CITY HIGHLIGHT, FEBRUARY 2011

RICHMOND CITY HIGHLIGHTS
Evan M. Magrill, Connie Jordan Nielsen & Drew Wiltshire

Richmond Industrial Market

The Richmond market has been hard hit by the recession with vacancy rates rising from 7.2 percent in the fourth quarter of 2008 to 11.4 percent in the fourth quarter of last year. This represents more than 4.5 million square feet of space that has been vacated during this time period. However, there are signs of market improvement as for only the second time in the past nine quarters, absorption was in positive territory this past quarter, at 327,220 square feet. That’s about six times the absorption in the fourth quarter of 2009, which was the most recent quarter to see positive absorption. The likely reasons: a steady stream of renewals and a much slower pace of business closures or relocations. And that’s an even bigger feat considering that leasing activity was 2.7 million square feet last year, down 38 percent from the 5.5 million square feet leased in 2009. The reason for that slowdown this year: lots of tenants renegotiated their lease terms last year in advance of their lease expiration dates, robbing from what would have been 2010 renewals.

Behind all of these vacancies has been a stream of closings and downsizing throughout the marketplace. With more space on the market, landlords are lowering rents to secure tenants. There are great spaces available for lease or purchase at significant values.

As evidence, two huge deals closed in the fourth quarter. The General Services Administration signed a lease for 138,800 square feet on an industrial property in Chester. And, Zeller+Gmelin Corporation purchased the 83,247-square-foot industrial building at 4801 Audubon Drive in Henrico County from Independent Container Line Limited for $4.4 million.

With continued slackened demand, rental rates might have a bit farther to fall until activity grows beyond firms renewing existing space. Despite positive absorption in the fourth quarter of last year, absorption will likely still be slightly negative to flat in 2011, but the markets will be much improved over what we saw in 2009 or 2008. New construction will remain almost nonexistent this year and the leasing of smaller spaces, which never really slowed down, will continue at a healthy pace. Also worth watching in 2011 is the Rolls-Royce jet engine plant is coming online in Prince George County that could spur some vendor requests for industrial space.

— Evan M. Magrill, CCIM, SIOR, is a senior vice president with Cushman & Wakefield | Thalhimer in Richmond, Virginia.

Richmond Retail Market

Redevelopment and completing existing projects are the focus for the Richmond market, which has had a lot of activity during the past few years with projects that were already underway before recession began. Hancock Village, one of those projects, was originally planned for 400,000 square feet but was phased. Although JC Penney’s has not fully re-materialized, Dick’s and Hobby Lobby have both come back to finalize their deals, reinforcing Hull Street as a retail destination. West Broad Village in the Short Pump market was a mixed-use “urban village” that over-promised and under-delivered. Due to shenanigans by the original developer, it lost its momentum. The new owners have gotten intensely aggressive to make deals and fill up the main street but, due to the nature of the project, it has not adversely affected surrounding lease rates. Winding Brook is a Bass Pro anchored project with plans for an outlet center, which if it materializes will be highly successful and truly become a destination on the north side of Richmond. The Shops at Willow Lawn is undergoing its third major over-haul and continues to reenergize the near west end market. Stonebridge is a project being backed by Chesterfield County and, if it gets its bond financing, it will make a big impact on the eastern section of the Midlothian market.

The majority of developments are taking place in locations that have been hot for a while — Short Pump, Hull Street and Midlothian— which simply followed the residential growth. However, White Oak in the east end came from the vision of Forest City and Pruitt, a local developer, who had the contacts and clout to bring about a major power center in an area of town in serious need of shopping options. Rebkee, another local developer, is one of the most active developing all types of projects including major shopping centers, redevelopments as well as their bread-and-butter CVS/pharmacies.

New retailers to the market include hhgregg, Hobby Lobby, Cinebistro, BCBG, XXI Forever and Tiffany’s. In Chesterfield County, Costco has signed a new lease at Woodlands while Dick’s has finally signed their lease at Hancock Village and Ross has committed to White Oak Village in Henrico County.

Overall the market only has a 6.5 percent vacancy rate. With that said, selective and smart development will continue. Short Pump is the golden standard for suburban developments while Maryland Financial is working hard to get approval for CarytownPlace, a redevelopment of a former Verizon call-center in the city of Richmond. If this re-development gets approval from the city, it will be the first LEED retail shopping center in Richmond and should bring renewed interest in Carytown from retailers who love the eclectic merchants and street-front businesses but have been concerned about the lack of parking and national retailers.

—   Connie Jordan Nielsen is a senior vice president with Cushman & Wakefield | Thalhimer in Richmond, Virginia.

Richmond Multifamily Market

The state of Virginia was recently ranked No. 2 by CNBC on its annual list of Top States for Business in the United States. As the state’s capital, Richmond benefits from a diverse employment base, including many facets of the state government, 10 Fortune 1000 companies, Virginia Commonwealth University (VCU), the Medical College of Virginia (MCV), as well as several other national law firms and financial institutions. These factors have historically yielded an above average unemployment rate for Richmond, when compared to the national average. As both Richmond and the U.S. emerge from the most recent recession, this trend has remained intact, with Richmond’s unemployment rate currently at 7.6 percent, down from 8.5 percent in January 2010, and meaningfully higher than the national average of 9.1 percent.

Local employment stability and job growth have long been the most relevant indicators when studying the health of Richmond’s apartment market, which encompasses just under 60,000 units. As Richmond continues to respond to the loss or severe downsizing of several of its longest tenured employers, including LandAmerica, Qimonda, Circuit City and Genworth Financial, the apartment market has shown signs of modest improvement as we enter into 2011. Major companies in the Richmond area added approximately 1,900 jobs in the fourth quarter of 2010, including 1,000 at Capital One, which is headquartered in Richmond’s West End. This uptick in employment translated directly to a decrease in Richmond’s overall vacancy rate, which improved for the first time in 2 years to 7.2 percent, leading to a year over year increase in average monthly rent per unit from $804 to $823.

In 2010, apartment absorption, turned positive for the first time since 2008. Net absorption for the period totaled 1,839 units, or 3 percent of Richmond’s overall apartment inventory. This trend was aided by modest development activity in the Richmond metro area during the last 18 months, which can largely be attributed to the softening of the local economy, combined with heightened lending restrictions. However, as fundamentals have improved, new development has started to take shape. In the Richmond area, there are approximately 900 units under construction within six different communities. This development is concentrated in the Central Business District (CBD), which has benefited from the continued growth of VCU and MCV, and in the Tri-Cities submarket, home to the Fort Lee Army base, which recently underwent a BRAC consolidation resulting in significant growth to the base. Presently, there is an additional 1,539 units proposed, within eight communities, with construction planned to commence at these projects in the next 12 months. Again, the majority of these proposed communities lie within the CBD or the Tri-Cities submarkets.

While the CBD, Tri-Cities and West submarkets continue to provide strength to the overall Richmond market, rental concessions remain prevalent within other underperforming areas, including Richmond’s Eastern and South submarkets. This weakness should continue throughout 2011 in these submarkets, as there are no significant signs of job growth to aid in a resurgence. As a result, new development and investor interest will remain concentrated in those submarkets that have shown strength throughout the recent economic recovery.

— Drew Wiltshire is a vice president with Cushman & Wakefield | Thalhimer, Residential Property Services Group, in Richmond, Virginia.

©2011 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.