RICHMOND 2Q11
RICHMOND 2Q11 Overview
Economy
The biggest sale transaction in years closed in the second quarter. Lingerfelt Development Company bought a portfolio of 14 buildings around Innsbrook from Liberty Property Trust for $97 million. Liberty made the strategic decision to sell off some of its core office assets. Lingerfelt will handle the leasing of these buildings in-house and further hired several key employees from Liberty during the transaction.
A spring thaw seemed to hit Richmond, which saw an extraordinarily active three months for the office sector. Unemployment in Richmond fell to 6.7% in May, down from 7.5% in May of 2010, and that might fall more as several large employers, including GE, SnagAJob and Mondial, have announced major hiring initiatives for 2011. Richmond is in far better shape than the nation as a whole, which has an unemployment rate of 8.7%, but the national and global economies are showing signs of strain. Major industries – such as autos and housing – are reporting that sales are slowing from this time last year, and political instability at home and abroad is spreading uncertainty.
That wasn’t the only deal over $50 million: McLean-based American Real Estate Partners paid $64 million for the office section of Riverside on the James. It was previously owned by Prudential.
Outlook
There are several larger transactions currently in play in the greater Richmond area ranging from lender take-back of owner-occupied facilities to investment sales. Investors feel that they have weathered the recession and are now back and ready to invest in sound real estate.
Vacancy will likely continue dropping, although perhaps not quite as rapidly as it did in the second quarter. Brokers are reporting that several buildings are under contract by owner occupants, which will lead to a boost in absorption. Historically, lease tenants have taken advantage of depressed values by purchasing buildings for their own use.
Brokers are also reporting they are busier now than any time in the past few years. Leasing activity was 1.4 million square feet (msf) through the second quarter of 2011, up 72% from the 815,000 square feet (sf) leased for the same period in 2010 and more than double the 655,000 sf leased through the second quarter of 2009. The overall vacancy rate fell to 10.9% from 11.6% in the second quarter of 2010.
Rent concessions are still common, but the rental rates are rising slightly and concessions might start to decrease, especially for space over 20,000 sf. There might also be a few build-to-suits announced by year’s end for tenants that can’t find the right big-block space.
Of particular note, the activity for spaces larger than 20,000 sf has been strong as tenants upgrade to bigger or newer space. For example, Union First Market Bankshares leased 33,300 sf in Three James Center. Mondial, a local travel insurance company, also leased 238,000 sf at Deep Run I, the former headquarters of Circuit City.
YTD Sublet vs. Overall Leasing Activity
Stats on the Go
Sublet
Y-o-Y Change
12 month Forecast
Overall Vacancy
11.6%
10.9%
-0.7 pp
Direct Class A Asking Rents
$20.07
$19.20
-4.3%
Overall
Rent
1,400
815,489
1,400,813
71.8%
12.0%
1,200
10.0%
$15.00
1,000 800 600 400
8.0%
$10.00
6.0% 4.0%
$5.00
200
YTD Leasing Activity (sf)
Vacancy
$20.00
psf/yr
2Q11
thousand sf
2Q10
Overall Rental vs. Vacancy Rates
0
2.0%
$0.00 2Q08
2Q09
2Q10
2Q11
0.0% 2008
2009
2010
2011F
2012F
RICHMOND OFFICE REPORT 2Q11
Market/Submarket Statistics Marke t / Submarke t CBD East End Far West End Glenside/Broad Street Hull Street Corridor I-95 N/Ashland I-95 N/Chamberlayne Innsbrook Iron Bridge Corridor Lakeside Mechanicsville Midlothian Corridor Monroe Ward Near West End North Broad Northside Parham East Parham South Rt 288 Corridor Shockoe Bottom Stony Point/Huguenot West Creek West End RICHMOND TOTAL
Inve ntory 11,338,027 586,690 800,655 4,604,816 2,495,641 654,760 337,620 8,080,391 1,779,875 391,413 1,133,616 4,202,525 2,554,841 2,029,453 2,717,253 303,684 2,437,086 1,014,029 1,686,324 1,559,540 1,477,978 1,740,213 3,797,540 57,723,970
O ve rall Dire ct Vacancy Vacancy Rate Rate
YTD Le asing Activity
YTD Unde r Construction Construction Comple tions
13.6% 7.8% 4.9% 8.2% 5.9% 7.5% 8.0% 15.9% 12.4% 5.0% 12.8% 15.1% 5.9% 11.3% 7.1% 4.4% 13.3% 18.7% 10.1% 3.4% 9.7% 0.1% 7.1%
12.3% 7.8% 4.9% 8.1% 5.9% 6.5% 8.0% 15.4% 11.1% 5.0% 12.4% 14.5% 5.9% 11.2% 7.1% 4.4% 13.3% 18.3% 9.8% 3.4% 7.4% 0.1% 7.1%
131,503 0 4,703 123,630 10,737 550 2,500 746,659 6,820 2,499 5,177 61,063 7,830 12,237 10,334 0 148,681 30,636 26,999 8,462 14,673 0 45,120
0 0 0 0 0 0 0 0 0 0 0 70,000 0 0 0 0 0 0 0 0 0 0 0
10.9%
10.4%
1,400,813
70,000
0 0 0 0 0 0 0 25,268 0 0 0 23,341 0 0 0 0 0 0 0 0 0 0 0 48,609
YTD Dire ct Absorption
YTD O ve rall Absorption
(6,754) 348 (945) (21,113) (32,404) (6,282) 6,099 74,756 (41,528) (6,432) 23,866 18,395 3,117 (48,281) (7,438) (2,063) 744 29,604 (8,827) 3,171 (2,470) (1,382) 19,374
(18,776) 348 (945) (17,189) (32,404) (6,282) 6,099 104,605 (41,528) (6,432) 23,866 34,918 3,117 (48,281) (7,438) (2,063) 744 39,604 (3,827) 3,171 (25,937) (1,382) 19,374
(6,445)
23,362
Dire ct Wtd. O ve rall Wtd. Avg. Class A Avg. All Classe s Gross Gross Re ntal Rate * Re ntal Rate * $17.87 $25.12 $13.95 N/A $8.28 $18.75 $18.42 $20.11 $12.58 N/A $12.66 N/A $15.56 N/A $17.73 $18.00 $13.74 $17.10 $11.92 N/A $15.90 $18.00 $16.47 $18.12 $15.19 N/A $12.73 N/A $16.87 N/A $13.95 N/A $13.89 N/A $14.76 N/A $16.97 $19.56 $18.07 $20.18 $16.47 $19.10 $17.25 N/A $13.91 $16.50 $16.45
$19.20
* Rental rates reflect asking $psf/year.
Market Highlights SIGNIFICANT 2Q11 LEASE TRANSACTIONS BUILDING
SUBMARKET
TENANT
Deep Run I
Innsbrook
M ondial
Three James Center
CBD
Watkins Center M OB
M idlothian Corridor
SQUARE FEET
BUILDING CLASS
238,000
A
Union First M arket Bankshares
33,300
A
Bon Secours Richmond Health System
21,432
A
SQUARE FEET
PURCHASE PRICE
SIGNIFICANT 2Q11 SALE TRANSACTIONS BUILDING
MARKET
BUYER
14 Building Portfolio
Innsbrook
Lingerfelt Development
918,889
$97,000,000
Riverside on the James
CBD
American Real Estate Partners M gmt., LLC
263,066
$63,800,000
SIGNIFICANT 2Q11 CONSTRUCTION COMPLETIONS BUILDING
MARKET
MAJOR TENANT
SQUARE FEET
COMPLETION DATE
SQUARE FEET
COMPLETION DATE
70,000
3Q11
NA
SIGNIFICANT PROJECTS UNDER CONSTRUCTION/RENOVATION BUILDING
MARKET
MAJOR TENANT
OrthoVirginia Building
M idlothian Corridor
CJW M edical Center/West End Orthopaedic Clinic
Thalhimer Thalhimer Center, 11100 W. Broad St., Glen Allen, VA 23060
(804) 648-5881
www.thalhimer.com
* The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2011 Cushman & Wakefield, Inc. All rights reserved.
Economy
The biggest sale transaction in years closed in the second quarter. Lingerfelt Development Company bought a portfolio of 14 buildings around Innsbrook from Liberty Property Trust for $97 million. Liberty made the strategic decision to sell off some of its core office assets. Lingerfelt will handle the leasing of these buildings in-house and further hired several key employees from Liberty during the transaction.
A spring thaw seemed to hit Richmond, which saw an extraordinarily active three months for the office sector. Unemployment in Richmond fell to 6.7% in May, down from 7.5% in May of 2010, and that might fall more as several large employers, including GE, SnagAJob and Mondial, have announced major hiring initiatives for 2011. Richmond is in far better shape than the nation as a whole, which has an unemployment rate of 8.7%, but the national and global economies are showing signs of strain. Major industries – such as autos and housing – are reporting that sales are slowing from this time last year, and political instability at home and abroad is spreading uncertainty.
That wasn’t the only deal over $50 million: McLean-based American Real Estate Partners paid $64 million for the office section of Riverside on the James. It was previously owned by Prudential.
Outlook
There are several larger transactions currently in play in the greater Richmond area ranging from lender take-back of owner-occupied facilities to investment sales. Investors feel that they have weathered the recession and are now back and ready to invest in sound real estate.
Vacancy will likely continue dropping, although perhaps not quite as rapidly as it did in the second quarter. Brokers are reporting that several buildings are under contract by owner occupants, which will lead to a boost in absorption. Historically, lease tenants have taken advantage of depressed values by purchasing buildings for their own use.
Brokers are also reporting they are busier now than any time in the past few years. Leasing activity was 1.4 million square feet (msf) through the second quarter of 2011, up 72% from the 815,000 square feet (sf) leased for the same period in 2010 and more than double the 655,000 sf leased through the second quarter of 2009. The overall vacancy rate fell to 10.9% from 11.6% in the second quarter of 2010.
Rent concessions are still common, but the rental rates are rising slightly and concessions might start to decrease, especially for space over 20,000 sf. There might also be a few build-to-suits announced by year’s end for tenants that can’t find the right big-block space.
Of particular note, the activity for spaces larger than 20,000 sf has been strong as tenants upgrade to bigger or newer space. For example, Union First Market Bankshares leased 33,300 sf in Three James Center. Mondial, a local travel insurance company, also leased 238,000 sf at Deep Run I, the former headquarters of Circuit City.
YTD Sublet vs. Overall Leasing Activity
Stats on the Go
Sublet
Y-o-Y Change
12 month Forecast
Overall Vacancy
11.6%
10.9%
-0.7 pp
Direct Class A Asking Rents
$20.07
$19.20
-4.3%
Overall
Rent
1,400
815,489
1,400,813
71.8%
12.0%
1,200
10.0%
$15.00
1,000 800 600 400
8.0%
$10.00
6.0% 4.0%
$5.00
200
YTD Leasing Activity (sf)
Vacancy
$20.00
psf/yr
2Q11
thousand sf
2Q10
Overall Rental vs. Vacancy Rates
0
2.0%
$0.00 2Q08
2Q09
2Q10
2Q11
0.0% 2008
2009
2010
2011F
2012F
RICHMOND OFFICE REPORT 2Q11
Market/Submarket Statistics Marke t / Submarke t CBD East End Far West End Glenside/Broad Street Hull Street Corridor I-95 N/Ashland I-95 N/Chamberlayne Innsbrook Iron Bridge Corridor Lakeside Mechanicsville Midlothian Corridor Monroe Ward Near West End North Broad Northside Parham East Parham South Rt 288 Corridor Shockoe Bottom Stony Point/Huguenot West Creek West End RICHMOND TOTAL
Inve ntory 11,338,027 586,690 800,655 4,604,816 2,495,641 654,760 337,620 8,080,391 1,779,875 391,413 1,133,616 4,202,525 2,554,841 2,029,453 2,717,253 303,684 2,437,086 1,014,029 1,686,324 1,559,540 1,477,978 1,740,213 3,797,540 57,723,970
O ve rall Dire ct Vacancy Vacancy Rate Rate
YTD Le asing Activity
YTD Unde r Construction Construction Comple tions
13.6% 7.8% 4.9% 8.2% 5.9% 7.5% 8.0% 15.9% 12.4% 5.0% 12.8% 15.1% 5.9% 11.3% 7.1% 4.4% 13.3% 18.7% 10.1% 3.4% 9.7% 0.1% 7.1%
12.3% 7.8% 4.9% 8.1% 5.9% 6.5% 8.0% 15.4% 11.1% 5.0% 12.4% 14.5% 5.9% 11.2% 7.1% 4.4% 13.3% 18.3% 9.8% 3.4% 7.4% 0.1% 7.1%
131,503 0 4,703 123,630 10,737 550 2,500 746,659 6,820 2,499 5,177 61,063 7,830 12,237 10,334 0 148,681 30,636 26,999 8,462 14,673 0 45,120
0 0 0 0 0 0 0 0 0 0 0 70,000 0 0 0 0 0 0 0 0 0 0 0
10.9%
10.4%
1,400,813
70,000
0 0 0 0 0 0 0 25,268 0 0 0 23,341 0 0 0 0 0 0 0 0 0 0 0 48,609
YTD Dire ct Absorption
YTD O ve rall Absorption
(6,754) 348 (945) (21,113) (32,404) (6,282) 6,099 74,756 (41,528) (6,432) 23,866 18,395 3,117 (48,281) (7,438) (2,063) 744 29,604 (8,827) 3,171 (2,470) (1,382) 19,374
(18,776) 348 (945) (17,189) (32,404) (6,282) 6,099 104,605 (41,528) (6,432) 23,866 34,918 3,117 (48,281) (7,438) (2,063) 744 39,604 (3,827) 3,171 (25,937) (1,382) 19,374
(6,445)
23,362
Dire ct Wtd. O ve rall Wtd. Avg. Class A Avg. All Classe s Gross Gross Re ntal Rate * Re ntal Rate * $17.87 $25.12 $13.95 N/A $8.28 $18.75 $18.42 $20.11 $12.58 N/A $12.66 N/A $15.56 N/A $17.73 $18.00 $13.74 $17.10 $11.92 N/A $15.90 $18.00 $16.47 $18.12 $15.19 N/A $12.73 N/A $16.87 N/A $13.95 N/A $13.89 N/A $14.76 N/A $16.97 $19.56 $18.07 $20.18 $16.47 $19.10 $17.25 N/A $13.91 $16.50 $16.45
$19.20
* Rental rates reflect asking $psf/year.
Market Highlights SIGNIFICANT 2Q11 LEASE TRANSACTIONS BUILDING
SUBMARKET
TENANT
Deep Run I
Innsbrook
M ondial
Three James Center
CBD
Watkins Center M OB
M idlothian Corridor
SQUARE FEET
BUILDING CLASS
238,000
A
Union First M arket Bankshares
33,300
A
Bon Secours Richmond Health System
21,432
A
SQUARE FEET
PURCHASE PRICE
SIGNIFICANT 2Q11 SALE TRANSACTIONS BUILDING
MARKET
BUYER
14 Building Portfolio
Innsbrook
Lingerfelt Development
918,889
$97,000,000
Riverside on the James
CBD
American Real Estate Partners M gmt., LLC
263,066
$63,800,000
SIGNIFICANT 2Q11 CONSTRUCTION COMPLETIONS BUILDING
MARKET
MAJOR TENANT
SQUARE FEET
COMPLETION DATE
SQUARE FEET
COMPLETION DATE
70,000
3Q11
NA
SIGNIFICANT PROJECTS UNDER CONSTRUCTION/RENOVATION BUILDING
MARKET
MAJOR TENANT
OrthoVirginia Building
M idlothian Corridor
CJW M edical Center/West End Orthopaedic Clinic
Thalhimer Thalhimer Center, 11100 W. Broad St., Glen Allen, VA 23060
(804) 648-5881
www.thalhimer.com
* The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2011 Cushman & Wakefield, Inc. All rights reserved.
