Commercial real estate recovery expected to continue in 2012, panel says
- February 21, 2012
Large blocks of space have largely disappeared in Richmond’s commercial real estate market, but there’s an abundance of small space — an indication that small business owners remain uncertain about the economy. Meanwhile, the apartment sector continues to outpace all others, and 2012 is expected to be a year of recovery, a panel of real estate professionals said Tuesday.
Nearly 300 people turned out for a market review sponsored by the Greater Richmond Association of Commercial Real Estate (GRACRE) at the Westin Richmond hotel. Overall, 2011 saw a higher volume of business in Richmond across nearly all real estate sectors, although some sectors did better than others.
“2011 was the year of the big deal so many big spaces were leased,” Jane DuFrane, director of leasing at Highwoods Properties, told the audience. While large blocks came off the market, including Deep Run I — the former Circuit City headquarters that will be the new home for Allianz Global Assistance (formerly Mondial Assistance) — DuFrane wondered about the lack of small deals. “2,000 to 10,000 square feet is usually our bread-and-butter deal in Richmond,” she said, and there weren’t many transactions that size.
DuFrane and others on the panel said that trend indicates that small businesses might not have access to capital to move into an office, or they are too uncertain about rising health-care costs and the economy to make a move.
J. Scott Adams, regional president of the Mid-South region for CBRE, said sales were up 60 percent nationally. “In Richmond the pace of improvement was threefold over the national average,” he added. Several major deals closed last year, including the $64 million sale of Riverside on the James in downtown Richmond. He reminded the audience that “We are in the winning industry. Real estate is beating stocks … We’re in an industry that can make people money.”
While investors have concerns in a presidential election year, Adams looks for 2012 to continue to be robust, particularly the apartment sector. With financing available from government-chartered Freddie Mac and Fannie Mae, this sector has been providing attractive returns with less risk than office and industrial.
There was good and bad news for this sector. Nationally, retail sales were up 7.7 percent in 2011, compared to 2010, the largest increase since 1999, said Jeff Doxey, president of Eagle Commercial Realty. With consumer confidence rising, this trend bodes well for 2012. However, the U. S. also has seen the closing of 17,000 stores over the past three years and another 3,000 to 5,000 stores are expected to close this year as well, Doxey said.
The economy and growing e-commerce sales are playing a role in the closings. Yet Richmond continues to attract new retail businesses, including yogurt stores, restaurants, a new, 60,000-square-fooot fitness center planned for West Broad Village and a new Kroger grocery store at the old Cloverleaf Mall site in Chesterfield County. Overall, the average retail rent in Richmond is about $14 per square foot, Doxey said, with the Short Pump corridor commanding the highest rent at $25 per square foot. In 2012, he expects the vacancy rate to be 7 percent. “We’re cautiously optimistic,” Doxey said.
Though not as glamorous as the other sectors, industrial will get 2 million square feet of new space this year with the construction of two new fulfillment centers in Chesterfield and Dinwiddie Counties by Amazon. Matt Braun, an industrial real estate specialist for Cushman & Wakefield | Thalhimer, said the overall vacancy rate is currently 12 percent, a bit higher than the national average of 10 percent. due largely to the area’s large supply of antiquated tobacco warehouses. At $3.86 per square foot, rental rates are down by about 13 percent since 2008, Braun said. Infrastrucure improvements to the Port of Virginia, the 460 corridor and rail upgrades will help this sector, he added.
Bill White, president of Joyner Fine Properties, said foreclosures — what he referred to as “the shadow inventory”— will continue to come on the market for the next 18 to 24 months, causing downward pressure on pricing. Still, things are getting better. During the last quarter of 20111, he noted that 2,100 single-family homes sold in the Richmond area, the highest volume since 2007. There was a 32 percent increase in the number of homes sold in the $750,000 to $990,000 category, White said. However, there was a corresponding 33 percent drop in the number of homes sold that cost more than $1 million, probably because those homes had been priced downward to the lower category.