Despite some struggles, commercial market is poised for growthNovember 23, 2009 6:00 AM
by Tim Thornton
Once known as a railroad town, Roanoke is gaining mileage these days as a competitive business location. With a vibrant arts scene, new medical school and the continuing redevelopment of its downtown, the profile of this mountain community is rising.
In fact, the Roanoke region landed a national accolade in October. It was this year’s top pick from among 250 metropolitan statistical areas by Business Facilities, a national publication for site selectors and economic development. The magazine’s editors extolled the area’s low unemployment (7.1 percent compared to a national rate of 10.2 percent), rising home prices and diversifying economy as proof that it’s “positively pointing in the right direction.”
That kind of exposure is a big plus in the marketing of the region’s commercial real estate market. As Virginia’s fourth largest metropolitan area, the Roanoke region came through the recession pretty well. “Roanoke is insulated, to some degree, from the vast swings the economy sees,” says Bob Copty, a senior vice president in Thalhimer’s Roanoke office. While the region experienced some closings, its core industries of health care, automotive components and advanced manufacturing remained intact.
The region’s only Fortune 500 company, Advance Auto Parts Inc., continues to invest in the area. It plans to spend more than $4 million expanding its corporate headquarters at Crossroads Corporate Business Center in Roanoke. The move will allow the company to consolidate two locations into one, with 900 employees expected to work eventually out of the new office.
Overall, Copty describes demand for market office space as “surprisingly robust.” The region had a vacancy rate of 11.3 percent by the end of the third quarter, according to Thalhimer’s market report, well below the national rate of 13 percent. One success story can be found in the neighboring New River Valley, home to Virginia Tech and its Corporate Research Center (CRC).
As businesses spin out from research enterprises in the park, the area is benefiting, says Jeanne Stosser, president and CEO of GMC Leasing and owner of SAS builders. “It’s a great feeder spot,” she says.
The CRC includes 27 buildings with 140 tenants and 2,200 employees. It plans to roughly double its size with the help of a $1.9 million federal grant, which will cover much of the infrastructure costs. Research and businesses there now focus mostly on high-tech fields such as biotechnology, engineering and design through partnerships with Virginia Tech, a top 50 research university.
Northrop Grumman, the country’s second largest defense contractor, opened an office in October and already is talking about a second one. It plans to work with the university’s college of engineering on research contracts, nuclear engineering and alternative energy.
Not doing as well is the area’s industrial market. Some automotive related businesses, such as Johnson Controls and JTEKT of Botetourt County, have announced closings due to a slowdown in the industry. By the third quarter, overall vacancy in the industrial/flex market hit nearly 15 percent, according to the Thalhimer report. Buffering that spike was the recent opening of LiteSteel Technologies’ new North American plant in Botetourt. The Australian company built a $30 million facility that eventually will employ 55 people.
Retail is picking up, according to Thalhimer’s research, but this sector has struggled as well. A Ukrop’s supermarket the city was tickled to get a little more than two years ago closed in October.
Plus, Blacksburg’s biggest retail development in years hasn’t fared so well. First and Main, developed by Ohio-based Fairmount Properties, was supposed to be a 40-acre retail center that would revitalize a stretch of Blacksburg’s Main Street. Though the year-old shopping center has attracted more than a half dozen restaurants and many stores, much of the land remains undeveloped.
A battle over the inclusion of a big-box store in the mall went all the way to the state Supreme Court, and the developers lost. A theater designed to anchor one end of the development also hasn’t materialized. In the meantime, the project has faced liens, lawsuits and complaints from tenants, builders and Thalhimer, which helped recruit tenants.
Another development tied up in court is Norfolk Southern Corp.’s proposal to build an intermodal rail yard halfway between Blacksburg and Roanoke. The rail yard fits neither the area’s current residential and agricultural zoning nor Montgomery County’s long-range plans for mixed-use development there. The county is arguing that it’s unconstitutional for the state to subsidize the railroad as it has committed to do at the intermodal site.
Despite the pending court case, Norfolk Southern has bought some of the property it needs for the project, paying double the assessed value for some parcels. Potential developers are contacting neighboring property owners with an eye toward developing related businesses on what is now rural residential land. And in neighboring Roanoke County, plans for an asphalt plant are already working their way through the approval process, partly in anticipation of all the paving the rail yard and related road construction would require.
While the outcome of that project remains unclear, Roanoke can boast one solid real estate trend: the readaptation of former offices, banks and factories into apartments and spaces for entrepreneurs, especially downtown. Ed Walker, a local developer behind many of those transformations, lives in what was once a downtown bank. He says a lively downtown music, arts and cultural scene is helping to draw residents and tourists.
“Second to a strong regional education scene, music builds and strengthens community like nothing else,” Walker says. Projects helping to build that community include the Kirk Avenue Music Hall.
Walker’s most recent investment was the purchase of the historic Patrick Henry Hotel for $1.3 million. He plans to spend another $14 million restoring and refitting the 84-year-old property into residence, office and retail space.
Another downtown fixture, Center in the Square — which houses arts and cultural organizations and museums — also is poised for a makeover. The nonprofit center is more than halfway to a $27 million fundraising goal. About half of the money, $14 million, is expected to come from state and federal historic tax credits and donations.
The money will update the center’s interior while returning the façade on its Market Square building to its 1917 appearance. Plans also include rooftop gardens, an atrium, an aquarium, and high-tech and green improvements.
Giving the downtown area an increasingly artsy vibe was last year’s opening of the Taubman Art Museum. Its striking contemporary design received a 2009 International Architect Award. (See related photo and story on page 38). The museum is named for Nicholas and Jenny Taubman, who donated more than $15 million to the building’s $66 million construction cost. Nicholas is the former CEO of Advance Auto Parts.
Another project boosting downtown’s visibility is next year’s opening of a new medical school. The project, a joint venture between Virginia Tech and Roanoke-based Carilion Clinic, symbolizes the increasing alliance between Roanoke and Blacksburg. It’s expected to create new medical jobs and fuel interest in downtown living.
Copty sees all this activity as a harbinger of more and better things. “All of it is starting to feed on itself,” he said. “I think this part of the state is beginning to see an awakening, and I think you’ll see that continuing over the next 10 years.”
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