SOUTHEAST SNAPSHOT, JUNE 2005

Richmond Office Market

Throughout the Richmond, Virginia, market, existing Class A office product is well leased in all quadrants. For example, the new project Riverside on the James in Richmond’s central business district has leased very well; as a result, this should push projects in the works closer to fruition.

The Class A rental market is flourishing in downtown Richmond, where rental rates are holding steady, if not rising slightly, at $23 per square foot to $26 per square foot. Absorption in this submarket recently has been healthy as well. Companies have begun to shift their operations from Class B space to Class A space, and as a result, vacancy is rising in the Class B properties. Overall, the downtown vacancy rate is holding at 13.06 percent.

In the northwest quadrant of the metropolitan statistical area, Class A rental rates are rising, and trends are leaning the same way as downtown with Class B tenants relocating to Class A space. However, the movement is not so dramatic in this area as it is downtown. Suburban rental rates currently are between $17.50 per square foot and $19 per square foot, and the overall vacancy rate is 8.68 percent.

Several significant developments are underway across the Richmond market. First of all, Liberty Property Trust is planning to develop Westerre III on a spec basis in the Northwest quadrant. Upon completion, it will encompass up to 75,000 rentable square feet.

Along the west side of the city, Route 288 was completed in the fall of 2004, an endeavor which is spurring development throughout this submarket of Richmond. The road’s construction has made areas such as West Creek much more accessible for people who live in Midlothian.

In addition, Philip Morris USA is building a $300 million research and development facility in downtown Richmond, which is scheduled to be completed by 2007. The facility will be a much-needed shot in the arm for the north side of downtown near the Richmond Coliseum. Another significant project that definitely could impact the market is the possibility of developing a new baseball diamond for the Richmond Braves in downtown Richmond. The Richmond Braves, the farm team for the Atlanta Braves, and Global Development Partners LLC put forward a $330 million proposal that would introduce a new stadium in addition to 1.2 million square feet of retail and residential development in Shockoe Bottom. The proposal still needs city approval, but ideally construction for the project will start in 2006. A project of this magnitude surely would promote positive growth in the city.

Finally, Richmond has a new mayor effective as of January 1, 2005. Douglas Wilder, former Governor of Virginia, is the first at-large elected mayor in a long time, as previously, mayors were appointed by the city council. Wilder has instilled a lot of confidence in the local business community because he doesn’t seem to be playing politics; he’s simply getting things done.

Across the city, development generally is taking place in several areas: in the downtown area, which is seeing mostly residential production; in the southwest quadrant near St. Francis Hospital in Chesterfield; along Route 288; in Stony Point and Short Pump Town Center; near Riverside on the James; and finally, on Tobacco Row. Goodstein is a new developer in the area.

With regard to large tenants in the area, several major businesses are absorbing significant amounts of space in the Richmond office market. Phillip Morris, as previously mentioned, is underway on a large office project; Wachovia Securities is becoming a major presence in the area; and HCA as well as Virginia Commonwealth University are covering ground.

In addition, four large leases recently have been signed, furthering the expansion of office space and business development in the Richmond market: BB&T recently leased 80,000 square feet of rentable square feet at 823 E. Main Street; at 10900 Nuckols Road in Glen Allen, LogicaCMG has leased 47,000 square feet of rentable office space; Rutherford has signed for 27,714 rentable square feet at Riverside on the James; and finally, at 3951 Westerre Parkway, Tridium has leased 25,530 square feet of rentable office space at Westerre I.

In the future, keep an eye on the downtown submarket, as it is primed for ancillary development. Cost of air travel to area has hurt the city over time; a recent study showed that air travel into the city is fifth or sixth highest in the country for business travel costs. However, AirTran is coming in this summer with lower costs to certain business markets, which certainly will help the Richmond office market. Completion of Route 288 will fuel growth and development in northwest Chesterfield County and Eastern Goochland by easing traffic flow and providing better accessibility to those areas. Phillip Morris has made one of the largest private investment real estate deals in Richmond’s history, investing $300 million in five buildings located directly north of the downtown coliseum within BioTech Park. In effect, due to the large deals and the steadying market statistics, Richmond is set for positive improvement in its office market.

— Walton Makepeace, senior vice president, and Carlton Jones, senior vice president, the Richmond office of CB Richard Ellis

©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.