THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, October 9, 1996 TAG: 9610090413
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MYLENE MANGALINDAN, STAFF WRITER
LENGTH: 78 lines
When Gee's Group broke ground Tuesday on a three-story, $6 million office building in Virginia Beach, it marked a return of speculative building to Hampton Roads after a long hiatus.
Speculative construction - building without having signed tenants in advance - may foster even greater demand for real estate-related services.
Groundbreaking for the 65,000-square-foot building near Mount Trashmore comes in the wake of rising rents for office space and a greater willingness by banks to consider financing construction of office buildings.
Vacancy rates in South Hampton Roads for both class A and class B office space have dropped to 8.9 percent, said Deborah Stearns, chief operating officer of Goodman Segar Hogan Hoffler, a commercial real estate leasing and management firm.
That's a huge drop from the double-digit vacancy rates earlier this decade and from 11.2 percent in 1995.
Gee's Group, a family-owned commercial real estate concern, is backing the building, to be known as Southport Centre, overlooking the Virginia Beach-Norfolk expressway. It is scheduled to open next June.
A few speculative buildings designated for industrial space, or warehouses, have been constructed recently but no one has ventured into the office market until now.
Vacancies have dropped so low throughout the region that some expanding companies like Panasonic were forced to build offices to meet their needs, said Robert Ruhl, business development manager in the city of Virginia Beach's economic development department.
Occupancy rates in existing buildings have reached a level that it's becoming financially feasible to build new space, said Michael Katsias, president of The Katsias Company.
Premier space, called ``class A,'' commands a lease rate of about $16 per square foot in existing suburban buildings, Stearns said. Some buildings, like Pavilion Center and One Columbus Center in Virginia Beach, charge from $18 to $20 per square foot. Class B office space, which is not as upscale as class A, costs $13.50 per square foot in the suburbs, Stearns said.
Commercial real estate brokers, construction companies and economic development officials and others were heartened by the groundbreaking.
``We feel great about the timing of this building's opening,'' said Katsias, who is handling Southport Centre's leasing and management. ``The last couple of years have been whittling at the vacancy in the area.''
In cities, like Virginia Beach and Chesapeake, the situation is becoming more important when trying to attract prospective businesses.
More than half of the 95 prospects that the Beach's economic development department is working with want some type of office space, said Virginia Beach's Ruhl.
Many of his clients are searching for 20,000 square feet of contiguous space or more.
``Virginia Beach is facing, as Chesapeake, a critical situation where there's no large blocks of office space available,'' said Gerald Divaris, president of Divaris Real Estate. ``The tenants often don't have time to wait. They have immediate need.''
Joseph Gianascoli, general partner of Gee's Group, obtained a commercial loan from Central Fidelity National Bank as part of a package to finance the project.
But three other banks offered to help with the project, he said.
Banks aren't ready to open the financing gates quite yet, said Gianascoli and others. Banks are still looking for about 65 percent of pre-leasing before they grant real estate loans, Divaris said.
But the Southport project indicates that banks are willing to at least consider more commercial real estate projects than in the recent past, he said.
``Speculative office buildings are not what we do regularly or on a wholesale basis but we will do it occasionally when the players are right,'' said W. Jeffrey Dyckman, executive vice president of Central Fidelity National Bank's eastern region. From the bank's standpoint, the 65,000-square-foot project is a promising undertaking because of the shortage of top quality office space.
CMSS Architects designed the plans for the upscale structure and Hourigan Martone Construction Corp. will build it. ILLUSTRATION: [Color illustration] by CNB