Southeast Real Estate Business asked industry leaders in Richmond, Virginia, to comment on the state of commercial real estate in their fields of expertise.

Industrial

As the Richmond, Virginia, market moves through the first half of 2003, regional and national company closures continue to occur, adding additional space to a market that is already experiencing high vacancy in the industrial sector. The upside is that the availability of these properties has created many new leasing and buying opportunities for local users and speculators.

Selective private developers continue to build spec product. However, due to more cautionary corporate directives, public real estate investment trusts (REITs) seem to be holding back in this soft market.

The majority of industrial development is taking place in the southern metro area off of Interstates 95 and 295 South in southern Chesterfield County and Prince George County. There is also proposed new development on Lewistown Road in Hanover County off of I-95.

In Hanover County, north of the I-95/Lewistown Road exit, new industrial development is occurring. In the Brandermill/Route 288 corridor, completion of the Route 288 road extension is spurring activity by local developers.

Noland Company has nearly completed its new 200,000-square-foot regional distribution center located in Prince George County. The new facility will be used for the distribution of plumbing and related building supplies.

Other new construction includes the 77,000-square-foot facility being built for SCM (Service Center Metal), an extrusion operation, which is a spin-off by a group of former Reynolds Metals employees. Porter Realty brought this project to The Hollingsworth Companies, a regional developer. The facility is expected to be completed this summer and is located in Prince George County.

In addition, Evergreen Enterprises Inc., a manufacturer of home décor and garden accents, is constructing a 100,000-square-foot expansion to its existing facility on Midlothian Turnpike. Construction began in April.

Recent leases include Menlo Logistics’ 126,000-square-foot lease at Fairgrounds Distribution Center. Coca-Cola also leased 81,000 square feet of space at Fairgrounds Distribution Center. At 2913 Transport Street, Star Pipe leased 94,000 square feet.

Quoted rental rates for new construction are $4 to $4.50 per square foot net for space of 20,000 square feet and up. Quoted rates for existing properties are $2 to $3.75 per square foot net for space of 20,000 square feet and up.

The vacancy rate for the industrial market, 50,000-square-foot buildings and up (non owner/user properties), is currently tracking at 31 percent. The overall rate has been steadily increasing over the past few years. The vacancy rate is expected to remain steady for the remainder of 2003 and start to decrease thereafter, as it is anticipated that some of the excess space on the market will be absorbed.

Continued low interest rates have been a significant incentive to buyers, allowing them to take on more property ownership. The favorable rates, along with downward pressure on property pricing, have attracted selected users/speculators to the market. The result has been positive — industrial sales for the first part of 2003 have been more substantive versus the previous 6 to 10 months.

— Richard W. Porter, SIOR, CCIM, Porter Realty Company, Inc.

Office

New office construction in Richmond includes the development of two office condominium projects, Boulders Commons and Grove Park Square in Wyndhams West End. A number of office condominiums have been developed over the last few years to meet the needs of small office users who prefer to own rather than lease. For the most part, landlords will continue to focus on renewing existing tenants and leasing up their vacant space.

Thalhimer/Cushman & Wakefield expects an upturn in the office market based on significant deals that occurred recently. In January, the Federal Reserve Bank purchased the former Heilig Meyers headquarters, a 210,000-square-foot building located in the West Creek Business Park. In March, Philip Morris announced it was relocating its headquarters to Richmond and would be leasing the former Alcoa/Reynolds corporate headquarters building consisting of 240,000 square feet. The Philip Morris announcement also resulted in the relocation of Hankins and Andersons from the Alcoa/Reynolds building to 27,000 square feet at the Overlook Building in Innsbrook Corporate Center.

Innsbrook continues to be the premier suburban office park within the Richmond marketplace. It is home to many of the major corporations located in Richmond. Innsbrook Corporate Center has approximately 5.1 million square feet of Class A office space with approximately 238,000 square feet available for lease.

The Richmond suburban office market is comprised of 17.1 million square feet. The 1st Quarter 2003 Thalhimer Report reveals that there is currently 1.56 million square feet of office space available for lease, which translates into a vacancy rate of 9.14 percent. Another factor that must be taken into consideration when determining the overall vacancy rate is the amount of sublease space that is available for lease. Currently, there is more than 665,000 square feet of Class A sublease space available for lease in the entire suburban office market. When you factor in the Class A sublease space with the Class A office space directly controlled by landlords, there is an overall vacancy rate in the Richmond suburban market of 14.19 percent. Class A rental rates range in Richmond from $15.50 to $19 per square foot on a full-service basis.

Tenants that have leases that expire in the next 6 to 12 months have the opportunity to take advantage of concessions being offered by landlords in the marketplace to secure tenants. Over the last 2 years, rental rates have dropped anywhere from 50 cents to $1 per square foot and it is commonplace for tenants to receive free rent. Tenants that are financially strong and are looking to lease more than 10,000 square feet are being offered additional incentives as landlords battle each other to lease their buildings.

— N. Dean Meyer, CCIM, senior vice president, Thalhimer/Cushman & Wakefield.

Retail

Richmond’s retail market should be positively impacted by recent activity, including the expansion of the convention center and the addition of two new malls, as well as downtown economic development, which includes 2,000 apartments, condominiums and townhouses.

Wachovia Corporation and Prudential Financial Inc. are merging their retail brokerage operations, which will bring new residents and economic growth to the area. The combined firm will make Richmond home to the nation’s third-largest brokerage firm in terms of client assets under management. The transaction is expected to close in the third quarter.

Richmond will gain several new retailers when Short Pump Town Center opens in September. Developed by Forest City Enterprises and Thomas E. Pruitt of Richmond, the $250 million mall is located on 147 acres in western Henrico County.

Also opening in September is Stony Point Fashion Park, a $120 million open-air center to be located on 145 acres in south Richmond. Saks Fifth Avenue, Dillard’s and Galyan’s will anchor the 690,000-square-foot mall developed by Taubman Centers Inc. Short Pump and Stony Point will be the first regional shopping centers built in the area since 1991.

Powhatan County, located west of Richmond, is preparing for residential and commercial growth near the intersection of Route 288 and Huguenot Trail. Developers are proposing an upscale residential project of 136 homes and supporting retail in a village-style development.

Chesterfield County is experiencing rapid growth as evidenced by a planned 5,000-home residential development called Magnolia Green. Although the development has not yet broken ground, retail and commercial growth is expected to escalate to support new residents and increased traffic on U.S. 360.

A 58,000-square-foot Kroger is planned for the 8.04-acre former site of The Ridge Cinemas, which closed last fall after 32 years. The site is located on East Ridge Road in the West End. Specialty retailer Cost Plus World Market recently entered the Richmond market with a store on West Broad Street.

It has been 2 years since city council approved development of the 62-acre Shops at Stratford Hills, located in the Stratford Hills section of Forest Hill Avenue. Ukrops and Target still have not signed a final commitment, but apparently are very close. Harper and Associates now owns the site, and 65 to 75 percent of the land reportedly has been leased. A new completion date of April/May 2004 is now proposed.

Inland Retail Real Estate Trust Inc. has acquired three retail properties in Richmond comprising nearly 560,000 square feet of gross leasable area. Inland Retail paid approximately $95 million for these properties.

The Creeks of Virginia Shopping Center is a 266,266-square-foot neighborhood center anchored by Bed Bath & Beyond, Barnes & Noble, Circuit City, Dick’s Sporting Goods, Michael’s and PetsMart. Inland purchased the center from Developers Realty Inc. for $39 million.

Downtown Short Pump Shopping Center, a 125,553-square-foot neighborhood center, is anchored by a Regal Cinemas and Barnes & Noble. Inland purchased the center from Menin Development of Jupiter, Florida, for $33.6 million.

Commonwealth Center II is a new 165,382-square-foot neighborhood center anchored by Barnes & Noble, Stein Mart, Michael’s, Pier 1 Imports and Old Navy, as well as shadow anchors Target and Kohl’s. Inland acquired the property from A.P. Properties LP for $22.28 million.

- Lynn Leonard, vice president — marketing, NewBridge Retail Advisors

Short Pump Brings New Retailers and New Way of Shopping to Richmond Short Pump Town Center In September, residents of Richmond will experience their city’s first open-air, regional lifestyle center. Developers Thomas E. Pruitt of Richmond and Forest City Enterprises of Cleveland have created Short Pump Town Center, a 1.2 million-square-foot development located on 147 acres between Broad Street and Interstate 64. The upscale center will include more than 120 retailers and restaurants, including several that are making their debuts in Richmond. Pottery Barn, Crate & Barrel and abercrombie are just some of the 32 retailers entering the Richmond market. Short Pump will also feature five anchors: Nordstrom and Lord & Taylor, which are new to the Richmond market; Hecht’s and Dillard’s, which are opening flagship stores; and Dick’s Sporting Goods, which is opening a prototype, two-story location. Four of the five anchors will open this fall; Lord & Taylor will open fall 2004. Five restaurants will be firsts for Richmond. Copper Grill Lobster and Steak House, Firebird’s Rocky Mountain Grill, Maggiano’s Little Italy, Tara Thai and California Pizza Kitchen will make their Richmond debuts in September. Other features at Short Pump include a community meeting facility; the Byrdcage, a food court; the VIPreference Club, with upscale amenities for Short Pump’s loyal guests; seasonal personal shoppers; and valet parking. Thompson, Ventulett, Stainback & Associates of Atlanta is the architect for Short Pump Town Center, which was designed in a two-story, Main Street setting. - Julie Fritz

Daniel Corporation and The Cordish Company Bring $82 Million Mixed-Use Project to Richmond Riverside on the James will contain office, retail and multifamily space. The project is scheduled to open spring 2005. Over the next 2 years, a significant portion of downtown Richmond’s riverfront — 2.5 acres of the 4-acre tract of land located between the banks of the James River and the renovated Haxall Canal — will receive a major facelift. Daniel Corporation and The Cordish Company are developing Riverside on the James, an $82 million mixed-use project at the site of a former power facility on Brown’s Island that has been abandoned for more than 50 years. Three 240-foot smokestacks, which soared above the abandoned power facility, and the accompanying steam plant were recently cleared. The existing hydroelectric plant and its smokestack will remain, housing a major portion of the development’s 70,000 square feet of entertainment/retail space. Parts of the former power facility will remain on the site for several reasons. “It’s important for Richmond, the canal and the project to keep with the historic feel of city,” says Alex “Andy” Andrews Jr., senior executive vice president with Daniel Corporation. “It’s an urban revitalization project, and this will add a lot of character to the project.” “We are also utilizing the city’s tax abatement program, and by renovating this old hydroelectric plant we are able to capitalize on that benefit,” adds Michael Campbell, vice president with Daniel Corporation. The developers received extensive support from the city of Richmond, Richmond’s City Council, Richmond Renaissance and the Richmond Riverfront Development Corporation. “It’s been unique to work [with the city],” says Andrews. “It’s been a collaborative effort for the developers and owners to work with the city to revitalize the area.” In addition to the tax abatement program, the city is providing funds to pay for bridges that will allow access to the island at 10th and 11th streets. The project will also include eight levels of office space totaling 230,000 square feet. A significant percentage of the office space has already been leased by Troutman Sanders, a national law firm that plans to expand its presence in Richmond. The remaining space will be leased to a variety of Class A office tenants. In addition to the retail and office components, the project will include 122 apartments and an 800-car parking deck that will serve the entire island. Riverside on the James will be the largest mixed-use development on Richmond’s riverfront, complementing the city’s $55 million investment in the historic canal area that began in the mid-1990s. “That investment is one of the things that attracted us to the site,” notes Campbell. “Plus it’s on the water and has some of the nicest views — it’s an extremely unique opportunity.” Riverside on the James will open spring 2005. - Julie Fritz

©2003 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.