Not to be outdone by the high volume of local apartment sales, the Richmond office market closed out 2021 with some sizable deals.
That included the sale of the two-building Waterfront Plaza Office portfolio in Innsbrook in late December for $20.8 million.
The new owner is Runnymede Corp., a Virginia Beach-based investment firm run by the Fine family. The seller was Highwoods Properties, a major landlord in Innsbrook.
With two buildings totaling 97,000 square feet, the portfolio is leased mostly to Hamilton Beach Brands, which occupies the entirety of 4421 Waterfront Dr. and part of 4401 Waterfront Dr., which is connected via a walkway. Other tenants include financial firm Cary Street Partners and real estate brokerage Marcus & Millichap.
Runnymede got into the Richmond market in 2020 when it bought the Apex Systems offices just down the street in Innsbrook for $10.5 million.
The deal closed Dec. 29. The two buildings were most recently assessed by the county at a combined $13.2 million. The sale amounted to $213 per square foot.
Runnymede asset manager Nate Fine said in an email that they’re not planning many changes at the buildings and are continuing to look for deals in the region.
“We remain bullish on the growth of Richmond and Innsbrook as we look for future expansion opportunities,” Fine said.
Thalhimer’s Eric Robison, who represented Highwoods in the sale with colleague Bo McKown, said this latest deal is another sign that, despite pandemic-induced work-from-home habits, the Richmond office market is still a destination for out-of-town investors.
A few weeks prior to the Waterfront Plaza deal, the 11-building Glen Forest Office Park in Henrico sold for $87 million, with investors from New York and the United Arab Emirates as the buyers.
“One of the things that has helped Richmond significantly is that the market’s not overbuilt. Going into the pandemic it’s not like there were new office buildings with vacant space under construction or on the market,” Robison said. “Certainly some tenants have decided to downsize, but it hasn’t had a massive negative effect.”
According to Thalhimer’s Q4 2021 office market report, the Richmond region’s current office vacancy rate is at 7 percent, up from 6 percent in 2019. Per the report, the downtown area is 8 percent vacant, while Innsbrook is 8.5 percent vacant.
Compared to Thalhimer’s estimated national office vacancy rate of 17.6 percent, the local office market has fared well.
CBRE’s Chris Wallace, who represents both office landlords and tenants in the region, said while the pandemic remains a wildcard for the office world, 2022 is off to a good start in terms of showings.
“Is it as active as it has been in other years pre-COVID? Maybe not as much. I think there’s some hesitancy with some companies in going back to the office, but it’s still pretty active,” Wallace said. “I’ve seen a fair amount of folks from out of town looking to start a new office in Richmond or expand their office here. We’ve also seen some existing tenants that have expanded.”
Office subleases, which became more of a national talking point since the start of the pandemic and work-from-home trends, also continues to shape local stats.
Notable examples of larger local subleases include SunTrust’s 250,000-square-foot suburban campus near Innsbrook and Owens & Minor’s listing of 90,000 square feet of office space in Riverfront Plaza, of which CoStar eventually took 51,000 square feet.
Thalhimer’s report shows that 15 percent of the available office space in Richmond is sublet space, a jump from an average of 5 percent from 2010 to 2019.
However, Will Bradley at Colliers International said the numbers don’t necessarily tell the full story when it comes to the sublease market.
“Some of (the sublease space) was pre-existing COVID. Some of it had nothing to do with COVID, like the SunTrust and BB&T merger,” he said.
Bradley also said some of the larger recent subleases skew the overall numbers, as big blocks of space aren’t so easily absorbed in the local market.
“Richmond’s core user market is 5,000 to 20,000 square feet. On occasion we’ll have 100,000-square-foot users, but there are not a lot of those,” Bradley said. “If you get a 100,000 sublease, you’re not going to be able to divide it down for the 5,000 to 20,000-square-foot core market, so it’s not really competitive. So it’s important to really dissect the sublease market and understand how it is really impacting the core office market versus just the statistics.”
Wallace’s sentiment echoed Bradley’s. He said the Richmond office market saw a glut of sublease space come available in late 2020 but large sublease listings have since petered out.
“I haven’t seen anything substantial come online in recent months,” Wallace said. “I don’t think that’s going to be a trend going forward.”
Bradley, who often represents sellers of office properties, said throughout the pandemic investors both new to and already familiar with Richmond have continued to be interested in the local office market.
“Richmond has continued to climb the ladder of markets that investors want to look in and buy assets in,” Bradley said. “It’s continued to be of more and more importance to the general capital markets, and we’re seeing that in demand from international to national to regional investors.”
He said offices like the Waterfront Office Portfolio are in high demand due to the long-term leases that are in place and because they don’t require major upgrades.
“(They) provide stability through this period of otherwise uncertainty,” Bradley said.