Charlottesville gets a bump from the military and U.Va.
- January 27, 2010
Bolstered by college-town economics and a growing military intelligence industry, Charlottesville’s commercial real estate market is holding its own. “It’s probably a bit better than most areas of the state,” says William Howard, president of Real Estate III Commercial Properties.
At a time when other cities are seeing double-digit commercial vacancy rates, Charlottesville’s overall rate is 5 percent. Foreclosure rates have remained low as well, according to Appraisal Group Inc., a Charlottesville firm that monitors commercial properties throughout the state.
The federal government and the University of Virginia can be thanked — at least in part — for the area’s high occupancy. The intelligence industry is growing in the Charlottesville area, sopping up available commercial space while bringing in ancillary businesses that demand office space, too.
The Defense Intelligence Agency plans to set up shop by the fall. The agency, which specializes in the analysis of intelligence, will relocate from Northern Virginia into a 100,000-square-foot building at Rivanna Station. The office park is located off U.S. 29 in Albemarle County just north of the city. The move is expected to bring about 800 new jobs.
Those jobs are good ones with an average annual salary of $80,000. “That’s $64 million in annual payroll. It’s an amazing number,” says Timothy Hulbert, president of the Charlottesville Regional Chamber of Commerce.
At Rivanna Station, the agency will join the National Ground Intelligence Center. It’s already a key economic force in the Charlottesville area, employing about 1,000 people. The center gathers data on foreign military ground forces. City leaders say the combined effect of two intelligence gathering agencies in Charlottesville will be substantial. The area already is home to such military contractors as Sperry Marine.
“It’s like Charlottesville is building a whole new industry,” says Hulbert. “If we’re successful, you could easily, in the years ahead, see Charlottesville becoming a center of defense intelligence.” Smaller businesses have sprung up to serve the industry. Harding Security Associates opened in Virginia six years ago and employs 130 people in Charlottesville. Meanwhile, Booz Allen Hamilton, a McLean-based consulting firm, has grown its local work force from six to 100 employees in a few short years. Harding provides security services while Booz Allen provides strategy and technology consulting for intelligence agencies.
Also boosting Charlottesville’s economy — and filling a lot of commercial space — is U.Va. The school employs close to 13,000 people and educates about 20,000 students annually. “Things are moderated here because U.Va. is such a powerful agent,’’ notes Hulbert.
Altogether, Charlottesville boasts an inventory of 4.4 million square feet of rentable office space and 6.4 million square feet of retail space, according to a recent report from CoStar Group Inc., a Maryland-based research firm. About 80 percent of the city’s commercial space lines U.S. 29, which begins at Emmet Street near the university. Some of U.Va.’s offices — including the registrar — are located along that route.
Along that same corridor is the city’s most in-demand commercial space: the aging but popular Barracks Road Shopping Center. While commercial space in most areas goes from $18 per square foot to the mid-$20s, Barracks Road commands more than $30 a square foot. “You’ve got people waiting in line to get in Barracks Road,” says Hulbert. That’s because of the buying power of the university students who flock to the shopping center, located near the school’s north grounds.
Through its foundation, the university owns two major research parks. The 54-acre Fontaine Research Park near Scott Stadium offers 500,000 square feet of commercial space. University Research Park, a 562-acre site off U.S. 29, provides another 500,000 square feet and is designed to ultimately be as large as 3 million square feet. Another project currently in the design stage is a $141 million children’s hospital medical complex for West Main Street.
If the school’s demand for space has never abated, neither has its thirst for building. Projects currently under way by the university itself include an expansion of the main hospital by 100 beds, construction of the Claude Moore Education building, a new arts and sciences building on the South Lawn, the Emily Couric Cancer Center and four new dorms on Alderman Road. The cost for these projects, scheduled for completion by 2011, is more than a quarter of a billion dollars.
Another large block of commercial space can be found on Pantops Mountain, on the city’s east end. Construction of the new Martha Jefferson Hospital there — to be finished by 2012 — has created demand. “Doctors want to be near that hospital,’’ says Howard.
Still, the market has suffered some setbacks. Circuit City closed a 28,000-square-foot store in Albemarle County when it went out of business last year, and some struggling restaurants have been forced to seek lower rents from merciful landlords. Currently, the Circuit City store is the area’s largest vacant commercial space, and real estate brokers are marketing it aggressively. “There’s active interest in the property,” says Beverly Webb of Dumbarton Properties in Richmond. “It’s a good, solid building …We want to find the right tenant.”
Last year’s recession stalled some downtown projects. Nothing but a steel skeleton sits on a site that was supposed to be the home of the Landmark Hotel. Work stopped on the luxury hotel following litigation between the contractor and the developer. A mixed-use project just east of the city’s mall also was scaled back with plans to build office, restaurant and retail scrapped, according to Ric Barrick, a spokesman for the city. Going forward are more than 300 residential units that will be built on open land just east of the downtown pedestrian mall.
Long the core of Charlottesville’s downtown, the mall has experienced ups and downs. The area offers plenty of small, boutique-style shops, but not many large commercial spaces. “Charlottesville’s downtown is succeeding, but the key is to keep it succeeding,” says Hulbert. “We need office space downtown, not just retail and entertainment. Otherwise it runs the risk of becoming an entertainment district.”
Helping to meet that demand is OpenSpace, a new business that opened in October. It offers more than 6,000 square feet of commercial space for meetings and other business needs.
According to Barrick, the downtown area has a 9 percent commercial vacancy rate, nearly twice the rate for the overall area. Still, city officials remain optimistic. “That’s less than it was two years ago,” he says. “We also have four or five new businesses moving in, so we expect that rate to improve.” Those businesses include an ice cream parlor, a restaurant, grocery store and a studio operated by National Public Radio. So long as businesses are still moving in, brokers feel hopeful that the 2010 market will continue to hold steady for this university town.