BCR's Daily Fishwrap Report for July 28, 2009
BCR's Daily Fishwrap Report for July 29, 2009

Nortel-Ericsson deal leaves RTP on sidelines -- is it time to fret about the Park's future?

Sad but not surprising news in the Triangle Business Journal yesterday, focusing on the Canadian telecom firm Nortel -- whose once-sprawling RTP operations, down to 2,000 souls from multiples of that in the 1990s, increasingly resembles a socially-awkward eighth-grade boy at his middle school dance, standing alone on the wall, left along with nobody wanting to dance with him.

Not that that should be too much a surprise. Nortel's RTP operations had become largely back-office, the US administrative, finance, customer support and sales shop, with little R&D -- certainly not the R&D jobs in wireless telephony and data that made that chunk of Nortel attractive to the Swedish firm Ericsson.

The cash infusion from the auction keeps those other Nortel businesses not yet spun off alive for now, but the question of Nortel's future, in the Triangle and as a firm in general, continues with a cloud over it.

It's a cloud that some have placed over RTP in general, a park that was designed to attract precisely the Nortels of the world: large corporations seeking a secluded office park where hundreds to thousands could work in a one-company bubble, isolated from those who might try to sneak a peek at trade secrets.

It's a model that worked to draw in companies like IBM and Nortel that integrated everything from R&D and product design to high-tech manufacturing to customer support and sales under the single virtual roof of a corporate entity.

It's a model that supports companies large enough to want major operations centers. And certainly the less-developed Wake County portion of the park has made scores in this way in recent years, drawing significant jobs from Fidelity Investments, Credit Suisse, and IBM's old PC division at Lenovo.

But the world is changing. Fewer companies are vertically integrated in the same way that the giants of a generation or two ago were.

Getting less attention, however, is the fact that RTP has evolved, too, offering more incubator space and housing far more start-up companies than it gets credit for.

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Corporate darling Apple provides one example of the evolution. Your iPhone might say "Designed in California" on the back, but from there, your product gets bid out to one of a number of Asian contract manufacturers, an increasing number of which play a greater and greater role in the final design, even, of consumer electronics.

And corporate secrets? It's hard to argue that anyone's done a better job than Steve Jobs of keeping new products (relatively) under wrap in the wake of massive public interest and prying eyes.

Or take another, closer-to-home example, the contract research organization Quintiles, whose massive new headquarters just opened up inside Durham, and near -- but not in -- RTP.

Years ago, organizations like Durham-HQ'ed GlaxoSmithKline were more significantly vertically-integrated in-house, using their own expertise and staff to bring new pharmaceutical compounds through the exacting Federal certification and trials process.

In the last decade, though, organizations like Quintiles have sprung up, as outsourced providers of research support services to Big Pharma.

Quintiles growth near RTP was certainly in part due to the presence of so many skilled and knowledgeable workers in bio-tech here; outside of the Bay Area, Boston, and New Jersey, it's hard to think of another area in the US with RTP's brainpower and skill level.

Yet as a start-up, Quintiles could never have afforded to take out a corporate campus. Instead it ended up in leased space along the Miami Blvd. corridor around Imperial Center, outside the Park's boundaries per se.

And in the end, the tower it constructed right along I-40 sits in an area that -- pedestrian unfriendliness aside -- is much more integrated into the things businesses are looking for, from hotels to restaurants to a coffee shop.

As much space as Quintiles needs now, one can imagine that the nature of its business -- demand for which is ultimately driven extrinsically by the needs of others in a more complex, more integrated vertical chain of organizations -- requires greater flexibility in space, a need to lease up (or lease down) as demands change.

Which is not exactly conducive for taking over hundreds of acres for a corporate campus replete with its own cafeteria.

Similarly, small startups have been getting their start increasingly in downtown Durham, whose office vacancy rate earlier this year was the lowest of any of the Triangle commercial real estate submarkets. Smaller tech companies like Bronto and PocketGear and biotech startups like GrassRoots Biotechnology have taken root in space that they don't have to engineer and build and design from the ground up.

I started musing on these issues a few weeks ago when I was having lunch with some folks who've been involved tangentially with the start-up a while back of another southeastern US science research park.

It's a much smaller space -- less than a tenth of RTP's size. And it looks more like a more-traditional development, too, complete with office buildings available for lease, wholly or in part.

The RTP model, they said? It's yesterday's idea, with companies looking for more density, more urbanity, and more flexibility.

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Of course, RTP per se doesn't quite fit the image it has in some folks' minds as a big-firms-only kind of space.

The Park has five incubator-style spaces -- the most notable being the former headquarters of the National Institute of Environmental Health Sciences, which relocated elsewhere in RTP years back and whose old home is now owned by the Park as a second-level incubator.

Not that the space is all that large -- less than 100,000 sq. ft. in total of lab and office space.

But between the incubators, a number of multi-use commercial buildings, and subleased space, a surprising (relative to the perception) number of smaller firms have taken root inside the Park.

By RTP's count, 86% of all companies in the Park have less than 250 employees, with half having less than ten. And a third of those are start-ups.

Those are numbers one does not see looking at the massive campuses of IBM, Nortel, Glaxo and the like.

And there's plenty of that kind of space bordering RTP to boot. From the Meridian business center to the west to Imperial Center to the east, from Brier Creek's growing commercial development to the north, and with an increasing number of businesses along the south end of Davis Drive, there's plenty of examples of more flexible space available.

If there is a challenge beyond perception, however, it comes back in part to the lack of an urban setting for the park -- ironically, one of the factors that was one of RTP's biggest initial selling points.

One person I've spoken with recently who's connected to the local science community noted that while scientists aren't always looking for social opportunities, the world of academia provides channels for collegial connections, something that's harder to do in companies isolated in more independent office buildings and complexes.

The opportunities for social interactions come more naturally in urban centers, and certainly are at the heart of downtown Durham's self-selling attempts.

Similarly, the prospects for living close to one's work has gotten more attractive than it did in the suburban-oriented days of the 50s and 60s when the Park was dreamed up.

Davis Park has provided one option for residential living near RTP. Sales were brisk in the early days of the project; it's tough to know exactly how the project is doing now, though signage portending a retail/lifestyle center at the corner of Davis and Hopson to go along with what has been planned to be a massive residential development close to one of the TTA's original planned stops have been replaced with banners talking about sales on loft units.

To my mind, the greatest challenge within the region to RTP comes from Veridea, the much-discussed 1,000 acre project proposed for Apex along the new NC 540 at US 1.

The site -- one-seventh or so of RTP's size -- would hold two-thirds the number of jobs as the sprawling Park... along with 20,000 residents, far more than the low thousands living at RTP's immediate edges. All in a more urban setting.

When Durhamites complain about urban sprawl in Duke Forest or south Durham, they might consider instead the idea a generation from now of hopping into their cars and driving 15 miles south on a toll road to get to Apex for work -- a project that itself would likely create more greenfield demolition as growth moved further south in Wake County.

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None of this is news  to RTP officials, who've been working on the re-envisioning of the Park.

The promotion of incubator and small-company space on their web site is one sign.

A better one would be a strong-armed re-thinking of the Park's design, and the addition of mixed-use residential, office and retail along spines like NC 54 and Davis Drive.

As much as a driver as RTP has been to the region, its single greatest strength has been its brand. For Durham to succeed, the Park itself must be successful -- not merely a strong brand drawing new jobs and residents to the broader region.

And that means the historic city/Park divide is well-due for a deep re-examination.

Comments

Eugene Brown

Thanks, Kevin,for a very insightful article on RTP and its future. And there are ironies. Currently, Durham is undergoing intense debate over the proposed "751 South" residential/retail/office development on 164 acres near RTP in southern Durham. The issue is now before the Durham County Commisioners and State Supreme Court. The court case could take, with appeals, several years. Eventually it will come to City Council as we will be asked to extend public utilities to the site., But what about the Veridea development you cite as being the greatest future challenge to RTP? Located on a 1,000 acres at 540 and US 1 in Apex it will cast a shadow on 751 South as it will employ 2/3rds as many workers as RTP plus perhaps 20,000 residents. This begs the question: have environmential impact statements/studies been completed on this proposed monester of a Wake County development? Eugene Brown, Durham City Council

Todd P.

How ironic - and typical - for Wake County to go full steam ahead with another monster development while pushing for clenup of our runoff into Falls & Jordan Lakes at the same time.

Perhaps Durham should insist that the same runoff cleanup rules that will apply to us should also apply to all of Wake County.

As far as the RTP Nortel campus goes, there is no reason it has to remain as a suburban campus style setting. The site should be re-developed as a transit-friendly, mixed-use area that is more suited to today's smaller growing businesses. That RTP locale and address carries a certain credibility that Apex, NC will never have.


Freddie

Great article Kevin! I always thought that RTP should redevelop or revisit the idea of having more of an "urban" culture within it like the coffee shops, restaurants, and dense living spaces. I always wondered if there are any laws or reasons as to why no such plazas or multiuse buildings have not propped up. It seems silly not to but I guess there must be a reason...

GreenLantern

One of the reasons dense living spaces haven't cropped up in RTP is that land for homes is relatively cheap everywhere, which allows people to live where the schools are the best and crime is the lowest. Most people want to get away from work and relax, even if that means living in Fuquay and commuting day in and day out to the RTP. I don't understand why being in a car for 1-2 hours a day constitutes relaxation, but that's what people choose.

At the other extreme, companies like Cisco Systems in Redwood City, CA decided a while back to build living quarters on it's downtown campus because few new hires could afford to live anywhere near Redwood City. We're never going to get that popular around here.

If RTP could just change its rules and companies change their vision of office park paradise, they could allow condos and other high-density housing and some retail inside the park boudaries. I guess they think the economy will change back to the 1980s and 1990's when corporate headquarters with impressive footprints and facades meant a lot to corporate culture. I work in RTP in a corporate regional headquarters, and it really hasn't made any difference to the bottom line. It's really nice to look out and see trees all around, but our customers really don't care if we have housing or retail next door.

David McMullen

I recall hearing some years back (when I worked for Nortel) that residential development is forbidden within RTP. People are supposed to work there, not live there. I'm not sure if this is something binding in the RTP charter or just a policy of RTP's management, so I don't know how difficult it would be to change. But as it stands, mixed-use development that includes a residential component isn't allowed there. There are a couple of apartment complexes that are built right on RTP's boundaries, but that's as close as you can currently get to living there.

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