FEATURE ARTICLE, DECEMBER 2005

Richmond, Virginia

Slow and steady was a familiar mantra throughout Richmond's real estate market in this year.

From the office sector in the central business district (CBD) to the retail market in the suburbs, the Richmond area's vacancy and absorption figures will likely finish the year near where they started, ranging from about 5 percent in the retail sector to about 14 percent in the industrial sector.

Although the CBD maintained an approximately 13 percent vacancy rate throughout the year, the pulse of Richmond's activity was felt downtown with a number of new projects. Riverside on the James, a 230,000-square-foot office tower with 120 residential condominium units, delivered with a mere 20,000 square feet of vacant space and all condominiums sold out. Three tenants — Harris Williams & Company, Troutman Sanders and Rutherford Financial — consumed all but 8 percent of the Class A building. However, those tenants left behind as much vacant square feet in older downtown buildings, causing the Class B market to suffer and hit a 21 percent vacancy in the third quarter. The 5.2 million-square-foot Class A office market remained under 10 percent vacant.

Out-of-town developers such as New York-based Goodstein Development and Washington D.C.-based Douglas Development announced bold plans for projects in Richmond's CBD. Douglas Development bought the Old Central National Bank building on East Broad in April for $5.2 million. The company is converting the vacant 23-story building into Class A office space, which is scheduled for completion in 2006. Goodstein Development plans to build Centennial Towers, a 515,000-square-foot, 18- to 22-story mixed-use project on the 500 block of East Main Street. The building will include condominiums, high-end retail, Class A office space and a boutique hotel. The project is expected to break ground in 2007. Also, local developer Bow Tie Partners announced it will build a cinema and a residential and retail building on a nearby block, which will complement the Goodstein high rise. Its timeline is unknown.

WVS Companies started construction this year on the first phase of The Village of Rocketts Landing, a $400 million mixed-use project that stretches 55 acres along the James River from Henrico County into Richmond. The project will ultimately include 1,400 residential units, 200,000 square feet of retail, 500,000 square feet of office and a marina.

On the technology side, Philip Morris USA announced this year that it would build a 450,000-square-foot, $300 million Research and Technology Center in the city's 34-acre Biotech Park. Philip Morris will bring 700 jobs to the building upon completion next year.

With the high number of mixed-use projects planned for next year, retail should be a frenzied market in 2006. Downtown retail benefited this year from Virginia Commonwealth University's continued student population growth. The opening of The Shoppes at RAMZ Hall brought retailers, such as Five Guys and EB Games, to the urban campus. The Home Depot and Regal Cinemas were among the largest leases of the year at 220,000 square feet and 40,000 square feet, respectively. The overall Richmond retail market will likely finish the year under 5 percent vacant. New retail projects announced in 2005 in virtually every quadrant may cause the steadily rising rental rates — finishing 2005 at an average of about $12 per square foot, triple net   — to flatten out.

— Jeffrey Cooke, SIOR, is a senior vice president with Richmond, Virginia-based Thalhimer/Cushman & Wakefield. Suzanne White is in commercial sales–leasing with the company.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.