Commercial Real Estate | More big box and high-tech
- February 27, 2009
he scenic Shenandoah Valley, with its storied Civil War battlefields and rural countryside, stretches for 200 miles — from Winchester all the way to Roanoke. The wide swath is connected by Interstate 81, the region’s main traffic artery. It has long pumped life into the valley’s real estate market, bringing shoppers, clients, business and industry.
Indeed, this long ribbon of highway has played a role in diversifying the region’s economy. Today, there is a mix of land uses — agricultural, retail, commercial and industrial — along the busy corridor. Front Royal claims the state’s only inland port, an asset developers say is sparking growth. Meanwhile, cities such as Waynesboro and Harrisonburg are attracting commercial and retail projects. On the industrial side, some of the region’s manufacturing plants have cut operations and laid off workers as they feel the pinch of the economic slump.
“We have four of the top five agricultural counties in the state, Rockingham, Augusta, Shenandoah and Page,” says Robin Sullenberger, CEO of the Shenandoah Valley Partnership. “Also a very strong manufacturing base, and now we are moving into research and development.”
Still, he adds, “We’re not immune to the financial impacts of this downturn. But in most cases the effect is less pronounced here than in some places that are more dependent on a particular economic sector.”
The proposed widening of I-81 remains controversial. Many valley residents and business leaders oppose plans to widen the highway to six or eight lanes in some places. Such a massive expansion would increase the region’s already congested truck traffic, they say, and destroy the valley’s pastoral character, a major drawing card for tourists.
For now, the expansion is on hold. In the current recession, construction dollars have dried up from public and private sources. Plus, some area legislators are pushing for railroad alternatives and truck-climbing lanes as a better way to address the valley’s traffic and safety issues.
Waynesboro, near the intersection of Interstates 64 and 81, has attracted national and regional big-box retailers. In fact, there’s been a splurge of retail growth the past couple of years. “It’s easier and quicker for folks from Crozet, Wintergreen, Stony Creek or Nelson County to come over [Afton] mountain to shop here than go to Charlottesville and fight traffic,” explains Mike O’Donnell, a local real estate agent with CB Richard Ellis.
As a result, the 400,000-square-foot Waynesboro Town Center just off I-64 has attracted major retailers including Kohl’s, Target and Books-A-Million. The project, developed by Charlotte-based Collett & Associates, opened in 2007. Smaller shops continue to fill in available space, with rental rates ranging from $19 to $27 per square foot.
While Afton Mountain hasn’t proved a barrier to retail shoppers, it seems to hurt corporate activity. “That’s where we come up short,” says O’Donnell. The University of Virginia in Charlottesville attracts many commercial tenants interested in partnering with the school and drawing on the student employment base. “I’ve had clients evaluating locations, and even though the rents are less here, they prefer the more active Charlottesville hub,” notes O’Donnell.
The growth of James Madison University is driving both commercial and industrial real estate expansion in Harrisonburg. One new project that’s partnering with the university is SRI International’s Center for Advanced Drug Research. The California-based nonprofit research institute, with help from the state, is building a 40,000-square-foot facility just outside the city limits that’s scheduled to open this August. SRI already has already hired 14 staffers in research and business development and plans to hire more as the project moves along.
The city’s industrial market also is holding up. “We’re seeing warehouse rates hold fairly steady,” says Keith May at Kline Commercial Real Estate. However, May says that overall real estate transaction volume has slowed. Office vacancies have risen slightly, he adds, from about 3 to 5 percent. “Spaces are sitting on the market a little longer before being absorbed.”
Despite the challenges, several local companies are expanding. They include White Wave, which makes organic soy products, and Merck, the pharmaceutical company. Rosetta Stone, an Arlington-based language translation software company, recently purchased the former police department building downtown. It plans to renovate the 14,000-square feet building into office space for more than a hundred new employees. DBT-DATA of Washington, D.C., a real estate investment and development firm, also is building out a new project: the 90,000-square-foot Blue Ridge Data Center. With its location 106 miles from the nation’s capital, the Harrisonburg center sits well outside the nuclear risk zone associated with the federal government and is well positioned to win federal business for hosting and disaster recovery, says DBT Managing Partner David Tolson.
Of all the cities in the valley, Harrisonburg is credited with being the most innovative in drawing new technology jobs. Several years ago, it created a downtown technology zone that helps draw IT and technology companies by clustering them together and providing economic incentives, such as exemptions from water and sewer connection fees.
Local developers have taken notice of the urban growth. They’re building two new downtown properties for a mix of residential and retail space. The Urban Exchange building, on two acres, will offer 11,000 square feet of retail space when it opens this summer, says developer Andrew Forward.
The bankruptcy closures of Linens N Things and Circuit City Stores will eventually leave one of the city’s retail centers, Winchester Station, without its two anchors. That will translate into 50,000 square feet of vacant space, a sizeable chunk in the 168,000-square-foot mall. By contrast, nearby Rutherford Crossing has leased all but about 36,000 square feet of its 300,000 square feet of retail space. It opened last July, anchored by Target and Lowe’s stores.
Those were the last two major retail developments in the area. Currently, new construction is at a standstill. “It’s just not a hot spot right now,” says Angie Lynd of the Virginia chapter of the Associated Builders and Contractors.
Retail activity continues in Front Royal. Recently opened Crooked Run Center and Riverton Commons near Interstate 66 are attracting a mix of shops and restaurants including Lowe’s, Wal-Mart, Cracker Barrel and Kohl’s. Crooked Run Center is currently full and plans to start a second phase of construction. Real estate sources expect this phase may move slowly because of the recession.
In addition, there is significant growth in industrial and corporate development near the inland port. Mike Silek with Adams Nelson & Associates reports doing four leases in one week. Silek sees companies moving west from D.C., sniffing around for lower costs. One newcomer is a high-tech printing contractor, while another tenant handles water purification for medical clients. Flexible technology space goes for $6 to $7.50 per square foot, while warehouse space is cheaper at $3.95 to $4.50 per square foot.
Two large buildings near the port are nearing completion. One, in the Kelly Industrial Park, offers 30,000 square feet and is about a third leased. The other, a 50,000-square-foot building in Happy Creek Technology Zone, has leased about half its space. Silek says the buildings were developed to offer “flex tech” space that can be adapted for high-tech, light industrial or corporate use.
What’s driving the market?
• Interstate 81
• Growth of James Madison University
• Diversifying economy, including more high-tech jobs
• State’s only inland port
• Proximity to Washington