Commercial real estate by region
- December 29, 2010
Defense spending has long been this region’s golden goose. However, in these days of defense cuts, the region faces the prospect of losing two major military employers. The Joint Forces Command (JFCOM), which employs about 6,000 people, including 3,900 in Hampton Roads, is expected to be shuttered, although some parts of the command could be transferred to other military installations. Closure would cost the region about $1 billion in lost income, according to the Old Dominion Forecasting Project.
In addition, there is the possible loss of one Hampton Roads-based aircraft carrier to Mayport, Fla. This would mean another big economic hit with a carrier group representing about $750 million a year of gross regional product.
The news isn’t all bad. The region saw two major projects open in 2010: Peninsula Town Center in Hampton, which replaced the old Coliseum Mall, and the 23-story Wells Fargo office tower in downtown Norfolk.
Some new construction also is under way on the Peninsula. Robert Brown & Associates is building an office condo project called Interstate Business Center on Old Oyster Point Road at Interstate 64. It’s about one-third pre-sold. The project will offer three Class A buildings of 24,000 square feet each.
The deepwater port in Norfolk continues to be a major asset. A new competitive advantage is Norfolk Southern Corp’s Heartland Corridor, which provides fast, double-stack container service to the Midwest. Also, the Virginia Port Authority’s lease of the new Portsmouth APM terminal is expected to bring additional business to the port.
At the end of the third quarter, vacancy rates for south Hampton Roads were 12.8 percent for office space; 6.7 percent, retail; and 10.8 percent, industrial.
Several Richmond-area companies are expanding, including Capital One Financial Corp., SnagAJob and CapTech. The region also is getting a look from an unidentified company that reportedly needs 400,000 square feet for a corporate headquarters. If a new major employer comes to Richmond, that would soothe the blow of loss in recent years from the closing of Circuit City Stores, LandAmerica Financial and Qimonda.
Several headquarters sites are available, including the vacant, 228,000-square-foot, Circuit City headquarters building in Henrico County. In what was a distressed sale, it was purchased recently by a partnership partially controlled by the local firm of Pruitt Associates.
The state’s capital city has a new downtown high-rise. The 16-story Williams Mullen building is the new home for the 100-year-old law firm, the building’s primary tenant. Nearly all of the 210,000-square-foot, $62 million project has been leased, a good sign for the vibrancy of downtown Richmond.
Another long-languishing project, the conversion of the historic John Marshall Hotel into upscale apartments and retail, finally got $40.6 million in financing through a HUD/FHA program, with the deal including historic tax credits.
Speaking of tax credits, developer Justin French used them on a portfolio of properties that ended up in foreclosure. Now he has been charged with eight felony counts including forgery in a case that is being followed closely by the local real estate community.
At the end of the third quarter, Richmond’s overall office vacancy rate was down slightly to 17.6 percent, while retail vacancy remained mostly unchanged at 9.5 percent and industrial vacancy rose slightly to 9.5 percent.
Federal leases continue to be the major driver in this market. And in some cases, Uncle Sam needs a massive amount of space. The Defense Intelligence Agency signed a 523,482-square-foot lease at Reston Town Center. Meanwhile, the General Services Administration has reopened its search for 1.1 million square feet of office space for the Department of Homeland Security.
Some of the contractors that work with the agencies are also leasing space. “We’re starting to see some spinoff demand in our submarkets, because of the federal agencies,” says Janet Davis, a senior vice president with Brandywine Realty Trust in Falls Church.
Investor dollars have been pouring into Washington, especially into well-located, trophy properties. By the third quarter, the District of Columbia had surpassed New York City in having the highest office rents in the country, with an average asking rent of $48.96 per square foot compared with $48.53 in New York.
On the retail side, the big news is that Wal-Mart will open four stores in 2011 in the District. Plus, construction is finally under way on Washington’s long-awaited, $550 million headquarters hotel for the Walter E. Washington Convention Center.
The region is seeing plenty of corporate expansion, with existing businesses and new companies building facilities. In terms of razzle-dazzle, though, Fairfax County has been a consistent, clear winner, landing five major corporate headquarters in three years.
For this region, overall vacancy rates were 12.8 percent, office; 5.5 percent, retail; and 12.3 percent, industrial.
There’s lot of activity downtown with several historic renovations under way. The 80,000-square-foot Commonwealth Building sold recently for $3.5 million and is being renovated into a Class A, LEED-certified office building that will house several government tenants. The Patrick Henry Hotel is getting a redo as a mixed-use, multi-family/office project.
The city’s Center in the Square, home to several museums and arts organizations, also is set for a $27 million makeover this year. And work has begun on the city’s historic market building, right across the street. Once renovations are complete in the next two to three years, this area, surrounding the Taubman Museum of Art, will “provide a critical mass of complementary activities. No one goes to Disney World to ride one ride,” says John Harlow, fundraising campaign director and consultant for Center in the Square.
Meanwhile, brokers expect the new Virginia Tech Carilion School of Medicine to be a major driver for new development. “We’ve seen some ripple effect with the development of the campus and, as that continues to fill up, we hope to see future development,” says Jake Copty, a broker in office sales and leasing in Thalhimer’s Roanoke office.
Copty also is seeing an uptick in office activity from players in search of 3,000 to 7,000 square feet of space.
If a new intermodal facility is built in nearby Elliston along Norfolk Southern’s new Heartland Corridor, that development would increase Roanoke’s attraction for industrial tenants.
At the end of the third quarter, vacancy rates stood at 8.3 percent for office, 4.8 percent for retail and 13 percent for industrial.