CITY HIGHLIGHT, AUGUST 2004

RICHMOND SEES ACTIVITY INCREASE

Richmond, Virginia, is experiencing positive absorption and an increase in development in many sectors. Southeast Real Estate Business recently asked executives from Thalhimer/Cushman & Wakefield, Porter Realty and Advantis/GVA to comment on various areas of the market.

Office

The suburban office market in Richmond is experiencing a significant increase in activity among prospective office tenants. Over the last 18 months, these smaller, local companies, which previously renewed their leases for short-term periods while they waited for the economy to come around, are once again kicking tires, and the regional and national players are beginning to follow suit.

The West End of Richmond would have experienced 120,000 square feet of positive growth in the second quarter alone, had Capital One not vacated its Westmoreland facility. When calculating growth, an overlooked factor has been the rise in popularity of office condominiums. These office condominiums are finding small infill sites and — while buyers are paying record prices — continue to outpace the absorption of the leasing market. The majority of these developments have occurred in the West End of Richmond; however, Boulders Office Park has condos under construction, and there is a proposed project near Brandermill on the Route 360 corridor.

In the last 3 years there has been virtually no speculative development except for office condominiums. The two projects that were completed were in the West End of Richmond on Parham Road — one being a build-to-suit for World Access and the other a speculative development that was quickly absorbed by an existing tenant. Investment properties in Richmond have proven to be a hot commodity among local players and real estate investment trusts as well as previously unseen national investors that are moving out of first-tier cities looking for stable investments.

When Capital One vacated its Westmoreland facility, Richmond took a step backward with an actual vacancy of 11.05 percent and functional vacancy just over 11.6 percent including sublease space. The small- to mid-size users, while still having an abundant amount of space to consider when relocating, are experiencing higher rental rates with fewer lease incentives as competition heats up for the ever-decreasing availability of lease opportunities.

The effect of the new Route 288 bridge and road extension from West Broad Street through West Creek across the James River to Chesterfield County, scheduled for completion in October, is yet to be determined. This will enable an employment base from south Richmond to quickly commute to the Innsbrook area office parks for employment. (The commute from the town of Midlothian to the Innsbrook area is approximately 15 minutes.) While we feel that a limited amount of office development will occur at the Route 288 and Route 60 convergence, we believe the Route 288 extension will help the West End and adversely affect growth in Chesterfield County.

Keep your eye on Reynolds Crossing, located at Broad, Interstate 64, and Glenside and Innsbrook, for build-to-suit announcements and perhaps office condominium development as well. (Reynolds Crossing is the site of Philip Morris’ headquarters.) With the availability of land and existing vacant space in Innsbrook, opportunities for leased office space will lead the charge in the West End.

— Mark Douglas, CCIM, MCR.h, SIOR, SLCR, senior vice president, Thalhimer/Cushman & Wakefield

Industrial

MDM Development Group’s Metropolitan Miami is expected to open in downtown Miami in July 2007.

Absorption in the industrial market is occurring throughout the various counties of the metro Richmond area, where large blocks of space over 100,000 square feet have recently been leased. Prudent landlords have made the decision to be more aggressive and creative on rent figures in order to make a deal.

New leases include Absolute Packaging, a contract packaging operation, which has leased 103,000 square feet in Henrico County at 3801 Carolina Ave.; Ryder Logistics, a third-party logistics company, has leased 132,000 square feet at 2904 Transport St. in the city of Richmond; and International Paper has taken the remaining 325,000 square feet at 1301 Hundred Rd. in Chesterfield County.

Recent expansions/ relocations include Lumber Liquidators’ recent announcement of the relocation of its corporate headquarters to the 300,000-square-foot former John Deere industrial facility in James City County and Meade Westvaco’s 246,000-square-foot facility located at 3001 Cofer Rd. is under contract and is expected to close by early fall to a local business looking to expand and occupy the majority of the complex.

New construction: On Ruffin Mill Road, off Interstate 95 South in Chesterfield County, there is a recently completed, 262,000-square-foot speculative warehouse property for lease, as well as a second, similar-sized building off I-95 North, which is currently under construction. Both of these properties are being developed by Devon USA, which is one of the few developers that has continued to deliver new speculative, large warehouse space over the last 18 months despite a soft but slowly growing market.

Phase II of West Creek, an upscale suburban park located along the Route 288 corridor, contains a recently completed 46,000-square-foot flex facility, with 18-foot ceilings and dock height loading. Potential uses include office/warehouse or R&D with dock loading. Phase I is 100 percent leased.

Projected areas of growth include the corridor surrounding the new Route 288 extension to the west/southwest. This strategically located thoroughfare will open up new routes linking western Chesterfield County (south of the James River) to Goochland County north of the river and to the existing I-64 and I-295 beltway to the north. Developers, users and commuters are anxiously awaiting its completion this fall.

The appetite for quality investment property remains high, but the availability is presently limited. The vacancy rate for industrial property 50,000 square feet and up has inched up slightly to 30 percent and is expected to remain stable or decrease over the next quarter.

— Richard Porter, CCIM, SIOR, Porter Realty

Retail

In the past 9 months, the Richmond retail market has seen unprecedented growth. The only two regional malls built in the nation last year opened here in the fall within several weeks of each other. With a combined vacancy of only 3.2 percent, these two projects contributed nearly 1.9 million square feet to absorption. Sales remain strong at both, despite some level of skepticism by critics. Forest City Enterprises recently confirmed that Lord & Taylor will not be coming to Henrico County’s Short Pump Town Center as previously announced. The Cheesecake Factory will absorb a portion of Lord & Taylor’s pad site; other users have yet to be announced.

The grocery wars of the past several years are starting to cool off but are still on the radar. Most notable this year is the Winn-Dixie bankruptcy that will leave six area locations dark. Kroger is opening a store near the Taubman-owned Regency Square Mall, and local favorite Ukrop’s has announced plans to open a store in Twin Hickory.

Richmond’s northeast quadrant, which has historically been outshined by the northwest and southwest quadrants, has been a hotbed of retail activity in 2004.

The Virginia Center Common’s area of the Northwest quadrant has seen a great deal of activity in 2004 as well. The new Atlee Elmont interchange will have a very positive impact by redirecting traffic to one of two primary entrances to the Simon Properties-owned mall.

Development has slowed in the Southwest quadrant, though centers continue to keep vacancies low as ancillary retail and restaurant users increase their market penetration.

There have been several sizable leases signed in the Southwest quadrant recently, with the largest being the relocation of Burlington Coat Factory to a 92,000-square-foot former Rack & Sack store. Additionally, DSW Shoe Warehouse took 32,000 square feet in a former Service Merchandise property.

In short, 2004 has seen a more stabilized rate of growth after the phenomenal jump in inventory and absorption in 2003. Direct vacancy has risen only 0.3 percent and absorption is a mere 92,000 square feet. All indications are that this trend will continue through the remainder of the year and into 2005.

— Zach Means, retail associate, Advantis/GVA


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