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- March 4, 2013
- Retail Real Estate
BY CAROL HAZARD Richmond Times-Dispatch | Posted: Wednesday, February 13, 2013 12:00 am
The Richmond area is seeing a slow and steady recovery in commercial real estate, according to a panel of experts who spoke Tuesday at an annual real estate market review in Richmond.
Nearly 300 people attended the breakfast meeting at The Jefferson Hotel presented by the Greater Richmond Association for Commercial Real Estate.
Tidbits that emerged include the following:
• Wegmans Food Markets Inc., a New York-based upscale grocery chain, is opening a store in Charlottesville in 2015 and could open one in the Richmond area.
• Investment sales nationwide in commercial properties rose last year to within 20 percent of their peak in 2007.
• Office vacancy rates here stabilized last year, but leasing activity fell to the lowest level since 2009.
• FedEx and The Vitamin Shoppe are building distribution centers in Hanover County.
• The new-home market is improving as well.
“There’s not much of a boom here, but we are coming back,” said Craig Toalson, chief executive officer of the Home Building Association of Richmond.
Although Toalson spoke about the homebuilding industry, he seemed to summarize commercial real estate as a whole.
David Andrews, a partner in Atlanta-based The Shopping Center Group with an office in Midlothian, addressed the retail segment. Andrew R. Little, a principal with John B. Levy & Co. Inc. in Richmond, spoke about investment sales.
Suzanne L. White, a vice president with Cushman & Wakefield | Thalhimer in Henrico County, looked at the office sector. Greg Creswell, a senior associate with Colliers International in Richmond, addressed the industrial segment.
With an overall vacancy rate of 7.5 percent, retail is one of the strongest sectors here. Nationally, the average retail vacancy rate is 9 percent.
The strongest local submarket is the Short Pump area in western Henrico, where the vacancy rate is 5 percent. “The Hull Street corridor is another bright spot,” Andrews said.
Southpark Mall in Colonial Heights is buoyed by the expansion at nearby Fort Lee. And Dick’s Sporting Goods is taking over the former Dillard’s store there.
A national group is trying to buy the mortgage bonds at a discount for Regency Square mall but, until that goes through, nothing is likely to happen there, Little said.
New on the scene are the Kroger Marketplace on the site of the former Cloverleaf Mall in Chesterfield County and Carytown Place in a former Verizon building, where a Fresh Market opened.
“Wegmans is looking at Richmond, but they want to get Charlottesville open first,” Andrews said.
Groundbreaking for the Charlottesville store is planned for summer 2014. Wegmans has five stores in Virginia.
Investment sales saw good activity in 2012 and even better activity is expected this year, Little said.
“A secondary market like Richmond will benefit from low rates,” he said.
Capitalization rates, a rate of return on a real estate investment property based on the expected income, fell 25 basis points in office, apartment and retail properties in 2012.
The U.S. saw $283 billion in investment property sales in 2012, a 27 percent increase from the previous year. And the volume in the fourth quarter was $98.4 billion, the most since the same period in 2007.
Sales have been fueled not by debt, but rather by institutional and private investments, Little said.
Apartments were the most favored asset group, but that likely will slow since the lending market is concerned about over building in that segment, Little said.
The Innsbrook area in western Henrico is the most popular office location in the Richmond area, Cushman & Wakefield’s White said.
The suburban office market saw positive absorption of office space last year. But the central business district and Stony Point, Huguenot and Midlothian corridors had negative absorption.
In 2012, leasing activity fell 40 percent from 2011, “which is very significant,” White said, attributing the decline to a jobless recovery. “We have not regained the pre-recession workforce level.”
Great spots in 2012, she said, include new leases by SunTrust Banks Inc., Snagajob, Magellan Health Services, Capital One Financial Corp., VCU Health Systems and General Electric.
BrownGreer is moving from its downtown law offices into adaptive reuse space at Rocketts Landing and the University of Phoenix vacated office space to occupy the former Borders bookstore on West Broad Street.
Adaptive reuse projects in downtown Richmond could include a high-rise office building at 700 E. Main St. for a possible conversion into a hotel or apartments, White said.
The industrial segment saw 2.1 million square feet built for Amazon.com, and 230,000 square feet under construction for a data center in Meadowville Technology Park in Chesterfield for Capital One.
“Southside is a shining star in the industrial market,” said Creswell with Colliers.
Also, Rolls-Royce is expanding with a second aircraft engine components manufacturing plant in Prince George County.
The overall industrial vacancy rate is 10 percent in the Richmond area, down from 12.7 percent in 2010. And rental rates have flattened at $3.55 per square foot for warehouse space and $7.85 for flex space.
All new space is for companies building to suit their needs. Creswell said he doesn’t expect any speculative construction for the industrial sector until 2014.
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