While it may not have been the only factor, Richmond’s glut of downtown office space and the resulting price per square foot helped seal the deal to bring a major new employer to the riverfront.
CoStar CEO Andrew Florance said the real estate research firm will pay in the mid-$20s per square foot annually for its recently announced lease of about 100,000 square feet at the WestRock building at 501 S. Fifth St., where it plans to eventually hire more than 700 employees.
The other two cities that made it into the final stage of CoStar’s search for a new office were Charlotte and Kansas City, Missouri, where rates per square foot would have been in the $50 to $60 range, Florance said.
A similar deal in CoStar’s hometown of Washington, D.C. would have cost three times as much as in Richmond, Florance said.
He said Richmond’s office market is similar to other cities around the country that have a big supply of “second generation space.”
“It’s not a super tight market,” he said of Richmond. “It’s more of a tenant’s market.”
For the Charlotte deal CoStar considered, there would have been a bigger capital investment for the firm to move into a space that is still under construction. Kansas City had a building that was not quite big enough for what CoStar was looking for.
Add to that, Florance said, the quality of the nine-story WestRock building, which was built in 2008 and boasts one of the better river views downtown.
“One of the beauties in the Richmond option is it’s already built out to the highest standards,” Florance said. “This building is head and shoulders above the buildings in the other cities. It’s a much better structure and site for a much lower number.”
Of the 9.2 million square feet of office space in Richmond’s central business district, around 1.3 million square feet is vacant, according to a CBRE report published this month. That amounts to a 14.5 percent vacancy rate.
A bulk of that available inventory is in some of downtown’s larger buildings. In recent months, Riverfront Plaza’s twin towers had about 250,000 square feet available for lease with an average price per square foot at $23, according CBRE | Richmond researcher Andrew Cook. The Bank of America Center has about 120,000 square feet available with leases averaging $19.33 a square foot. The three-building James Center complex has about a third of its nearly 1 million square feet available for lease.
Colliers’ Austin Newman handles leasing for the James Center, where he said space is going for $20.50 to $22.50 per square foot. Newman said CoStar’s deal to fill up WestRock – even if it is a sublease as opposed to a new lease – “gives downtown momentum.”
“It takes another building out of play,” Newman said. “There’s that much less space that’s out there. Statistically it’s not positive absorption but it is a positive event.”
Broker Ken Campbell of Colliers International represents the landlord at the WestRock building. He said CoStar’s arrival is a positive sign for downtown. He said those older buildings in the neighborhood could be spruced up to attract tenants.
“I don’t agree that they have lived out their lifespans,” Campbell said. “I think you can do renovations with those to rejuvenate the older products.”
CoStar’s move to Richmond, and the hundreds of jobs it’s bringing, is also seen as a positive for the downtown apartment market.
Howard Kellman’s Edison Co. was behind the transformation of the Signet Bank building into 190 apartments that are about 85 percent leased. He said CoStar’s arrival should help him and his peers in the multi-family world.
“It’s still a growing market and demand is very good,” Kellman said.
CoStar was represented in its leasing of the WestRock Building by Cushman & Wakefield | Thalhimer brokers Amy Broderick and Brian Berkey.
Broderick said the company’s lease “does narrow the options for tenants looking downtown.”
She also said the rise of a younger population living downtown helps attract office tenants.
“There’s a workforce there,” she said of downtown. “That is attractive to a lot of companies.”