Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, February 6, 1992 TAG: 9202060045
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: GEORGE KEGLEY BUSINESS EDITOR
DATELINE: LENGTH: Medium
OFFICE VACANCIES SOAR IN DOWNTOWN ROANOKE
Downtown Roanoke's office vacancy rate shot up sharply last year, according to a new report. And real estate brokers say upcoming shifts in the market are likely to send the rate even higher.The vacancies increased as a result of overbuilding and tight mortgage money.
The survey, by local members of the Society of Industrial and Office Realtors, said last year's opening of Dominion Tower and completion this spring of the new Norfolk Southern Building, along with cutbacks at the older Crestar and Signet bank buildings, raised the vacancy rate for downtown office space from a healthy 7.1 percent in 1990 to almost 17 percent.
After Norfolk Southern employees move to their new building on Williamson Road, another 60,000 square feet will be vacant in the Colonial Arms building at Jefferson Street and Campbell Avenue.
This weakness in the downtown office market and more vacancies in the suburbs prompted Ed Hall, a commercial real estate broker, to forecast a delay in new Roanoke Valley office construction for at least a year to 18 months.
Expansion of industrial space slowed because of a lack of mortgage money, according to a study by Dale Poe, another real estate broker.
Hall and Poe prepared an annual survey of the two Roanoke markets for inclusion in the national study, being released today.
Hall, who has been forecasting rising office vacancies for many years, said, "We think Roanoke has about hit the bottom. We are always on the tail-end of the swing."
Some inquiries have come in, he said, "but it's very difficult to put deals together." Today's office tenant wants "everything on his side and if he gets it, you have problems with developers," Hall said.
Absorption of the vacant office space is expected to pick up this year, driven by companies who need from 6,000 to 30,000 square feet of space for expansion, he said.
Hall said the office market in the Roanoke Valley will not completely recover this year, but rental rates are expected to fall slightly as landlord concessions become more liberal. He expects to see some "free rent," situations where landlords offer tenants space without charge when they sign long-term contracts, something that hasn't come in years. "That's not drastic but it hurts," he said.
"We are not drastically overbuilt, but we have more space than we can handle for a couple of years," is the appraisal from Hall. "We are at the bottom of the cycle, and Roanoke, in many ways, is poised to take advantage of it. We've got some inventory to work off."
There is a demand, mainly for renovated office space in the range of 2,000 to 5,000 square feet, he reported. "A lot of people are chasing the same prospects."
He reports a smaller supply of offices in north Roanoke County, while south county offices have more available space and higher vacancies.
His forecast is for "two hard years, maybe three," for real estate brokers to fill the vacancies.
Buildings in specific niches, such as the Century Business Center, a new office-warehouse complex, will come back quicker, he said. Owners of the center sought bankruptcy reorganization after a major tenant defaulted on rent.
The key to the market, Hall said, "is not to add new inventory and to work the existing inventory off."
The downturn in the economy points to a need for cooperation between governing bodies because every new job has an impact on other businesses, Hall said. The Roanoke Valley Economic Development Partnership is doing a good job, he said, "but the lack of cooperation surfaces. . . . Everybody has a slightly different agenda."
No speculative development of industrial space is expected in the first half of the year, according to Poe's survey. The survey was prepared in November and he was out of town this week.
Valley industries relocated at a slower pace last year, the survey said, but expansions continued to take advantage of attractive prices during the slump in construction. Many companies were reported "marching in place," waiting for better credit.
Most available industrial space is in the larger areas of 50,000 square feet and up, such as the 105,000-square-foot area left vacant in Statesman Park when United Parcel moved to its new building, Hall said.
Substantial shortages of industrial space were spotted in smaller areas of up to 20,000 square feet.
Hall expects to see "a lot of shuffling" by a couple of potential users of large areas as they expand.
In the last quarter, "a lot more" valley industrial space was placed on the market, he said.
Valley real estate brokers probably will tread water for a year or so, moving people from one building to another, but it won't help developers' business, Hall said. Still, the Roanoke Valley "is probably in better shape than 75 percent of the real estate market," he added.