Despite the recent loss of two Fortune 500 companies, Richmond has enjoyed excellent employment growth over the past four years. Since the beginning of 1997, the area has gained 53,300 new jobs, or an average annual increase of more than 13,325 new jobs. Construction began earlier this year on the first phase of a 1.5 million-square-foot campus at the West Creek Office Park in Goochland County for Richmond's largest private employer, Falls Church-based Capital One Financial Corporation. The first employees will move in next year and it is projected that 6,000 employees will be housed in nine buildings by 2004.

Metro Richmond recently received news that Southwest Airlines will be locating in the area later this year. Air traffic volume is expected to double once the airline arrives. "The airport area continues to attract industry and has over the last five years become a separate market," according to Richard Porter, executive vice president of Porter Realty Company. An example of a recently announced project for which Porter Realty has been named listing agent, is 5600 Audubon Drive located right off Interstate 64 and Airport Drive. The project can accommodate up to 140,000 square feet of space, Porter says. Although the airport has purchased several adjacent land parcels, many strategic parcels remain that have development potential ranging from sites near I-64/I-295 to Laburnum Avenue near the new Interstate 895, which is scheduled for completion in January of 2003. I-895 is a critical intra-city transportation link connecting the airport area with Southside Richmond.

Office

Statistically, both overall office and suburban office vacancy increased in the first months of 2001, as large blocks of direct lease and sublease space swelled supply. Mergers, acquisitions, bankruptcies, layoffs and failing dot-coms all contributed to the increase in supply. More than 250,000 square feet that was leased to technology firms last year is back on the market, including 108,000 square feet at Villa Park. Over 100,000 square feet may become available for lease in the Heilig Meyers headquarters in West Creek due to the company's bankruptcy this year. It has been a decade since so many large blocks of space have been readily available in the Richmond market.

Hot spots include the Shockoe Bottom and Canal Walk areas of downtown Richmond, where a number of renovations are taking place, and the 80 percent pre-leased Turning Basin building, which is scheduled for completion later this summer. Another active area is Route 1 and Parham Road in Henrico County where Bon Secours leased 64,000 square feet at Windsor Business Park. Also in this area, Trigon leased 50,000 square feet at Robinson Development's Park Central.

Nearly 435,000 square feet of new suburban office construction was completed in the first half of 2001, including Highwoods Properties' 116,000-square-foot North Shore Commons A at Innsbrook and 107,000 square feet at The Park at Stony Point III. Also completed were 90,440 square feet at Westgate I at Wellesley, 50,000 square feet at Two Colonial Place, 40,000 square feet at Park Central V, 18,000 square feet at Concourse Common, and 13,500 square feet at Mayland Place.

Increased supply and shrinking demand will likely lead to falling rates and increased tenant concessions such as free rent, at least through the end of the year.

Retail

The retail market remains healthy, but is taking some knocks due to the slowing economy. Demand for sites and buildings has slowed, and retailers are generally more cautious in their site selection.

Most of the new construction in 2001 has been in the area around Virginia Center Commons in northwestern Henrico County where a 32,000-square-foot Circuit City, a 45,000-square-foot Dick's Sporting Goods and a 19,000-square-foot PetsMart opened at The Creeks at Virginia Center.

In other activity, Lowes opened a 100,000-square-foot store at an in-fill location on W. Broad Street at Lombardy Street in the City of Richmond, and Home Depot opened a 130,000-square-foot store in Colonial Heights.

Despite opposition from owners of competing properties and objections from the Department of Transportation regarding traffic congestion, plans are moving forward for the proposed 1.25 million-square-foot Short Pump Town Center on 147 acres at West Broad Street and Pouncey Tract Road in Henrico County. Developers Forest City Enterprises, Inc. and Thomas E. Pruitt expect their open-air shopping center to be completed in the third quarter of 2002. Anchor tenants will be Nordstrom, Lord & Taylor, Dillard's and Hecht's, although Nordstrom has indicated it will push back its opening until 2003.

Vacant big boxes are taking some time to re-lease, particularly those in less desirable locations. For example, the former Jumbo Sports on Midlothian Turnpike and the former Home Quarters on both West Broad Street and Midlothian Turnpike have been vacant for more than a year. Notable exceptions have been the Designer Shoe Warehouse purchase of the former Jumbo Sports on West Broad Street and Office Depot's occupancy of a portion of the Service Merchandise near Chesterfield Towne Center. Home Place is in the process of closing two stores locally due to bankruptcy: 55,000 square feet on West Broad Street at Brookhollow and 45,000 square feet on Hull Street at Commonwealth Centre.

The future of the retail market will largely depend on the direction the economy takes for the balance of the year.

Industrial

Lower interest rates and an ample supply of product in the first quarter spurred buying activity among small- to mid-sized local companies. Incoming activity edged up after a six-month hiatus with distribution, light manufacturing and traditional office/warehouse groups all contributing to the increase.

On the other hand, leasing absorption and prospect activity continued to be sluggish. Several large companies downsized or left the market due to the softening economy which contributed to overall net absorption for 2001 being well off last year's pace. Several large manufacturing facilities are on the market including a 316,000-square-foot former Stanley Hardware plant on Laburnum Avenue in Henrico County, a 164,440-square-foot Filtrona facility on Jefferson Davis Highway in Chesterfield, and a 239,540-square-foot Honeywell plant in Hopewell. Also, Viasystems is in the process of closing a 600,000-square-foot circuit board manufacturing plant near the airport in Henrico County, and the property will be on the market soon.

A boost to absorption will come when several recently announced projects are completed. The most significant announcement is an eventual 800,000-square-foot build-to-suit for DuPont in Chesterfield County to be developed by Devon USA. Other recent announcements include ERNI Components' 54,000-square-foot addition and construction of a new 120,000-square-foot manufacturing facility at its location at River's Bend in Chesterfield County, and a $31 million expansion by Maruchan Virginia, Inc. of its Chesterfield plant.

The industrial market will continue to be a buyer's market and will be fragmented for months to come. Look for prices and rents to drop in the near term, in some cases dramatically. Better conditions are expected later this year, however.

Multifamily

Several historic renovations are underway or have been recently completed, including Arete Investment Corporation's Shockoe Place at 1900 E. Franklin Street, a former tobacco warehouse that has been converted to 46 apartments. Arete Investment Corporation is also renovating the Superior Warehouse at 2401 E. Franklin Street into 28 apartments. Additionally, Miller & Associates converted a former Sydnor & Hundley furniture store at 108 E. Grace Street into 54 apartments with commercial office space on the first floor, and Artcraft Management, Inc. renovated the former Capital Garage at 1301 W. Broad Street into 36 apartments.

In the suburbs, demand for apartment land is outstripping supply and rezoning is difficult to obtain as jurisdictions struggle to control growth. One recent sale, however, was a 37-acre infill parcel in the Short Pump area of western Henrico County that was already zoned to accommodate the purchaser's plans to build a 506-unit luxury apartment community. SHLP purchased the site for $11.2 million from Equity Residential Trust of Chicago, Ltd.

Lynn McDaniel is marketing director of Grubb & Ellis | Harrison & Bates in Richmond, Virginia.


©2001 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.