Over the past six months, several big office users have signed leases in the Innsbrook area of Western Henrico, pushing down the vacancy rate at Richmond’s biggest office park and signaling plans to add hundreds of workers.
And a handful of big office users are still actively looking, according to several brokers who have been showing spaces.
The flurry of leasing activity bodes well for merchants and business that serve the Innsbrook market, which holds about 16 percent of the metro area’s office space.
The thaw couldn’t have come fast enough for landlords and commercial real estate brokers. The recession dealt a body blow to the suburban office market, with hundreds of thousands of square feet of office space going dark. Innsbrook was hit hardest. The vacancy rate rose to 25 percent as major companies like Circuit City, Wachovia Securities and LandAmerica closed shop or left town. The former Circuit City headquarters buildings ended up in default.
Now the vacancy rate is down to about 20 percent, according to reports from several brokerages. And with a few big deals pending, it will apparently drop more: A handful of big companies are looking to lease about 700,000 square feet of combined space, according to Jimmy Appich, a broker for Jones Lang LaSalle in Richmond.
“That much absorption in place from less than half a dozen users — that is a significant change in market dynamics for Richmond,” Appich said, adding that the market is morphing from a tenant’s market to a landlord’s market.
BizSense has reported many recent deals in Innsbrook, including General Electric leasing space for 200 employees, SnagaJob moving to a building twice the size of their current headquarters and Capital One returning to a building it left in 2007.
Mondial, a Richmond-based travel insurance company, is looking to move from its building on Parham Road to about 250,000 square feet. BizSense reported in January that they were in negotiations to take over the former Circuit City headquarters, which was bought by investors from Pruitt Associates.
And as demand comes back, rents are creeping back up.
According to Jones Lang La Salle reports, the average asking rent in Innsbrook for Class A Space was $18.70 per square foot during the first quarter. That is a 70-cent increase since the fourth quarter. That figure is down, however, from a year ago, when rates were about $19.60 per square foot.
Reports from Cushman & Wakefield | Thalhimer put Class A rates in Innsbrook at $18.12, down from $18.18 in the fourth quarter and down from $18.78 a year ago.
Both reports predict positive rent growth over the next 12 months.
Mark Douglas, a broker with Thalhimer, said the market is on the mend.
“There are fewer large blocks of space, and rental rates are going to go up,” Douglas said, adding that allowances and free rent offers are becoming fewer. In some cases, rates are going up.
He said that for now tenants looking for smaller blocks of space have plenty of options to but that it is only a matter of time before that market begins to change as well.
“Tenants need to hurry up and get leases. This time next year, it is going to be a different story,” Douglas said.
Steve Gentil, a broker with Grubb & Ellis | Harrison & Bates, said he expects to see continued improvement in the Innsbrook area as well.
“It has been quicker than I would have thought,” Gentil said.
Gentil said several deals in 2010 paved the way for some of the momentum happening now, including the purchase of two large buildings by Capital One last August and the purchase of the former Circuit City headquarters at Deep Run.
“We’ve had some good things happen, like Pruitt buying Deep Run I. Of course he got a terrific price,” Gentil said. Pruitt paid just under $6 million for the building and land; the previous owner of the building had bought it for $17 million.
“He needed to get a terrific price — it was kind of risky at the time. I think they will be very successful with that,” Gentil said.
This month, Brandywine Realty Trust bought two buildings in Innsbrook totaling more than 125,000 square feet for $12.54 million, another sign that landlords see the market moving in a positive direction.
Gentil is still on the lookout for a sign that the office market has sprung back for sure.
“The big question is when will the first new speculative building be built,” Gentil said.