Consolidations break streak of occupancy gains while providing opportunities for tenants

The Richmond office market showed inconsistent growth during the third quarter according to JLL (NYSE:JLL) market reports. After several years of steady positive leasing activity, the region has lost over 200,000 square feet of occupancy so far this year due to consolidations. However, there is little development in the construction pipeline which could help the leasing market absorb this increase in vacant office space.

“On the whole, we’re seeing tenants with expansionary real estate plans,” said Geoff Thomas, Research Manager for JLL in Richmond. “With no substantial new suburban office construction in the development pipeline, this increase in vacancy is serving as a catalyst in a market that has been very tight in recent years.”

Suburban Submarkets

The northwest quadrant of the suburban Richmond saw the reduction of Capital One’s leased footprint at their owner-occupied campus in West Creek, freeing up Class A space nearby. After years of very high occupancy rates, the suburban vacancies created by this and other consolidations are allowing tenants some leverage in pursuing relocation options.

Office Development

Over the next three years, the majority of Richmond’s office development construction is concentrated in the Central Business District. Two major downtown office towers are anticipated:

• Construction at Dominion Resources' new, owner occupied 607,000-square-foot tower at 111 S 6th Street began site demolition with estimated delivery in the first half of 2019. This will be an owner-occupied tower and not impact the leasable inventory in the CBD, unless Dominion Resources decides place one their towers on the market after completion.
• There are, however, no signs of progress at 321 S 10th Street, site of the mixed-use development that will house SunTrust’s Richmond headquarters. Delivery was slated for early 2018 to coincide with the firm’s suburban office consolidation to Westmark One, but the delayed start will likely push completion into 2019 as well, giving brokers more time to market and prelease space at their current Downtown location.

Central Business District

In contrast, tenant interest in the Central Business District is driving a spurt of new leasing volume that is expected to contract vacancy rates until the two new towers are completed. Inflated vacancy and the anticipated new space has produced reduced rates in some of the key Class A assets downtown. SunTrust’s eventual relocation from 919 E Main will bring an additional 250,000 square feet of Class B space back into market inventory. The softer rents generated by this available volume has stimulated leasing activity from financial and new-to-market legal firms.

“There are 400,000 square feet of Class A space to backfill before we see any real shifts in the leverage dynamics downtown,” said Thomas. “The diverse tenant base coming into the city and the expansion of tenants in the legal and finance sectors will determine the pattern of this emerging landscape.”

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $59.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.