Richmond sees a flurry of new deals, sometimes for less space
A new office tower proposed for downtown. Scores of apartment projects. Two massive Amazon distribution centers. Expansions by major grocery chains and hotels.
Across all commercial sectors, the Richmond region is seeing activity. As Mark Claud, president of Commonwealth Commercial Partners in Richmond, puts it: “The gulls are flying around the water.”
Yet, they aren’t diving in for a feeding frenzy just yet. While area professionals see positive signs in the region’s market, they also note a trend playing out across the U.S.: Some tenants are downsizing. When companies renew leases or trade up to better space, sometimes the deals are for less space.
Still, deals are deals. “Certainly people have been recalculating their space,” says Claud, “but there are those companies that are growing.” After a period of sustained austerity during the recession, Claud sees a lot of pent-up demand. “Things are looking a little rosier.”
In downtown Richmond, there’s a surge of activity. Next month could bring the start of construction on a new addition to the skyline. Clayco — a national development and building firm based in Chicago — plans to move ahead with Gateway Plaza, a 15-story, $110 million, build-to-suit project for the law firm McGuireWoods.
Now located in the James Center, McGuireWoods has agreed to be the building’s lead tenant, signing a lease for 217,000 of the building’s 261,000 square feet of office space. That’s a smaller footprint than the law firm currently enjoys, with 244,000 square feet leased in the James Center. McGuireWoods plans to move to its new home in spring 2015.
To create more opportunities for new tenants, McGuireWoods will work with Clayco to negotiate naming rights on the new high-rise. “That’s very important for us,” says Larry Chapman, a partner with Clayco. “For the right tenant, McGuireWoods would let us put the name of the other tenant to grow the building. There are a number of larger companies that we are talking to that are prospects.” If the developer can attract another major player, it could add several stories to the project.
Gateway Plaza includes 10,000 square feet of first-floor retail space and 520 parking spaces. It would be built on what is now a one-acre parking lot between Eighth and Ninth streets. Chapman says Clayco has submitted traffic studies and plans to the city. It wants to close a diagonal strip of street on Eighth Street and modify the intersection at Canal Street to allow for two lanes of traffic between Eighth and Ninth streets. The company expects to have the necessary permits soon. “We still expect to break ground in June of this year,” says Chapman.
This is Clayco’s first project in downtown Richmond but not its first in Virginia. The company recently built one of Amazon’s two new distribution centers in the Old Dominion — a 1-million-square-foot facility in Dinwiddie County. (The other distribution center is in Chesterfield County.) Altogether, Clayco has served as the developer on about 10 projects in Virginia, including the USAA GSA building in Norfolk and the Manassas branch of the Northwest Federal Credit Union.
As for downtown Richmond, Chapman likes what he sees. “You’ve got a terrific environment. A lot of restaurants, a lot of activity, because of the students [VCU undergrads and professional students]. Everything is close together, so it feels vibrant and energetic.”
Repurposing downtown buildings
Attracting new corporate tenants to the region is important, say brokers. A vibrant downtown core is a plus, and Richmond has been seeing a lot of redevelopment. In fact, the adaptive reuse of existing properties is a major trend, says Lee Warfield, president of Cushman & Wakefield | Thalhimer. “We’re seeing the Class B and Class C office properties — where rents were continuing to drop — they’re being converted into residences and hotels.”
Two new high-end apartment complexes already have opened in the former John Marshall Hotel and the First National Bank Building, and a third project is on the way. Richmond-based Genesis Properties and Virginia Beach-based Armada Hoffler are partners in a $31 million joint venture converting a vacant office tower at 700 E. Franklin St. into 174 apartments.
Another old downtown building, an 18-story office tower at 700 E. Main St., also may be getting a new life. Shamin Hotels, a Richmond hotel company, has a contract to purchase the property with an eye toward turning it into a hotel. Work also is expected to begin soon on two new Marriott hotels that would be part of the First Freedom Center being developed by Apple REIT Cos. at 14th and Cary Streets.
According to Warfield, the conversions are being fueled by the trend of young professionals moving to cities. “Instead of living in a suburban complex, they want to be downtown in a cool, trendy location, close to restaurants and bars and maybe close to where they work.”
While some young workers desire an urban environment, apartment projects continue to go up in Richmond’s suburbs, particularly the Short Pump corridor in western Henrico County. The Breeden Co. in Virginia Beach is building a $70 million, 420-unit apartment project called Marshall Springs on land off Gayton Road, near the new North Gayton Road Extension. The first units are scheduled to be ready by January 2014.
Not far away on West Broad Street Tommy Pruitt — a longtime Richmond developer — is overseeing The Notch at West Creek. His company has contracted with Kassinger Development Group based in Charleston, S.C., to build a 254-apartment community on a 15-acre tract within the larger 3,500-acre West Creek Office Park. “The apartments are under construction now,” says Pruitt, a general partner with Pruitt and Associates.
Developer Bob Atack of Atack Properties also plans to include apartments in a mixed-use, medical office park on a 70-acre site near the Goochland/Henrico County line. Atack says he is in talks with Bon Secours Health System to anchor the development, which would include more than 300 apartments. Bon Secours plans an outpatient campus, similar to the St. Francis Watkins Centre it built in Chesterfield County, with an emergency department, primary care and outpatient pharmacy. According to a hospital spokesperson, Bon Secours has filed for certificates of public need for the campus’s imaging services.
Another local developer, Markel | Eagle, bought the 68-acre Nuckols Farm, one of the few large remaining parcels on West Broad Street. The company plans to seek rezoning for a mixed-use development of office, retail and residential space.
Asked whether Richmond is getting too many apartment projects, Pruitt responded, “We’re still seeing an appetite for apartment land … I don’t know how many projects can go up at one time. There’s still demand for that.” Other apartment developers say they are watching the situation closely, but they don’t think the Richmond region is overbuilt yet.
Travelers moves to Deep Run III
Henrico also continues to draw office tenants. Travelers Insurance is leaving office space in Chesterfield County this summer to move into new digs at Deep Run III, a 348,174-square-foot office off Mayland Drive that used to be one of the headquarters buildings for Circuit City Stores. According to broker Mark Douglas with Thalhimer’s Richmond office, Travelers has signed a lease for 71,817 square feet. That’s less than the nearly 99,000 square feet the company occupies now at The Arboretum Office Park. “They’re making the cubes smaller,” says Douglas. “They group it so people are collaborative and working together.”
Steve Gentil, a partner in the Richmond office of Colliers International, says the Travelers deal is another example of how companies are becoming more efficient with space. “Starting in 2008 and 2009, when the economy got bad, when someone left or someone retired, companies didn’t fill those positions … Companies realized they could do fine with less. Plus, some people are working from home and telecommuting,” he says. Another trend brokers see: “There are more people moving from private offices to more modular cubicles, and cubicles continue to decrease in square footage,” he adds.
One of Richmond’s major law firms, Hunton & Williams, opted for a smaller footprint when renewing its lease at downtown’s Riverfront Plaza. When the new lease takes effect in 2015, the firm will stay in the east office tower in 257,000 to 260,000 square feet of space, down from the 310,000 square feet it currently occupies. “Over time, we’ve learned that we can do more in smaller spaces,” says John O’Neill, Hunton’s managing partner in Richmond.