Call it a homecoming of sorts.
After incorporating in a downtown storefront more than 100 years ago, Mechanicsville-based Owens & Minor is returning to Richmond via Riverfront Plaza, where the Fortune 500 plans to establish a client engagement center that will add hundreds of jobs to the area.
The healthcare logistics company is set to occupy 90,000 square feet on four floors of Riverfront Plaza’s East Tower. The move, first reported by BizSense Thursday morning, was announced during a press conference yesterday afternoon.
The firm plans to invest $15 million in its new downtown offices over the next three years, said Erika Davis, O&M senior vice president and chief administrative officer. She said the firm is looking to move in in the fourth quarter of this year, taking up two of the floors by year’s end and the remaining two in 2018.
In a measure to consolidate some of its state and national offices, it plans to relocate 200 workers to Riverfront Plaza and hire 300 new employees, bringing a total of 500 workers to Richmond’s central business district.
The average wage per employee is about $53,000 a year, excluding benefits, Davis said. Hiring for the new positions is set to begin soon.
O&M President and CEO P. Cody Phipps said the new center will allow the firm to consolidate services as well, such as customer service and various financial operations. While the center will establish a large presence downtown, Phipps said the company’s Mechanicsville headquarters will not be affected.
With facilities across the U.S. and Europe, O&M employs more than 5,000 workers in 42 distribution centers across the country. It employs about 500 people in Mechanicsville, 150 at a warehouse in Ashland and 500 at a production facility in Toano, near Williamsburg.
Richmond edged out 60 cities for the project, including Nashville and Salt Lake City. The Virginia Economic Development Partnership worked with the City of Richmond and the Greater Richmond Partnership (GRP) to land O&M at Riverfront Plaza.
Gov. Terry McAuliffe, flanked by state and city officials including Richmond Mayor Levar Stoney, said the state would allocate $1.5 million from Virginia’s Commonwealth Opportunity Fund to assist in O&M’s expansion downtown.
Barry Matherly, president and CEO of GRP, said O&M is also eligible to receive benefits from the Virginia Enterprise Zone Program, as well as funding and services to support employee training through the Virginia Jobs Investment Program.
Bethany Miller, GRP vice president of business development, said the partnership was contacted last May by Hickey & Associates, an international site selection firm, and was invited to compete for the project. She said when it became clear the potential user was O&M, she encouraged the site selectors to meet with area businesses and tour the region.
David Wilkins, Trib Sutton and Matt Anderson of CBRE | Richmond negotiated the lease for Riverfront Plaza’s landlord, Hertz Investment Group. Hertz purchased the two 22-story buildings, which total nearly 950,000 square feet of office and retail space, in December 2015 for $147 million.
Phipps said other factors that played into O&M’s decision was its desire to woo more millennials to the company.
“A lot of companies are locating offices back into the cities because they want to go after the millennials and create an attractive work environment,” Phipps said.
Other companies have also jumped on the central business district as a means for recruiting and retaining talent.
Washington, D.C.-based CoStar Group has been adding new workers monthly to fill 732 new jobs at its global research headquarters, in about 100,000 square feet at the WestRock building at 501 S. Fifth St. Richmond auto dealer CarMax set up an office in the 26,000-square-foot Lady Byrd Hat building in Shockoe Slip last year.
And International City Management Association-Retirement Corp., or ICMA-RC, announced last summer it will occupy space in Riverfront Plaza, with plans to bring workers from its Washington, D.C. headquarters and hire about 100 people. The firm occupies 55,491 square feet in the complex.
Such moves are helping to shore up Class A office vacancy rates downtown. Of the 4.9 million square feet of Class A office space in Richmond’s central business district, about 750,000 square feet is vacant, according to a CBRE report published this month. That amounts to a 15 percent vacancy rate.
That’s not bad considering the recent influx of office users moving into the market, but not strong enough to signal an office building boom in the CBD, said Andrew Cook, CBRE’s director of research.
“It’s much tighter than it’s been in the last 24 months,” Cook said. “There really isn’t much [contiguous] space left downtown.”
The bulk of that available contiguous inventory lies in the James Center, which is poised to fly onto the radar of big users looking for space downtown. Bill Goodwin’s Riverstone Properties purchased the three-building office complex encompassing nearly 1 million square feet in January for $108 million.
Riverstone principals Jeff Galanti and Chris Corrada have said the building is poised for a big comeback given its Class A status and ample room for office growth. That ultimately depends on the leasing rate, which Riverstone is working to determine.
“It really depends on what the new owners of the James Center do,” Cook said.
Other large blocks of available contiguous office space can be found in the Bank of America building, and Riverfront Plaza. The average asking lease rate for Class A office space downtown is $24.24 a square foot, according to the CBRE report.
Then there are the suburbs.
With vacancy rates tumbling and leasing prices rising in places like Innsbrook and Short Pump, Cook said companies are reexamining the cost effectiveness of staying in the suburbs.
“If it’s a difference between $22 a square foot, say, in Innsbrook, versus $24 a square foot downtown…that price difference may drive some companies to explore a downtown move because they are similar,” Cook said.
That may very well work in downtown’s favor, Cook said, but it’s ultimately the area’s appeal to millennials and reasonable rates that’s helping to drive growth to the area.
“There is a lot of changing demographics with millennials moving back to the city, and companies are fully aware of that,” Cook said. “There is not a huge rush to leave the suburbs, but firms are taking note of what’s happening downtown, and announcements like (this one) are only going to drive momentum.”