THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, March 27, 1995 TAG: 9503250255
SECTION: BUSINESS WEEKLY PAGE: 14 EDITION: FINAL
TYPE: Cover Story
SOURCE: By MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Long : 163 lines
George Sadler, like anyone who has emerged from the recession, considers himself lucky for having survived with his business intact.
The president of Glenn and Sadler Associates Inc., an engineering and architecture firm in Norfolk, trimmed his workforce in 1991 to find, two years later, he'd cut too deeply. Business had improved with the upturn in the economy, pushing his company's volume of projects up 60 percent. It forced him to add 12 people to his 19-employee firm.
``We've been growing and hope to continue,'' said Sadler, who will move his company into bigger quarters in Norfolk's Town Point Center. ``In this business you can't see too far down the road but we're cautiously optimistic. A few years back turned us all into realists and what goes up can come down.''
Real estate professionals have watched hungrily as firms like Glenn and Sadler have slowly started expanding their offices.
RIGHT TIME FOR EXPANSION
Improved business conditions and the end of the recession have been good to local health care, legal services, accounting and consulting firms that need more space to accommodate growing ranks and paperwork.
``It's very positive,'' said Deborah K. Stearns, a senior vice president at Goodman Segar Hogan Hoffler. ``We're seeing companies more comfortable making forecasts in the future.''
The expansion has reduced the office-vacancy rate in Hampton Roads for the second straight year. About 14.5 percent of the region's office space was vacant last year, compared with 16 percent in 1993.
Vacancies outside Norfolk's central business district fell to 12.3 percent from 15.2 percent. As vacancies in the suburbs drop and rates climb, more office tenants have looked to downtown Norfolk as a reasonable alternative.
Rental rates downtown are comparable to the suburbs. Premier office space, known as class A space, commands average downtown rents of $14.50 per square foot. Class A space outside downtown Norfolk costs an average of $13.75 per square foot.
``One thing that downtown has is larger blocks of space, available to larger companies,'' said Billy King of Harvey Lindsay Commercial Real Estate. ``Those larger blocks of the space in the suburbs are drying up.''
Jim Howard, a principal in the law firm Howard & Howard, doubled his company's office space when it moved into Dominion Tower about a year ago from a Norfolk location just outside of downtown.
``We were in an expansion mode,'' he said. ``We hired somebody and we ran out of space over there. We got the space we needed over here with room for the future. It was very competitive and we thought we got a better deal.''
Some firms just enjoy the central location of downtown Norfolk and choose to relocate their companies there to be closer to clients.
Firms such as Cenit Bank, which will be the first tenant in Main Street Tower this spring, and Goodman & Co., an accounting firm that moved into NationsBank Center, both wanted to be in the financial district for intangible amenities, such as status, that a downtown location offered.
Cenit's current headquarters on the fringes of downtown on West Olney Road will be sold eventually. Goodman & Co. had been located in the Maritime Tower at 234 Monticello Ave.
Companies moved into about 50,000 square feet more office space in downtown Norfolk in 1994, comparable to the average rates that tenants occupied new space - known as absorption rate - in previous years, Stearns said.
RIGHT PLACE FOR RETAIL REAL ESTATE
Retail real estate, despite the improvement in the office market, has really been the story in Hampton Roads. National retailers have descended in droves on the region to try out new styles and methods.
``One thing we have to offer, we have a very diverse population,'' said Mark E. Pendleton at the Breeden Co., which develops strip centers and other retail spaces.``This market is becoming more of a test market for retailers.''
Breeden Co. built Virginia's prototype Super Kmart, which includes a grocery section in the store, on the Peninsula.
``You're getting to the point where in order for Kmart to compete with Wal-mart, they need to open new locations and they're going to a new format,'' Pendleton said. ``Their older units are obsolete. That's opening the door for activity in our area and throughout the country.''
Other examples of retail growth lie scattered throughout Hampton Roads. Fast food chains, chain restaurants and grocery stores have started popping up in the local landscape as have huge superstores like Lowe's.
A retail market survey by Old Dominion University Real Estate Center in conjunction with local commercial real estate firms found that vacancies fell to 9.9 percent in Hampton Roads last year. A 1993 survey by Harvey Lindsay Commercial Real Estate had reported 13.5 percent vacancies in retail.
Real estate developers can find financing for their retail projects more easily than office or even industrial projects but financing is still somewhat scarce.
``We're not doing a whole lot of business,'' said Cecil Cutchins, president of Olympia Development Corp. in Virginia Beach. ``There's still a constraint on available capital and capital primes the pump of real estate development.''
The supply of capital is greater today than in previous years, and more lenders are looking to finance commercial real estate, said Victor Pickett, vice president for First Union Mortgage. For example, American General Life Insurance Co., which has been out of the market for two years, has begun looking for investments again.
But lenders are not still financing speculative building, or construction for buildings that are not pre-leased.
``It does not make economic sense to go into speculative building,'' Pickett said.
Some construction has occurred, but mostly in the build-to-suit area, where buildings are constructed to meet tenants' specific needs.
The number of commercial building permits has crept up in the last year as evidence that some construction of retail and industrial space has occurred.
Those who hawk industrial space have benefited somewhat from the lack of vacant warehouses as well.
``The biggest thing making our industrial market so firm is our ports are successful,'' said Robert M. Thornton, a vice president at Morton G. Thalhimers Inc. Realtors. ``There are lots of commodities coming through here. Rubber and soybeans have consumed all the space.''
The number of commodities and other bulk items shipped through the ports and stored here for distribution has pushed vacancies down to 4.6 percent from 5.4 percent in South Hampton Roads. Vacancies are even lower on the Peninsula, said John M. Lee, a vice president at Goodman Segar Hogan Hoffler.
Hampton Roads' retention of military installations through the third round of the Defense Base Closure and Realignment Commission will help the industrial market by keeping a steady stream of users in the region.
``The contractors who tend to work those projects tend to need industrial and flex-type space,'' Thornton said about military-related contractors. ``They need storage and warehousing and things of that nature.''
Real estate professionals, for the most part, project the same brand of optimism as Richard M. Jacobson.
``Things are going pretty good right now,'' said the senior vice president at S.L. Nusbaum Realty Co. ``Finally Hampton Roads is sort of not being kept a secret any longer. A lot of people are looking to locate here so there's been a lot of growth. This gives companies more confidence that this area is stable and a growth center.'' ILLUSTRATION: [Cover]
[Color Photo]
PAUL AIKEN/Staff
Cenit Bank is just one of the Hampton Roads firms moving into the
area's class "A" office space. Increasingly, companies are moving
out of suburban offices and into downtown Norfolk.
More businesses are moving from the suburbs thanks to competitive
rental rates for premier office space. Rob Fuller, top, a worker for
Schick Communications, guides phone lines through the new Cenit Bank
offices, which are under construction at the Main Street Tower in
downtown Norfolk. Cenit is the office buildings' first tenant. Alan
Jacobsen, above, cuts pipe for the sprinkler system at Cenit's new
downtown Norfolk office space.
HOT MARKET
HAMPTON ROADS COMMERCIAL BUILDING PERMITS
STAFF
SOURCE: Builders and Construction Exchange Inc.
[For a copy of the graphic, see microfilm for this date.]
HOT BUILDINGS
Class "A" Buildings With 95 To 100% Occupancy
SOURCE: Old Dominion University Real Estate Board
JOHN EARLE/STAFF
GRAPHIC
[For a copy of the graphic, see microfilm for this date.]
KEYWORDS: COMMERCIAL REAL ESTATE RETAIL SPACE OFFICE SPACE by CNB