Richmond’s Low-Vacancy Industrial Market Reflects National Trends
Industrial vacancies in Richmond are at their lowest point in more than a decade, and all signs point to an even tighter market for the next year or two. But this is not just a local trend. The supply-and-demand factors driving industrial real estate in Richmond can be seen in high job-growth cities across the country. According to the U.S. Bureau of Labor Statistics, Richmond’s civilian employment increased by 27,000 jobs in the six months ending in July. Richmond’Cs 4 percent unemployment rate is slightly lower than the 4.3 percent national average, which itself represents a historic low point. And vacancies are likely to decrease rather than increase over the next year. Market consensus suggests that “the latter half of 2017 may benefit from a release of pent-up demand,” according to a recent report from NAIOP. Market fundamentals are likely to improve as the economy expands, and “rising construction prices and labor shortages will likely moderate generation of new supply.” These trends are evident in Richmond, where industrial net absorption surpassed 1.2 million s/f in just the first half of 2017, compared to about 700,000 s/f of space under construction. Most new speculative buildings have filled up quickly as companies seek to expand or consolidate operations in modern, efficient space. A case in point is Premier Store Fixtures’ 216,000 s/f, full-building lease at Becknell Industrial’s Airport Distribution Center. Premier took occupancy in the second quarter, but the lease was negotiated in September 2016, before shell construction was complete. Premier needed the space to complement its existing manufacturing location in Henrico County, and also to consolidate and upgrade its operations for future expansion. The Premier Store Fixtures lease represented about 15 percent of all Richmond-area net absorption in the first half of 2017, and was recognized as the best industrial lease deal of 2016 by the Greater Richmond Association of Commercial Real Estate (GRACRE). Porter Realty Company, Inc. represented both Premier and Becknell in the transaction, and is handling marketing of the remaining sites at Airport Distribution Center. A 153,000 s/f building in the final stages of completion is already 75 percent preleased to one tenant, and additional large tenants in the market are interested in the developer’s plans to start construction of the third and final building at the site, totaling 202,000 s/f. With large users leasing new buildings faster than developers can build them, what options are open to other tenants looking to expand? Fortunately, there are still well-located spaces that can accommodate small and medium size users, albeit at a higher cost than they might like. In addition, some modern buildings are owned or leased by third-party logistics (3PL) companies that sublease spaces to end users. And in many cases, one company’s move to state-of-the-art space opens up a great redevelopment opportunity for other space users. Richmond’s central location in the heart of the Eastern Seaboard, with close proximity to the Port of Virginia, makes it a magnet for distribution and other industrial users. Demand for space may outpace supply at the moment, but there are still good solutions for companies seeking to grow and modernize their operations. Clifford B. Porter, CCIM, SIOR, is executive vice president and a principal broker at Porter Realty Company, Inc./CORFAC International in Richmond. He holds dual designations as office and industrial specialist with the Society of Industrial and Office Realtors (SIOR) as well as the Certified Commercial Investment Member (CCIM) designation. Cliff has served as president of the Virginia SIOR chapter and as a member of SIOR’s National Research & Publications Committee. He has received top producer awards from the Richmond Association of Realtors and the Commercial Investment Exchange.