Residential and commercial real estate markets are apples and oranges

Virginia Business
June 2005

Thomas S. Turner has been a commercial Realtor with Hall Associates, the largest commercial and industrial real estate firm in Western Virginia, since 1981. The firm is active in more than 125 communities in Virginia, West Virginia, North Carolina, Tennessee and Kentucky. During his career, Turner has earned the Certified Commercial Investment Member and Society of Industrial and Office Realtors designations. He has been active in the Roanoke Valley Economic Development Partnership and the Roanoke Regional Chamber of Commerce. Virginia Business talked with him about the commercial office and industiral markets in Virginia.

How did you get started in commercial real estate and what about it i

nterests you?
I left a position in resource development at a college to enter the profession. My goal from the beginning was to pursue the commercial side. It is a very challenging field. ... No two transactions are alike.

How’s business for industrial and office real estate in Virginia?
The markets continue to show signs of improvement from the most recent economic downturn. The major regions of Virginia are diverse. Office or industrial activity may be improving in one region at a faster pace than in another. Even within the same region, one sector may have rebounded while the other has not. There are also areas facing unique challenges. Those with extensive textile or furniture manufacturing closures have experienced an uphill struggle toward recovery. Generally speaking, office activity has stabilized with industrial activity poised to improve this year.
There are favorable lease rates and offering prices for properties located in the less robust markets. This creates an opportunity for companies to initiate an expansion or new project.

Home building, apartments, condos — all have been very hot over the last several years in Virginia and nationally. How has office and industrial development stacked up?
I think we are comparing apples to oranges when talking about residential vs. commercial real estate. They are very different sectors of the market. Interest rates have been a key factor in spurring residential sales and development. Interest rates are also important to commercial real estate, but there are many other factors that impact it. Companies need to be making a profit and creating jobs. If they are, they will be in the market looking to expand. Over the last couple of years this has not always been the case and, as a result, there has been more downsizing in both office and industrial real estate.

What is the role of the Society of Industrial and Office Realtors?
Within the industry, SIOR sets the highest standard for office and industrial practitioners. Member-ship is based on experience, sales volume requirements, education, ethical practices and recommendations.
The Society was founded in 1941 as an answer to the U.S. War Department’s request for assistance to locate industrial facilities. Later it incorporated the office sector. There are approximately 3,000 members in 20 countries. Members are involved in selling, leasing, developing and the investment side of commercial property.

SIOR provides its members opportunity for professional development through educational programs, conferences, chapter meetings, publications and networking.

What do you foresee for industrial and office development for the next few years?
Based on conversations with my fellow SIORs, I am positive about the next few years. I think we will see less vacancy, more net absorption and new construction.

In order to stay on course, regions will have to have the right mix of properties available to meet the demand. They will have to respond to prospect requirements in a timely manner. Even today, a tight industrial market is fueling new construction in the Hampton Roads area. Companies will locate in areas with an ample pool of trained employees available to them. If not, they may look elsewhere.

Unforeseen events such as a major corporate restructuring or a manufacturing shutdown can cause shifts to occur. Virginia provides a pro-business climate which helps counter the negative effects of a downturn.

How would you compare the commercial real estate markets in the Southwest, central Virginia/Richmond, Northern Virginia and Hampton Roads?
Northern Virginia is tied more closely to the activity in the Baltimore/Washington corridor. There is a great deal of office and industrial activity generated in that region. The Hampton Roads area has a stable office market and exhibits solid industrial growth with one of the lowest vacancy rates in the past 15 years. New industrial development is taking place in Virginia Beach and Suffolk. In Richmond, activity in Class A office space in the central city and in the suburban market remains strong.

On the other side of the coin, Richmond industrial vacancy remains high especially in the distribution sector. Western Virginia continues on a steady recovery. In Roanoke, the vacancy rate has been narrowed from the previous year in the suburban office markets. The industrial recovery is slower and inventory remains high in mid-size industrial buildings. There seems to be demand throughout all of the regions for small quality office projects and small industrial buildings.