40 stories tall. There were plans to raze the building and put up a hotel and create more than 300,000 square feet of office and retail space with completion set for 2021.

Instead, three and half years after the up-zoning, there is only a decaying old structure that the city recently cited for overgrown bushes. The building’s owner, the California-based Acquisition Group, has not announced an new plans for it. A request for comment submitted through the firm’s website garnered no reply.

Roger Perry, a Chapel Hill developer whose company previously worked on plans for the former News & Observer site, told me the stalled project reflects “a double whammy” – the pandemic and uncertainty in the commercial real estate market because “nobody yet knows what the new normal is.”

Construction costs for commercial buildings, Perry Said, have risen by as much as 50 percent, while rents remain soft because of a glut of office space. That means the former News & Observer building site may linger as a forlorn relic of the boom times in print journalism.

It may be the most prominent of Raleigh buildings stranded between work-from-home patterns and investors’ reluctance to gamble on what downtown’s next incarnation will be. The nearby Citrix building, welcomed a few years ago as a sign of tech companies moving downtown, also is now empty.

As a City Council member, Raleigh Mayor Mary-Ann Baldwin lobbied Citrix to build its headquarters in downtown’s Warehouse District. But after Citrix was sold to an international company, the new owner decided to vacate the site and seek a tenant for it.

“It’s really kind of a shame,” Baldwin said. “I have hurt feelings about it.”

Other downtown office buildings will face a reckoning as leases expire and major tenants decide to downsize or leave. A recent Washington Post story called the growing in older office buildings and weakening demand an “urban doom loop.”

The city has few options to stem an increase in empty office buildings, even if they become a drag on the city’s attempt to revitalize downtown. If a vacant building is privately owned and not an obvious hazard, Baldwin said, “We as a city can’t do anything about it.”

Patrick Young, Raleigh’s city planner, thinks a plan being developed by the Raleigh Downtown Alliance will produce a new vision for the city. Much of it will depend on more people living downtown.

Young thinks downtown will come back just as it did in the early 2000s. “Downtowns are in a continual state of evolution of death and rebirth and we are in a process of being reborn into what the next thing is,“ he said.

Young may be right about downtown’s rebirth, but first the city must face the quandary of what to do about buildings, like the once vibrant News & Observer building, that are commercial real estate versions of the walking dead.

Associate opinion editor Ned Barnett can be reached at 919-404-7583, or nbarnett@ newsobserver.com