Agents note bargains as property market slows

The Charlottesville region’s commercial real estate market has slowed significantly in recent months, leading to an increase in office and retail vacancies and an overall softening of prices.

“Inventory started ticking up last year and things started slowing down,” said Carolyn Betts, a commercial real estate agent with Downer and Associates. “But things came to almost a skid in December, January and February.”

As the economy continues to struggle, a number of Charlottesville-area companies have closed or scaled back the size of their operation. At the same time, companies are generally being cautious, leading to few new openings. As a result, more office and retail space continues to be added to the region’s office and retail space inventory.

“We are seeing vacancies creeping up,” said Ivo H. Romenesko, president of the Appraisal Group Inc.

Six months ago, Romenesko said, the local vacancy rate was roughly 8 percent. He expects that figure will climb into the double digits.

Retail vacancies, he said, are most apparent on the Downtown Mall. One reason, Romenesko said, is because the Downtown Mall is viewed as a “boutique market” that large national retailers tend to avoid. Larger retail

space on the Downtown Mall is typically slow to find new tenants, he said.

Romenesko, who has tracked the Charlottesville region’s commercial market for more than 30 years, said the current conditions echo the situation in the early 1980s, when interest rates were so high that bank financing was nearly impossible to afford.

Now, he said, banks have ratcheted up lending requirements to such a degree that loans are out of reach for many businesses and potential buyers.

“In both cases, there is a lack of liquidity,” he said.

Without bank financing, he said, few commercial real estate deals can move forward.

On the other hand, the market conditions are good news for tenants. With more supply and less demand, property owners are increasingly willing to offer concessions such as lower rent prices and higher-than-usual allowances for office space upgrades.

Betts added that the sluggish commercial market has created some excellent deals for patient investors with access to capital.

“There are some amazing deals out there right now,” she said.

Betts said the conditions are perfect for savvy investors who want to snap up guaranteed revenue-generating properties, such as shopping centers and office buildings that are filled with companies holding long-term leases.

“Those with a little bit of patience can get some amazing properties,” she said.

Betts also is optimistic about the likely market boost made possible by defense contractors relocating to the Charlottesville area as part of the U.S. Department of Defense’s Base Realignment and Closure that is expected to add numerous jobs in and around the Rivanna Station military facility off U.S. 29.

Betts expects the local commercial real estate market will turn around by the end of the year.

Cass Kawecki, vice president of brokerage services for CB Richard Ellis, also said that the market conditions are opening up new opportunities. In many cases, he said, tenants are in a good position to renegotiate lease to have more favorable terms.

“There’s nobody knocking down the door to take their place,” he said. “A lot of tenants don’t realize how great of an opportunity [renegotiating a lease] be for them.”

Kawecki also observed that retail and office rental vacancy rates are starting to increase. Yet the market remains fairly stable, he added. With little new development occurring in the retail sector, supply is constrained and lease rates are remaining relatively steady. Office rents, on the other hand, are softening, particularly in the north quadrant of Albemarle County.

The most stable area of retail space in Charlottesville is Barracks Road and the U.S. 29 corridor, Kawecki said.

Office landlords, he said, are increasingly willing to settle for shorter-term leases.

And some office tenants are downsizing, while growing more reluctant to relocate to another space, Kawecki added.