Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 19, 1995 TAG: 9502170016
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
The conclusions are based on annual market surveys of office and industrial real estate conducted for the Society of Industrial and Office Realtors, a unit of the National Association of Realtors. The local office survey was conducted by Hall Associates Inc., while the industrial survey was made by Waldvogel, Poe & Cronk Real Estate Group Inc.
Office vacancy rates have dropped in suburban areas, said Edwin C. Hall, president of Hall Associates. In the valley's north suburban areas, the vacancy rate sank from 12 percent in 1993 to 8 percent last year. Vacancy on the south side, on the other hand, rose marginally from 17 percent to 18 percent, and the central business district improved slightly from 19 percent to 17 percent.
In general, he said, tenants expanded and new tenants came into the market because of the overall strengthening of the economy.
On the south side - generally the corridor following Virginia 419 - tenants tended to upgrade their offices, Hall said. That has created a shortage of so-called Class A space on the south side of Roanoke County.
Top-grade buildings are filling more rapidly than older quarters on the south side, he said, following the traditional pattern in office leasing. That area is relatively stable, however.
Also affecting the occupancy rate was Roanoke County's purchase of the former Travelers building. Occupancy of the building by county offices has removed it from the survey of available real estate. Hall explained that owner-occupied buildings are not counted in the survey because they would skew the results of the vacancy survey.
On the north side of the county, he said, the commercial realty market is very tight - to the point that potential or growing tenants will be forced to look for space elsewhere, Hall said. He predicted that both suburban markets will continue to strengthen this year.
The downtown Roanoke office market is "stable, but it's flat," Hall said.
Since the survey was taken, however, Grand Piano & Furniture Co. moved its corporate offices from the First Campbell Square building downtown to South Roanoke County. A couple of other downtown tenants are considering purchasing their own property and therefore might leave downtown, Hall said.
On the other hand, he said, inquiries about downtown office space have picked up recently, although none has resulted in a leasing deal.
Although the downtown realty market is showing some signs of strengthening, Hall said, the large amount of available space means "it will take a large amount of activity to bring the market to acceptable vacancy levels."
Dale Poe of Waldvogel, Poe & Cronk said the valley is short of industrial properties. "We're selling from an empty wagon."
He cited "a critical shortage of spaces smaller than 20,000 square feet and a moderate shortfall in larger Class A properties."
Poe said only 2.2 percent of the 15.5 million-square-foot industrial inventory is unoccupied, adding that "almost all this space is non-prime." The shortage affects primarily the small private sector, he said, because large users tend to occupy buildings in industrial and business parks and seek quarters through economic development agencies.
One of the factors in the space shortage, Poe said, is the valley's difficult topography with resulting higher development costs.
Very little land is available at prices that would allow an investor to buy the property, develop the land and lease it profitably, he said.
The price of raw land is not especially high, he said, but site preparation is costly, especially for installation of sewer and waterlines.
The available industrial space is older and often in the flood plain, according to Poe.
A second factor, Poe said, is the financial climate of the last four or five years.
A large company such as Hanover Direct Inc., the mail order business that purchased the Tweeds operation last year and this month opened a warehouse in Roanoke and Botetourt counties for its Domestications catalog, handles its own financing and construction, Poe said.
But it has not been possible for a developer to build facilities for smaller businesses on a speculative basis. Poe said banks demand that a proposed industrial development be half-leased before they will lend money for the project. Banks also want longer-term leases than most industrial prospects are accustomed to signing.
But prospects for financing have improved recently, he said, and there are industrial prospects willing to pay market prices. The market may be coming out of its doldrums so small manufacturers and distributors again can find spaces of 5,000 to 20,000 square feet to lease.
In the Roanoke enterprise zone, which consists of downtown and its fringes, virtually nothing has been added to the available market in several years. That area has a vacancy rate of 7.9 percent, compared with the suburban rate of 1.3 percent, Poe said, but the unoccupied buildings are 40 or more years old.
In the coming months, Poe said, a gradually improving economy should fuel high demand for industrial space. He said about 800,000 square feet was under construction at the end of last year, but less than 50,000 square feet of that space coming on line this year will be purely speculative.
by CNB