The outlook for commercial real estate in the Charlottesville area remains strong according to local agents who cite declining vacancy rates and robust activity throughout the region. While demand is especially high in the downtown area, we are seeing growth in the commercial market all over town and in every sector from retail and office space to multi-family, hotels and light industrial. And the low vacancy rates downtown are contributing to growth in adjacent areas as businesses looking to expand go further out for the space they need.
These trends are consistent with those in the national market as analysts predict continued commercial market expansion. A recent article in National Real Estate Investor about what to expect in 2017 said the commercial market would be “characterized by continued strong fundamentals, increased investor flows and high transaction volume”; a prediction based in part on the US economy’s favorable unemployment rate of 4.9 percent as of June 2016.
Charlottesville’s economy is even stronger with an unemployment rate of 3.6 percent thanks, in part, to the insulating effect of UVA and the Medical Center. Commercial growth also reflects the strength of the local residential real estate market, which continues to impress. CAAR’s recent 3rd Quarter Market Report showed a 20.9 percent year over year increase in sales, the highest quarterly total since 2007. A notable third-quarter increase in land sales in the less than 5 acres category is also good news and may be due in part to the current low inventory of resale homes pushing buyers to choose new construction.
Commercial Agents Report a Growing Market
The growth of Charlottesville’s commercial market reflects the “power of a strong local economy,” said Reid Murphy, REALTOR® and partner at BMC, Building Management Company. He added that the market here is insulated by UVA and the Medical Center, making our area very attractive for investors.
“The commercial market remains active,” said Bob Kahn, Broker with Bob Kahn Realty and Investment. He explained that office space is available, but there are tenants actively looking, both big and small, and that “as the economy grows, companies organically expand, putting pressure on the most sought-after market—downtown—where there is an overwhelming demand for space.”
Kahn also described the retail market as “surprisingly robust,” although warning there are signs activity in this sector may be “peaking.” He added that the multi-family market continues to be active and that many developers are looking for hotel sites as our area is “traditionally thought of as under-served with a shortage of hotel rooms.”
John Pritzlaff, with Thalhimer described our area as “very attractive” for hotel development due in part to the “very healthy tourism business in town.” He explained that “hotels are great for a jurisdiction,” because they bring tourism dollars with no additional burden on the schools. People are here for twenty-four to forty-eight hours, spend money and then go home. “It’s great for the community,” he added.
About the market in general, Pritzlaff described it as active with the city’s central core being a hot spot with less than 1 percent vacancy in downtown office space. There is a “huge pent-up demand there,” he said, adding that new office buildings such as the 3Twenty3 Building that he represents at 323 Second St. will have a higher price point. However, the higher rents are not what he calls “outside the norm outside of Charlottesville.” Secondary areas such as Hollymead are “less active, but steady and healthy” Pritzlaff said.
“The market is robust everywhere,” said Stuart Rifkin with Hasbrouck Real Estate Corp. “We lost a decade,” he continued but now we’re “back to where we were.” He described the “city core, closer to the county office building,” as the most active area.
Bill Howard, President and Broker at Real Estate III Commercial Properties, said there is “definitely an upswing in office rentals” and many fewer vacancies, especially downtown. However, other sectors of the commercial market such as retail centers are also doing well while prospective tenants looking for industrial and warehouse space are running into inventory shortages.
Much of the recent activity comes from local businesses choosing to expand their leases, or who are moving, having sold their previous location, explained Robin Amato with Real Estate III Commercial Properties. While a fair amount of the business is from out of town, she estimates that as much as seventy-five percent is local.
Kahn agrees estimating that the majority of new leases and sales in our commercial market represent growth that is happening “organically” within Charlottesville. “Many are entrepreneurs involved in cutting edge technology-based industries with roots in our area either by birth or because they were once students here.” The technology focus attracts a millennial work force that likes an urban environment, Kahn suggested, adding that “all of these companies are doing well and ever in need of more space.”
5th Street Station
This month marks the long-awaited opening of Wegmans, the anchor store at the new 5th Street Station development south of town. Wegmans is an upscale family-owned grocery store based in Rochester, New York known for its quality and reasonable prices and for giving back to the community. A recent corporate level press release announced that in 2016 customers in 27 of their stores raised over a million dollars for local food banks, a 6 percent increase over what was raised the previous year.
The company has also received numerous awards for their excellence as a retailer and community service over the years including most recently being #4 on Fortune Magazine’s 2016 list of the 100 Best Companies to Work For. The store employs 550 people of which 500 are local.
In addition to Wegmans, Field & Stream, PetSmart, Panera Bread and Dick’s Sporting Goods, tenants at 5th Street Station include Haverty’s Furniture, Planet Fitness, arts and crafts retailer A.C. Moore, Timberwood Tap House, Dollar Tree, Mattress Warehouse and Krispy Kreme, to name a few. Shoppers can also catch a film at the new Alamo Cinema, do some banking, buy cell service, get a haircut and enjoy a massage or facial at Hand and Stone.
“Wegmans will make a big difference for the south part of town.” said Benton Downer with Downer and Associates, adding that it will be “an interesting player and a high quality competitor.” He predicted that people from the east end of town accustomed to driving to Zion Crossroads to avoid congestion, will chose 5th Street Station due to the ease of access off the interstate.
The new center is also impacting residential real estate and multi-family development. For example, Tom Pace with Long and Foster Real Estate worked with three sets of out-of-town buyer clients whose desire to be near 5th Street Station was high on the list of factors to consider when choosing where in town they wanted to live.
Renters can look forward to living near Wegmans as well. A new complex called Fifth Street Place, a 200-unit development by Dominion Realty Partners is scheduled to open in mid-2017. Charlottesville Tomorrow reported that a major reason the developers chose this location was its proximity to 5th Street Station.
Another popular area is Preston Avenue, which Kahn called “the future path for growth,” comparing it to the West Main of five to seven years ago.
Murphy shared that some say the intersection of Rose Hill and Preston is the geographic center of Charlottesville. He called the area “trending,” saying that it has a “downtown vibe” with easier parking. Most of the businesses moving to this area are not new but are those looking for a second location.
Murphy’s company, BMC has two projects in the area. One is a recently acquired building at Preston and 10th that is home to Shenandoah Joe Coffee Roasters. The plan is for Shenandoah Joe to double in size—taking over adjacent space formerly leased to the SPCA—and to add more parking. This project is just one example of what Murphy called his company’s unique business model in which they partner with a small business—in this case Shenandoah Joe—in the redesign of the building giving the new partner a stake in the building. Another example is BMC’s building at 805 Preston which will house Blue Ridge Pack and Ship and Carpet Plus.
Some Preston Avenue projects are renovations of historic buildings. The Coca Cola Building that Pritzlaff says is now 100 percent leased is a good example. Tenants include UVA’s Licensing and Ventures Group that leased 9,600 square feet of office space, Blue Ridge Cyclery, Timbercreek Market and Kardinal Hall, a beer hall and garden by the owners of the popular Beer Run. All of the tenants are “doing well,” Pritzlaff said.
Activity on Route 29 North includes more new tenants at Stonefield and, across the street, the upcoming move of Kroger from its current home at 29 North and Hydraulic to its new location, formerly occupied by Giant, at Seminole Square. The new Kroger will be “modern and state of the art,” Downer said, their largest store in Virginia and scheduled to open the end of 2017. It’s present location, which it has occupied for over 35 years, will be the new home of arts and craft store Hobby Lobby.
The IX Building
Once a busy textile factory, the IX Building is now a seventeen-acre, mixed-use business center offering space for office, retail, restaurants, and arts and crafts. It is conveniently located just two blocks from the downtown mall and also features green spaces, free parking and community events. Business is good explained Property Manager, Erin Hall saying it has “grown by leaps and bounds.”
Pritzlaff, who represents this project, attributes its success to rebranding with a focus on “changing the tenant mix.” He discussed the importance of active food retailers like Brazos Tacos that “drive traffic” to the site. He is also excited about the upcoming addition of Sweethaus, a purveyor of gourmet cupcakes and candy with a full espresso bar soon to move from their West Main location to the IX Building. He added that they are “a great family birthday party site,”—a reference to their private party room and children’s play area—and called their move a “huge deal.” Workout enthusiasts may enjoy another IX business, MADabolic, a fitness center and specialty gym that Pritzlaff said has “a very loyal following.”
Studio IX is a co-working space for artists, sales people and other self employed individuals. It offers internet access, shared printers and conference rooms and is another unique feature of this development, Hall explained. She is also excited about IX Art Park with its cultural and civic activities such as free outdoor concerts and artists’ showcase. “The art park is busy every day,” Hall said.
All indications are that Charlottesville’s commercial market is on an upward path, and positive predictions about 2017 suggest we can look forward to even more good news next year. Stay tuned.
Celeste Smucker is a writer, blogger and author who lives near Charlottesville.