Slowly but surely, commercial real estate in Richmond is making a comeback.
That was the sentiment expressed by a panel of speakers Tuesday at the annual market review event hosted by the Greater Richmond Association of Commercial Real Estate.
Speakers assessed the industrial, office and retail segments, as well as the state of residential and capital markets. And the consensus was that much like 2010, the local real estate scene will slowly improve as the year progresses.
Below is RBS’s run-down from the event:
Industrial
Chip Louthan, a broker with Grubb & Ellis | Harrison & Bates, said he expects the industrial real estate market to remain slow but stable during the coming year.
Louthan cited a 12.7 percent vacancy rate for the fourth quarter of 2010 and said lease rates have likely hit bottom.
“Pricing is probably about as aggressive as it has ever been, which is attracting a lot of inquiries,” Louthan said.
The industrial sector gave up about 891,000 square feet of space during 2010, and Louthan expects the same for this year. For comparison, Louthan said, the sector gave up 2.5 million square feet in 2009.
Louthan only identified five major industrial sales over the past year but expects the number to increase this year.
Retail
The retail sector is also slowly improving, but with few new developments in the pipeline compared with years past, according to Nicki Jassy, a broker at Cushman & Wakefield | Thalhimer.
Notable projects included a new Pearson Honda dealership, a Car Pool and a WaWa. Also in 2010, Costco broke ground on a new store in Midlothian.
Jassy cited The Corner at Short Pump, Towne Center West, West Broad Village and Hancock Village as retail developments that fell into a rut during the recession but are starting to see new life.
“After 2007, these projects were at a standstill. This year they started to take big steps forward,” Jassy said.
“Another positive sign is the back-fill of anchor and junior anchor space,” Jassy said.
Those include the arrival of discount retailers such as TJ Maxx, Garden Ridge and Burlington Coat Factory taking over empty department stores at area malls.
“In 2009, vacancy rates peaked and began to go down in 2010,” Jassy said, adding that this past quarter was the best of the past seven.
Looking to 2011, Jassy said projects such as Carytown Place and Stonebridge (Cloverleaf Mall) will lead the way.
Office
As for the office market, it still faces high vacancy and few new projects.
Trib Sutton, a broker at CB Richard Ellis, said the situation improved in 2010.
“The trend I’m seeing today is that we’ve seen the bottom and [are] starting to get out of it,” Sutton said.
The amount of newly rented space grew by a net gain of 219,898 square feet.
“That’s unbelievable compared to the last two years,” Sutton said.
Still, the Innsbrook area in Western Henrico has a historically high vacancy rate of almost 29 percent. Sutton said the high rate is due to four large blocks of office space left vacant as large employers either shut down or shipped out. Ignoring those properties, the vacancy rate is a much less harrowing 9.5 percent.
Sutton said the key to 2011, however, is whether smaller “mom and pop” offices are ready to start leasing space.
“The bread and butter of real estate is the mom and pop lease,” Sutton said. “The recovery started with Capital One and Sun Trust, but it has yet to trickle down.”
Twenty-five percent of the available properties in the northwest quadrant are 5,000 square feet or less. For those looking for space, Sutton said that the deep concessions landlords were willing to offer tenants over the past few years started to dissipate at the end of last year.
Sutton also said the pipeline is very skinny for new office projects, noting the Williams Mullen and MeadwestVaco buildings as the last two to be built downtown. Meanwhile in the suburbs, Lingerfelt Development is building two medical offices buildings.
Residential
Laura Lafayette, CEO of the Richmond Association of Realtors, spoke about the residential market.
Lafayette said 2010 was the year of the tax credit, which caused many to move up their buying decision.
“We saw a good first half of the year but a softer second half,” Lafayette said.
Lafayette also said the increasing number of foreclosures is dragging on prices.
“For 2011, the great unknown is how much more foreclosure inventory will come on the market and how quickly can we burn through it,” Lafayette said.
Capital markets
John Reed, branch manger for the local office of Berkadia Commercial Mortgage, spoke about the capital markets for real estate lending.
Reed said that 2010 did not bring the expected fire sales that many either hoped or feared, but he noted that many lenders will still be working through troubled portfolios in 2011.
The availability of debt will increase from a number of lending sources, and there will be more sales transactions in 2011, Reed said.
Reed said the primary culprit holding back resurgence for all areas of commercial real estate is high unemployment.
“Employment needs to improve if you want to fill these vacancies and move to stabilizing the market,” Reed said.
Slowly but surely, commercial real estate in Richmond is making a comeback.
That was the sentiment expressed by a panel of speakers Tuesday at the annual market review event hosted by the Greater Richmond Association of Commercial Real Estate.
Speakers assessed the industrial, office and retail segments, as well as the state of residential and capital markets. And the consensus was that much like 2010, the local real estate scene will slowly improve as the year progresses.
Below is RBS’s run-down from the event:
Industrial
Chip Louthan, a broker with Grubb & Ellis | Harrison & Bates, said he expects the industrial real estate market to remain slow but stable during the coming year.
Louthan cited a 12.7 percent vacancy rate for the fourth quarter of 2010 and said lease rates have likely hit bottom.
“Pricing is probably about as aggressive as it has ever been, which is attracting a lot of inquiries,” Louthan said.
The industrial sector gave up about 891,000 square feet of space during 2010, and Louthan expects the same for this year. For comparison, Louthan said, the sector gave up 2.5 million square feet in 2009.
Louthan only identified five major industrial sales over the past year but expects the number to increase this year.
Retail
The retail sector is also slowly improving, but with few new developments in the pipeline compared with years past, according to Nicki Jassy, a broker at Cushman & Wakefield | Thalhimer.
Notable projects included a new Pearson Honda dealership, a Car Pool and a WaWa. Also in 2010, Costco broke ground on a new store in Midlothian.
Jassy cited The Corner at Short Pump, Towne Center West, West Broad Village and Hancock Village as retail developments that fell into a rut during the recession but are starting to see new life.
“After 2007, these projects were at a standstill. This year they started to take big steps forward,” Jassy said.
“Another positive sign is the back-fill of anchor and junior anchor space,” Jassy said.
Those include the arrival of discount retailers such as TJ Maxx, Garden Ridge and Burlington Coat Factory taking over empty department stores at area malls.
“In 2009, vacancy rates peaked and began to go down in 2010,” Jassy said, adding that this past quarter was the best of the past seven.
Looking to 2011, Jassy said projects such as Carytown Place and Stonebridge (Cloverleaf Mall) will lead the way.
Office
As for the office market, it still faces high vacancy and few new projects.
Trib Sutton, a broker at CB Richard Ellis, said the situation improved in 2010.
“The trend I’m seeing today is that we’ve seen the bottom and [are] starting to get out of it,” Sutton said.
The amount of newly rented space grew by a net gain of 219,898 square feet.
“That’s unbelievable compared to the last two years,” Sutton said.
Still, the Innsbrook area in Western Henrico has a historically high vacancy rate of almost 29 percent. Sutton said the high rate is due to four large blocks of office space left vacant as large employers either shut down or shipped out. Ignoring those properties, the vacancy rate is a much less harrowing 9.5 percent.
Sutton said the key to 2011, however, is whether smaller “mom and pop” offices are ready to start leasing space.
“The bread and butter of real estate is the mom and pop lease,” Sutton said. “The recovery started with Capital One and Sun Trust, but it has yet to trickle down.”
Twenty-five percent of the available properties in the northwest quadrant are 5,000 square feet or less. For those looking for space, Sutton said that the deep concessions landlords were willing to offer tenants over the past few years started to dissipate at the end of last year.
Sutton also said the pipeline is very skinny for new office projects, noting the Williams Mullen and MeadwestVaco buildings as the last two to be built downtown. Meanwhile in the suburbs, Lingerfelt Development is building two medical offices buildings.
Residential
Laura Lafayette, CEO of the Richmond Association of Realtors, spoke about the residential market.
Lafayette said 2010 was the year of the tax credit, which caused many to move up their buying decision.
“We saw a good first half of the year but a softer second half,” Lafayette said.
Lafayette also said the increasing number of foreclosures is dragging on prices.
“For 2011, the great unknown is how much more foreclosure inventory will come on the market and how quickly can we burn through it,” Lafayette said.
Capital markets
John Reed, branch manger for the local office of Berkadia Commercial Mortgage, spoke about the capital markets for real estate lending.
Reed said that 2010 did not bring the expected fire sales that many either hoped or feared, but he noted that many lenders will still be working through troubled portfolios in 2011.
The availability of debt will increase from a number of lending sources, and there will be more sales transactions in 2011, Reed said.
Reed said the primary culprit holding back resurgence for all areas of commercial real estate is high unemployment.
“Employment needs to improve if you want to fill these vacancies and move to stabilizing the market,” Reed said.
One notable missing component is New Construction. Builders have been building about 500k units nationally and they need to be building 1M units annually to keep up with demographic growth. Once the recovery takes hold and residential growth takes place, we could have a slack in the supply pipeline because there are not many land projects in development.
Mr. Snipes I assume since you mentioned demographic growth you’re referring to new construction in the residential sector. With all due respect, I don’t know of a single economic model that says we need a million new units a year to keep up with demographics. Even if it were so, we were building double that during the boom years. Furthermore, most of the activity we experienced in 2010 were renters shifting to owners, which while good for agents and brokers does absolutely nothing to reduce overall inventory, and we are experiencing a massive inventory overhang in this country right now.… Read more »