ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, January 12, 1997 TAG: 9701110007
SECTION: BUSINESS PAGE: 1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
MEMO: ***CORRECTION***
Published correction ran on Jan. 13.
Correction
Charts giving information about office and retail occupancy rates in
the Roanoke Valley, which appeared in Sunday's Business section, were
erroneously attributed. The information was compiled by Hall Associates
Inc. of Roanoke. Also, three buildings were incorrectly listed. The
figures given for the Valley Bank building were for Southwest Virginia
Bank building; the figures for the former Woods, Rogers & Hazlegrove
building were for Valley Bank; and the figures for Southwest Virginia
were for the Woods, Rogers & Hazlegrove building.
In addition, the owner of the Shenandoah Building said the proper
figures for 1996 are only 3,162 square feet vacant for an occupancy rate
of 94 percent.
Regional economic developers - who generally chase companies to build factories and distribution centers - are focusing their attention on filling downtown Roanoke's office space.
And armed with a report that says nearly a fifth of the downtown offices are vacant, landlords are installing amenities to lure tenants, including an elaborate fitness center under construction inside the refurbished Colonial Arms Building.
A survey released this month shows the market for downtown office space weakened slightly in 1996, while suburban office markets remain strong.
Roanoke municipal officials, the Roanoke Valley Economic Development Partnership and Downtown Roanoke Inc. joined together a few weeks ago to market downtown office properties.
Rather than merely trying to shift tenants from the suburbs back to the central city, the group wants a major regional headquarters to move into the valley and gobble up a lot of office space.
Their first prospect - a company the developers and realty brokers declined to identify - reportedly is ready to take a look at Roanoke's downtown.
Beth Doughty, executive director of the partnership, said it is "serious" about marketing the attractions downtown for office tenants.
Her organization has brought many industries to the valley, she noted, and "this is no different from industry."
The dimension of the problem shows up in the annual survey complied by Hall Associates Inc. of Roanoke for the Society of Office and Industrial Realtors. The figures, in charts accompanying this story, are as of Jan.1.
The commercial real estate firm discovered that 34,631 square feet of downtown office space came on the market last year over what was available for leasing the year before.
The office vacancy rate in the central business district, including space available for sublease, is 19 percent compared to 16 percent the prior year. That reverses a trend toward diminishing rates since the 23 percent rate posted in 1992, when several buildings opened and drew tenants away from existing structures.
By contrast to downtown Roanoke's mounting vacancy rate, the south county suburban district - essentially the Virginia 419 corridor - gained tenants for 42,639 square feet last year and had a vacancy rate of 10 percent at year-end compared to 14 percent at the end of 1995.
And the north suburban office district, primarily along Hershberger and Peters Creek roads - attracted tenants for 60,152 square feet and ended last year with a vacancy rate of 16 percent. That's an improvement from 20 percent in 1995.
Hall said the problem is that downtown is weakening while the suburbs gain office tenants.
Hall Associates found that 260,302 square feet of space was available for lease in the central business district the first of this month. Another 11,234 square feet of space is up for sublease - all of it vacated by First Union Corp. in the First Union Tower.
Overall the market for office space in the Roanoke Valley is "extremely strong," said Edwin C. Hall, the firm's principal who compiled the survey with associates Stuart Meredith and Chris Nelson. He said the vacancy rates compare favorably with those in other communities.
But downtown, Hall said, "is not as good as this time last year."
The demand for downtown's retail space, by contrast, is fairly strong with the exception of the large hole created by closing of the Heironimus department store a year ago. That space on Jefferson Street, Hall said, skews the retail picture in the central business district.
* * *
Marketing of downtown office property "needs a concentrated community effort" for success, Hall said.
Instead of shifting tenants around the valley, community leaders should work toward attracting regional headquarters of large companies. These are the kind of tenants who can occupy blocks of 10,000 to 30,000 square feet, he said.
Blocks of space that size are readily available downtown, he said. He called the leasable buildings "very good values, very good space."
Property owners might provide breaks on the rent and on refurbishing interior space, Hall said, but more is needed than an owner can provide.
A community effort is needed to find out-of-town companies that might plant an office here, Hall said. A package to attract such large tenants might include tax incentives, training and the like that an owner cannot provide alone.
He said a unified effort by organizations throughout the valley must resemble the effort made to bring factories here.
He said tables from his firm's survey identify the large blocks, but "all buildings have some space." Hall said these buildings are of various sizes and ages.
"That's what we plan to do," said Matt Kennell, executive director of Downtown Roanoke Inc. about Hall's proposal for a valleywide effort at marketing.
His organization talked a couple of weeks ago with Roanoke city officials and the Roanoke Valley Economic Development Partnership about marketing office space.
He said the groups came up with a plan to reverse the trend toward vacancies which, he added, is not unique to Roanoke. Downtown districts in other cities have similar problems, he said. Such high vacancy rates frequently are the result of cycles of overbuilding in economic boom times and retrenchment by companies in recessions.
The board of Downtown Roanoke Inc. has resolved to place a high priority on filling up offices as well as stores, he said, because the two are interrelated. Office workers, of course, constitute a prime clientele for downtown retailers.
Downtown Roanoke Inc. is targeting companies new to the area that might be attracted by the shops, restaurants and farmers' stalls on the City Market and other amenities of downtown life.
"It's a natural for this organization," Doughty said of the partnership's drive to fill office space. "We need to look hard and focus attention downtown," she said. "It affects the entire region."
Phil Sparks, head of municipal economic development for Roanoke, said City Manager Robert Herbert has mobilized a group of municipal employees such as Sparks to work on the problem.
Sparks said the first corporate prospect will visit the valley any day now, but the business could not be identified at this time.
* * *
The biggest block of available office space is the more than 55,000 square feet in the Colonial Arms Building at Jefferson Street and Campbell Avenue. Currently J.C. Bradford & Co. is the only tenant, leasing ground-floor space for its stock brokerage.
The building was constructed in 1927 and remodeled in the late 1980s for occupancy by Norfolk Southern Corp. while its own building was under construction.
Allen Drewry and Frank Waggoner of Chesapeake bought the 12-story building in October, paying $850,000 for the structure that city real estate assessors value at $2.5 million.
The owners are building an elaborate fitness center on a portion of the third floor. The facility will be available only to occupants of the building.
Drewry, who with his partner has developed commercial enterprises in the Tidewater area, said the gym "is just an extra to attract tenants. You need something to attract tenants, something a lot of people would like."
The owners have had "two real serious inquiries" about leasing space at Colonial Arms, but "you know it takes a little bit of time to get tenants." Their goal is to fill Colonial Arms in three to four years, he said.
"The building is in great shape," Drewry said. "We may do something to make [the lobby] more eye-appealing." Plans include covering the marble floor with an Oriental rug and the walls with art work. There's to be a Queen Anne-style table with a lamp, plants and blinds.
Jim Phillips moved his own real estate office to the building's second floor and is working on marketing the space for the Chesapeake investors.
The building has three banks of elevators, and those at the rear lead to the new fitness center and "juice bar" which will sell sandwiches and beverages to tenants.
The fitness center is to include a large room for weight machines and free weights in addition to a separate cardio room. The floors will be carpeted and the walls mirrored.
Phillips said the center will boast a hot tub and sauna, while the locker rooms will have tiled showers and changing rooms. Mounted television sets will make the time on a treadmill move faster.
"I think it will be a fantastic attraction" for tenants to be able to work out in the same building as their offices, Phillips said. "You find it in buildings in larger cities."
Tenants will have keys to the rear door so they can visit the fitness center any time, even when offices are closed.
Phillips said the goal is to complete the work by mid-February before showing the building to tenants.
* * *
Two of what would appear to be the most desirable office properties around - the top floors of the First Union Tower and the First Union Bank Building - have remained vacant for more than a year.
Mike Waldvogel, a principal of of Waldvogel, Poe and Cronk Real Estate Group Inc., said the First Union Tower has "a unique floor plan" that makes for a difficult office layout.
A number of prospective tenants have considered subleasing that space from First Union Corp., Waldvogel said, but they "found it difficult to work out an efficient floor plan." At the same time, he said, the rental price of about $20 a square foot is at the top of the Roanoke office market.
Prospective tenants also have looked at the 16th floor of the First Union Building, occupied until late 1994 by the Jefferson Club. "But for a variety of reasons it has not worked out for the tenants or developer," Waldvogel said.
A spokesman for one potential tenant, Merrill Lynch, said last year that his company objected to leasing the space because of a lack of a sprinkler system in the building.
That top floor would lend itself to subdivision into a number of smaller offices, according to Waldvogel, but the building's owner finds that option less attractive because of the number of vacancies on the building's lower floors.
One former office structure, the State and City Building at Campbell Avenue and First Street S.W., went off the market late last year when it was purchased by real estate developer Will Trinkle.
Trinkle said he still is in the process of "stabilizing" the condition of the building, such as installing a new roof and modern heating, ventilation and air-conditioning systems.
Frank L. Moose Jewelers will remain on the first floor, Trinkle said, and he is considering commercial tenants for the second, third and fourth floors.
Current plans also call for conversion of floors five through eight into 4,000-square-foot loft apartments, one on each of those four floors. Trinkle said each floor would become a large luxury apartment for downtown living.
Unless demand for office space improves, Trinkle may convert the other floors into residential space as well.
LENGTH: Long : 215 lines ILLUSTRATION: PHOTO: 1. Jim Phillips of Phillips Real Estate expects a newby CNBfitness center to be an added selling point for the Colonial Arms
Building. "I think it will be a fantastic attraction" for tenants to
be able to work out in the same building as their offices, Phillips
said. color NHAT MEYER STAFF
2. chart - Western Virginia Shopping Center Market. color STAFF
3. chart - breakdown of Roanoke Valley Office Space color STAFF KEYWORDS: MGR