OFFICE VACANCIES THREATEN TO GIVE ROANOKE A HARD TIME

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, February 11, 1993                   TAG: 9302110128
SECTION: BUSINESS                    PAGE: C6   EDITION: METRO 
SOURCE: GEORGE KEGLEY STAFF WRITER
DATELINE:                                 LENGTH: Medium
OFFICE VACANCIES THREATEN TO GIVE ROANOKE A HARD TIME
The vacancy rate for downtown Roanoke office space has spiked to 23 percent - its highest level in several years - and threatens to go even higher with the pending sale of Dominion Bankshares, according to a new survey.
The major question hanging over the downtown office market is how much space will be taken by First Union Corp. after it acquires Dominion next month, said Edwin Hall, president of Hall Associates, a commercial real estate firm.
On Wednesday he released the results of an annual survey he compiles for the Society of Industrial and Office Realtors, a unit of the National Association of Realtors.
The opening of Dominion Tower and the Norfolk Southern office building last year "further weakened" the market and raised the vacancy rate from 19 to 23 percent, he said.
When First Union acquires Dominion, the Charlotte, N.C., company could sublease space now occupied by Dominion in both the Dominion Tower and the Dominion bank building. Neither building is owned by Dominion Bankshares Corp.
But Hall, who handles leasing for the Dominion bank building, said he has heard several different reports about First Union's plans.
Dominion leases almost 75 percent of the 205,096 square feet in the Dominion bank building and occupies two of Dominion Tower's 20 stories.
If First Union puts a lot of space on the market, the vacancy rate will rise and cause major problems, Hall said. Uncertainties of the bank's needs have created the most difficult time Hall has seen in his 25 years of commercial real estate business, he said.
Also, the move last year by Norfolk Southern Corp. into its new regional headquarters left a 67,490-square-foot vacancy in the Colonial Arms building at Campbell Avenue and Jefferson Street.
The downtown office vacancy rate has risen from 9 percent to 23 percent over the past five years, Hall said. The vacancy rate for downtown Roanoke's best, or class A, office space is about 12 percent, "and we would like to have 10 percent." Overall, office vacancies should be around 7 to 8 percent, "but we haven't seen that in a long time."
The competition created by oversupply has led owners to reduce rental prices and narrowed the range of rental costs between class A offices and those in older buildings, generally termed class B and class C real estate, Hall said.
When the differences are smaller, tenants tend to choose class A space. In tough times, the older properties "get kicked first," Hall said. Tenants are expected to absorb more small- to medium-sized office space this year, he said.
In southern Roanoke County, the suburban real estate market was left with 40,000 square feet of vacant space when Datacare Inc., a medical information systems company, moved to Florida in 1991. The only new construction is Fralin & Waldron's 55,000-square-foot building on Virginia 419 at Chaparral Drive, said Stuart Meredith, leasing director for Hall Associates.
In North Roanoke County, both the supply and the demand for office space are smaller. The market will be affected by any moves at the Dominion Bank buildings as well as subleasing of space now used by Sears Telecatalog and Dominion Mortgage at Celebration Station, near the airport.
The industrial real estate vacancy rate decreased last year, but the former Grumman Emergency Products building in Roanoke and an Elizabeth Arden warehouse in Salem came on the market.
Few new industrial projects are anticipated until mortgage money becomes available, according to a forecast prepared for the national real estate society by Dale Poe of Waldvogel, Poe and Cronk Real Estate Group.
The available industrial space is expected to be absorbed, Poe said, and the possibility of increased construction by the end of the year will hold prices down.
Also, many building owners face problems finding financing for improvements, Hall said.

by Archana Subramaniam by CNB