Q2 2012 Richmond, Virginia Office Market Trends

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Q2 2012 Richmond, Virginia Office Market Trends

Occupancy has not changed much in the general purpose, multi-tenant Richmond office market. Second quarter vacancy, recorded at 14.9%, is unchanged from the prior quarter but down 80 basis points year-over-year. The rate increased to 15.4% in August, however. The second quarter Class A rate was 11.0%, down 20 basis points from the prior quarter. The Class B/C rate was 19.2%, up 30 basis points from the prior quarter. The disparity between the two vacancy rates raises the possibility that tenants see no need to settle for less competitive office product. The second quarter’s net absorption of 6,000 square feet brought the year-to-date total to 139,000 square feet, already eclipsing 2011’s total by 5,000 square feet. As noted in the previous Reis Observer, net absorption has been weak here; the total for the 10 years ending in 2011 is negative 358,000 square feet. This occurred while nearly 2 million square feet of new construction was added. Reis forecasts only modest demand for the rest of the year, but 2012 is set to finish with a positive total after all, good news for landlords in any case. No multi-tenant office space completed in 2011 and none is on tap for 2012; vacancy is forecast to finish 2012 at 14.9%, and remain near that figure for several years.

The second quarter finished with asking rents of $18.34 psf and effective rents of $15.34 psf, both up 0.3% for the quarter and 0.6% and 0.9%, respectively, for the year. August data indicate no change. Class A asking rents are reported at $20.64 psf and Class B/C rents at $15.80 psf, both up slightly over the quarter. Not until 2014 does Reis forecast a year where both rental measures post gains exceeding 2.0%.

Jones Lang LaSalle reports a total vacancy rate of 15.1% in the second quarter, and a year-to-date net absorption total of 126,760 square feet. Vacancy in the downtown Central Business District (CBD) is 9.4%. The average asking rent is $18.84 psf for the market, and $20.42 psf in the downtown CBD.