Waiting for the green light

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Print this page by Marjolijn Biljefeld

The volume of business at Larry Welford’s civil engineering firm functions as an early harbinger of the health of Fredericksburg’s commercial real estate market.  General contractors call Welford to see whether he has projects in the works, because that signals whether they might have work a few months down the line.

As president of Welford Engineering Associates, Welford is among the first to know of a new development because his firm provides design and surveying work long before the first spade hits the ground.  These days Welford doesn’t have a lot of good news to share. “Up until the end of last year, we were comfortably busy. Then the work dropped dramatically.”

Still, no one is writing off the Fredericksburg region as an up-and-coming commercial destination. Last year two major real estate companies — GVA Advantis and Thalhimer/Cushman & Wakefield — opened new offices in the area, which includes Spotsylvania and Stafford counties. Both counties saw their population grow by more than 33 percent between 2000 and 2008. Even 10.5-square-mile Fredericksburg saw a nearly 17 percent jump in population, compared with Virginia’s overall average of 9.7 percent, during the same time period.

The region’s growth, proximity to Washington, D.C., military base expansion and new hospitals are helping businesses stay afloat during the recession. These drivers also attracted several projects already in the pipeline — including a Wegmans grocery store and a downtown hotel — and are expected to stand the area in good stead once the economy rebounds.

Yet there’s no denying that the last six months “have been a roller coaster of good news followed by bad news,” says Welford.  For instance, Wisconsin-based Kalahari Resorts, has faced challenges in obtaining financing for a $250 million, 200,000-square-foot indoor water park and hotel it wants to build in Celebrate Virginia, a massive mixed-use project under development by the local Silver Cos. According to a company spokesperson, Kalahari still plans to develop the park. 

Whether the recession has hit bottom and when the economy might rebound is a subject of frequent debate in real estate circles. Economist Stephen Fuller, director of the Center for Regional Analysis at George Mason University, told the Rappahannock Area Business Leadership Forum in April that while economic models show the economy stagnating for at least the first three quarters of 2009, “the negatives are slowing,” nationally and regionally. “Look toward Labor Day,” Fuller told the region’s business leaders. “It looks much better then.”

Mary Katherine Greenlaw, a real estate broker in the Fredericksburg office of Thalhimer/Cushman & Wakefield says business is ticking up. One reason may be that landlords are giving ground on lease rates to attract tenants.  “This spring is a little busier and more encouraging than last fall was, that’s for sure,” she says. “We are seeing some activity.”

Defense and health care boost economy
The strongest demand comes from sectors that have done well for several years — defense-related spending (including homeland security) and health care. The region is home to several military installations, including Marine Corps Base Quantico at the northern boundary of Stafford County, the Naval Surface Warfare Center Dahlgren Division in King George County and U.S. Army base Fort A.P. Hill in Caroline County.

At Quantico, federal BRAC (Base Realignment and Closure) initiatives are spurring military and civilian spending. Construction began late last year on a 700,000-square-foot, $312 million facility to accommodate five Department of Defense agencies. The building is expected to open in late 2010. Adjacent to the base, the Silver Cos. is developing Quantico Corporate Center, a Class A, 1-million-square-foot office center. One building already is fully leased, and a second building, which opened in March, is 80 percent leased. Tenants include General Dynamics, BAE Systems, MITRE and EG&G.
The new 100-bed Stafford Medical Center, operated by MediCorp Health System, opened in February in Stafford County. MediCorp also runs the 412-bed Mary Washington Hospital in Fredericksburg. Plus, HCA Virginia is building the $175 million, 126-bed Spotsylvania Regional Medical Center several miles south. It will open in spring 2010.  “All these things shore up the Fredericksburg market, there’s no doubt about it,” says Greenlaw. 

She’s also a member of the Fredericksburg City Council, and the view looks worse from there.  For years Central Park — a major retail complex next to Interstate 95 that’s owned by the Silver Cos. — has generated solid tax revenues for the city. But now competition from the counties is stealing away business and tax dollars.  “Our sales tax income [from Central Park businesses] used to be close to 20 percent [of the city budget], and now it’s 12 percent. It’s had a serious impact,” says Greenlaw.

According to Thalhimer’s first quarter market report, many tenants are moving within the market, but there’s little new construction. The region has an inventory of nearly 6 million square feet of office space. While the city’s vacancy rate is just 7.5 percent — well below national rates that have reached 10 percent in many major markets — rates in Spotsylvania and Stafford counties have reached nearly 24 percent and 18 percent, respectively.

There are some bright spots, even in the shakier retail market. Jo-Ann closed its store on Route 3 in Spotsylvania County to move into the company’s first craft and fabric Virginia superstore in the retail center of Cosner’s Corner a few miles away.

New businesses
Plus, two new businesses open this month. Privately held Wegmans is on schedule with the June 21 debut of its 150,000-square-foot grocery store at Celebrate Virginia. Meanwhile, crews are putting the finishing touches on a 100-room Marriott Courtyard in Fredericksburg’s historic downtown.

Other outside investors include two Florida-based companies, Muvico Theaters and Splitsville, an entertainment company that builds upscale bowing alleys with dining amenities. They’re moving forward with an all-digital, 12-theater entertainment complex, including 16 bowling lanes and video gaming at the recently revamped Spotsylvania Towne Centre (formerly Spotsylvania Mall),  directly across Route 3 from Central Park.
Work also is under way on the University of Mary Washington’s $115 million first phase of Eagle Village. The mixed-use development will include student apartments, retail, office space and a 500-car parking garage on the site of a 21-acre shopping center across from the university’s main campus.

Health care is another anchor in the market. Doctors’ offices and support services are likely to follow the construction of the region’s new hospitals. And in April, two additional medical projects — a heart program for Stafford Hospital Center and a new facility for an existing surgery center — cleared the first step before applying for state certificates of public need.

A continued swell in population would be another benefit. The U.S. Census Bureau estimates that by 2030, Virginia’s population will increase to about 10 million people. Many of them are likely to settle in the Golden Crescent, a region that includes the Fredericksburg area generally curving around the Chesapeake Bay from Northern Virginia through Richmond to Hampton Roads.  That would set the stage for the region to become less of a satellite of the Northern Virginia economy.  “The greater the population gain, the more you move up the incremental ladder of getting a greater number of services,” says commercial real estate broker Alex Long of Weichert Realtors.

Having more people helps build a work-force platform that attracts major businesses. “The concept of a reverse commute becomes appealing because it utilizes the infrastructure of I-95 to its full potential,” says Long.  For instance, a Fredericksburg-area business could tap into the Northern Virginia work force.

Long represents a 51-acre property near the Stafford Regional Airport, just off an I-95 interchange and not far from a Virginia Railway Express commuter rail stop. That access, he says, makes it ideal for a business that wants to offer employees a chance to get out of logjam traffic on I-95 by driving in the opposite direction.

But that kind of a turnaround in commuting isn’t expected to happen until the economy itself turns around.

Market Snapshot>>
Fredericksburg, Stafford and Spotsylvania Counties

TOTAL OFFICE: 6,002,446
Direct vacancy rate: 14.6 percent
Average quoted rental rate:  $21.56
Direct net absorption: 12,179
Under construction: 39,000

Source: CoStar Group Inc.
First quarter, 2009.
All figures are for square feet
unless indicated otherwise

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