The year 2000 was an eventful and prosperous period for the greater Richmond commercial office market. Total net absorption for the 23 million-square-foot market was at an all time high with nearly 1.4 million square feet in the downtown and suburban market areas. Over 90 percent of the net absorption took place in the suburbs, which comprise about two-thirds of the overall market supply of office space. Healthy absorption has driven down the vacancy rate for the suburbs to just above 5 percent, while the vacancy rate for the downtown market has remained at just above 12 percent. The Class A vacancy rate for downtown is between 6 and 7 percent, with the Class B and C rates substantially higher.

Numerous build-to-suit projects commenced last year, adding almost 1 million square feet of new office space to suburban markets. SunCom, 90,000 square feet, Charter One, 90,000 square feet, and Columbia HCA, 83,000 square feet, made the largest pre-lease commitments of the year. Referencing downtown, Bob Englander broke ground mid-year on the Turning Basin Project, a five-story, 93,500-square-foot building located at 14th and Canal streets, which will deliver mid-2001. This project is largely pre-leased to PriceWaterhouse Coopers, Morton's Restaurant and First Market Bank, and is the first new construction office project to break ground downtown in nearly 10 years.

While vacancy rates for suburban office product have decreased over the last three years, asking rental rates have increased. Asking rates for Class A new construction product, such as Westerre Business Park, across West Broad Street from Innsbrook, are now $19 to $20 per rentable square foot, up significantly from $17.50 to $17.75 in 1997. Concessions on a typical five-year lease transaction have remained stable, with free rent being scarce and buildout concessions ranging from $13 to $15 per rentable square foot (below a finished ceiling). Asking rents for Class A downtown product, such as James Center in the heart of downtown, have remained flat at $20 to $25 per rentable square foot, with rates of $13 to $18 per rentable square foot for Class B buildings.

Aside from the build-to-suit pre-leasing mentioned above, there were many other positive, noteworthy announcements and transactions during the year that bode well for the market going forward. Early last year, the former Pittston Company headquarters site located at Virginia Center was sold to Mass Mutual Life Insurance Company for $4.7 million for conversion to a hotel and conference center. Last April, Forest City Enterprises of Cleveland, Ohio, and local developer Thomas E. Pruitt announced plans to build Short Pump Town Center, a 1.1 million square foot retail and entertainment center, with anchor tenants Nordstrom, Lord & Taylor, Hecht's and Dillard's.

In July, William H. Goodwin and Beverly Armstrong purchased approximately 2,000 acres in the West Creek Business Park in eastern Goochland County for $35 million. This parcel is adjacent to the parcel owned by Motorola, which was acquired to house a newly constructed computer chip plant, before the entire project was put on indefinite hold. Finally, in October, in what may have been the most significant announcement of the year, Capital One announced its plans for the development of a 1.5 million-square-foot office campus in the West Creek Business Park. Capital One, who consummated the purchase of land for its development in February of this year, stressed that the consolidated campus would largely accommodate its expansion needs, while not affecting many of its existing leasehold positions. Capital One is already the largest private industry employer in the greater Richmond area with about 8,000 employees. The company's projections suggest that the staff count in Richmond will double to about 16,000 employees by the end of 2004.

After many of the private sector announcements had been made, in December the public sector had an important announcement of its own to make. The Virginia Department of Transportation announced they had reached a $236 million agreement with Koch Materials Company to complete road construction of the final 17.5-mile stretch of Route 288 from the Powhite Parkway North across the James River to Interstate 64. The project, which should be finished by the end of 2003, completes the beltway system around Richmond and will enhance economic development in Goochland, Chesterfield and Powhatan counties. It will also facilitate employers (such as Capital One) access to important labor pools. Commuting from Chesterfield to Goochland and western Henrico counties will become faster and easier. The completion of Route 288 will also solidify important future commercial developments in the areas mentioned. An example of this type of development is Watkins Centre, which will straddle the future Route 288 and Route 60 (Midlothian Turnpike) interchange. Watkins Centre, developed and marketed by Trammell Crow Company, will ultimately combine 800+ acres, and will include office, industrial, retail and residential space, as well as a retail/entertainment lifestyle center.

Strong market activity is anticipated for Richmond for 2001. Current demand in the suburbs will precipitate some speculative development and may drive rents above $20 per rentable square foot for the first time by year-end. The revitalization projects occurring downtown (convention center expansion, train station renovation and renovation of older buildings) should continue to enhance the downtown market. It is expected that absorption will remain steady downtown with select large tenants expanding their operations and newly formed businesses moving into the downtown area.

Carlton S. Jones is senior vice president of Trammell Crow Company in Richmond, Virginia.


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