Growth at military base boosts hotel construction in FredericksburgAugust 31, 2012 6:00 AM
by Marjolijn Bijlefeld and Robert Burke
New construction in hotels and health care and a strengthening retail market are helping to push the Fredericksburg region’s commercial real estate market into what could be a pretty good year.
There are four new hotels either under construction or in the planning stages along U.S. 1 in Stafford County, a sign of the impact of defense- and government-related growth near Marine Base Quantico, on the county’s northern boundary. Among them is a 95-room Suburban Suites in North Stafford and a 95-room Fairfield Inn and Suites just a few hundred yards south on U.S. Route 1. In addition, plans for a 100-room Aquia Hilton Extended Stay hotel and a Courtyard by Marriott are under review by the county.
The Courtyard project is close to the successful Quantico Corporate Center, which recently finished leasing up its third 140,000-square-foot building. The park is full of defense contractors eager to be close to customers at Quantico, and the last open space was leased in June by Trustcomm Inc., which took 13,000 square feet.
With Quantico’s growth, the hotel projects are needed, says David Newman, a vice president with the Silver Cos., which developed the center. The Base Realignment and Closure process brought nearly 3,000 jobs to Quantico. Plus, last year a new 718,000-square-foot building opened there, bringing together five military investigative agencies under one roof. The $350 million Military Department Investigative Agencies (MDIA) headquarters building holds about 2,600 employees. Those agencies do a lot of training sessions “and that alone is enough to support one or two hotels,” he says.
Plus, in the city of Fredericksburg, the University of Mary Washington Foundation has broken ground on a new Hyatt Place hotel. It’s located in Eagle Village, a mixed-use project being developed at the site of an old shopping center on U.S. 1 directly across from the university. The 93-room hotel will have five stories and 66,500 square feet and plans to draw customers from both UMW-related events and from nearby Mary Washington Hospital. Earlier this year, builders cut a new road connecting the hospital to the Eagle Village project. The hotel is the first project to take advantage of the Virginia Tourism Development Financing Program, which lets selected projects get gap financing for up to 20 percent of a project’s total cost.
Meanwhile, the corporate center near Quantico is taking another big step. It is leasing a speculative, 40,000-square-foot building that will be constructed along with an extension of the center’s main drive, providing direct access to the new MDIA building. “We purposely tried to tie construction of the road to the building, because there’s no market for a loan for road construction these days,” says Newman. “As soon as we have the financing in place that phase will move forward.”
Tim Baroody, director of Stafford’s Department of Economic Development, says the hotel growth is overdue. “We’ve long heard that there was not the right kind of product in North Stafford,” he says. “Obviously there’s a demand that’s getting attention.”
The county sees potential for future growth near the corporate center. It has launched its Stafford Technology & Research Center project, located in the Quantico Corporate Center. The project offers classes for the more than 30,000 tech-sector employees who work in the area, with support from George Mason University, the University of Mary Washington, Germanna Community College and the University of Maryland University College. The hope is that bringing universities and private-sector employers together will generate more jobs. “It should really change the game in North Stafford,” Baroody says.
Office demand is claiming a piece of what used to be part of one of the region’s biggest retail centers. The Central Park development near Fredericksburg, a mass of big-box stores near Interstate 95, now has new office space in what used to be retail. The Central Park Corporate Center is a cluster of five buildings originally built as a small, walkable shopping district done in neon and art deco. But that strategy never took hold, and Rappaport Cos., which owns the properties, has gone with a more traditional office exterior design and is looking for business tenants. “There are government agencies in the buildings, software companies, just the typical professional office users,” says Jaime Scully, first vice president with Cushman & Wakefield | Thalhimer in Fredericksburg.
The center has 220,372 square feet total, with about 73,000 square feet available. It’s a notable shift in the region’s market, which has seen tremendous retail growth in recent years. One reason the project failed, Scully says, is that it didn’t have anybody living nearby to support the restaurants and small shops in the project, which used to be called Uptown Central Park.
Vacancy rate down
Overall, office leasing activity in the first six months of this year was 220,852 square feet, compared with 259,342 square feet for all of 2011, according to figures from Cushman & Wakefield | Thalhimer’s Fredericksburg location. Vacancy rates are down slightly from a year ago, to 12.1 percent, and rental rates of $21.83 per square foot are level.
One market showing new energy is medical office space. A 3.8-acre property on Route 610 in North Stafford sold for $500,000 in the second quarter, and plans have been submitted to the county for a 40,000-square-foot medical office facility there, according to Thalhimer’s data. Plus, a 9,200-square-foot medical building, Southpoint Medical, is under construction and should open in the third quarter, Scully says.
He thinks that market has been more sluggish than anyone expected, given that the Fredericksburg region has added two hospitals in the past few years. Stafford Hospital opened in 2009 with 100 beds, and the Spotsylvania Regional Medical Center opened in 2010. “Medical office leasing and sales both have had less volume than anyone predicted,” Scully says. Physician practices and other support facilities are opening “but we haven’t seen an explosion of growth,” he says. The Spotsylvania hospital probably has a better chance to see such development because it has new apartment projects nearby, Scully adds.
Retail, though, is doing well. “We’re seeing more retail activity than we have in four months or so,” Scully says. Among those are some big leases in vacant storefronts in the Central Park shopping area, such as a new Christmas Tree Shops, which leased 42,000 square feet there in the second quarter, and Buy Buy Baby, which took 36,000 square feet. In the city of Fredericksburg, an investor group paid $3.5 million for a multiproperty location that includes a hotel and two restaurants.
Retail construction projects in the second quarter included a new Five Guys restaurant and a new bank, both in King George County. So the growth is showing up beyond the shopping areas right off I-95, an encouraging sign.
The new energy reflects an increase in consumer spending — taxable sales in the region rose 7.7 percent in the first quarter of this year compared with the previous year. “Retail is back,” Scully says.
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