Skyline cities like Richmond could see new construction in 2013 and 2014
- April 22, 2013
New commercial development could be coming to skyline cities in 2013 and 2014, including Richmond, as demand for office space picks up against a backdrop of constrained construction.
The observations on supply and demand come from Jones Lang LaSalle’s Spring 2013 United States Skyline Review. “In all but a handful of the skyline markets, large tenants will have few existing options to consider and thus will be forced to look at proposed development options if they desire to explore relocation options,” John Sikaitis, senior vice president of research at Jones Lang LaSalle, said in a statement.
Richmond is one of 34 city centers across the nation in which Jones Lang LaSalle tracks Class A and trophy office properties for its Skyline Markets report. Its researchers track the hottest office micro-segments where tenants and investors alike have focused demand for office space in a flight to quality and efficiency throughout the recent recovery.
“These are the segments of the markets that always lead the rest of the office sector in trends of leasing, rent and ultimately investment growth,” Sikaitis said.
Richmond’s downtown skyline inventory by the numbers:
· 12 Class A or Trophy buildings
· 3,725,958 square feet of office space
· Currently 9 percent vacancy (down from a peak in 2009 of 14.1 percent)
· Average rental rate is $25.54
“Lack of speculative construction and a flight to quality have definitely helped Richmond’s skyline recover,” said Charlie Polk, managing director, Jones Lang LaSalle, in Richmond. “But there are several large firm downsizings and relocations which could cause vacancy rates to markedly increase in 2014.”
A new office tower is scheduled to begin construction in downtown Richmond in June, with Chicago-based Clayco planning a 15-story, $110 million project. The law firm of McGuireWoods has agreed to be the building’s lead tenant, signing a lease for 217,000 of the buildings 261,000 square feet. That’s a smaller footprint than the company currently has at space at the James Center where it leases 244,000 square feet.
According to the report, vacancy rates are in the single digits in 10 skyline markets, including Pittsburgh; Richmond; Bellevue, Wash.; Houston, Portland, Ore.; the New Jersey Hudson Waterfront, Raleigh, N.C.; San Francisco; Philadelphia and Boston. Additions to supply are only beginning to appear, with office construction in eight, or 24.2 percent, of the skyline markets, including speculative construction in three markets.
By mid-2014, all of the skyline markets will have reached equilibrium, where the balance of supply and demand has historically made rents grow and new construction feasible, Jones Lang LaSalle’s researchers predict.