Retail Demand in Richmond Strengthens as Vacancy Nears Lowest Level This Cycle
Virginia’s capital city added more jobs in 2018 than in 2017 and 2016 combined. The addition of 11,000 jobs in 12 months aided a 7 percent population growth since 2010 and a median household income increase of $10,000 since 2016. With only 2.9 percent unemployed, residents now have more disposable income to shop. Richmond’s rapid growth brought vacancies to the lowest they’ve been in almost 15 years. At 4.7 percent, vacancy is near the cycle’s lowest trough of 4.5 percent in late 2005.
Grocery store competition and limited speculative construction are driving down vacancies. In January, Food & Wine magazine published that Richmond was “Secretly the Supermarket Capital of America.” Publix’s takeover of Martin’s gave the Florida-based grocer a foothold, and new Publix stores are coming by the fourth quarter of 2019 in Westpark Shopping Center, Swift Creek and The Village Shopping Center. Kroger retains the highest market share despite operating only 18 stores compared to Food Lion’s 48. At last count, Aldi stores number 11, The Fresh Market four and Lidl six. With only two stores, however, Wegmans is the per-store average sales leader.
Besides grocers, other expanding big box users include Launch Trampoline Park, Burlington, Conn’s HomePlus and Big Lots. Craft stores Hobby Lobby, A.C. Moore and JoAnn Fabrics also contributed to the changing landscape of the local retail markets.
Mixed-use projects continue to be an ever-emerging segment of the retail market. Libbie Mill-Midtown is a strong example with 52,876 square feet of new leases in 2019. This 80-acre mixed-use site is a vibrant urban community in Henrico County’s Midtown. Designed to resemble Richmond’s Fan, Monument Avenue and Shockoe Slip areas, Libbie Mill is both walkable and a convenient regional destination. Tenants include Burn Boot Camp, Solidcore Gym, Shagbark, Crafted and TowneBank.
Central Virginia is certainly not stagnant. The pipeline contains 26 properties, adding 424,626 square feet of space to the 83 million-square-foot total retail market. Most construction and big box leases continue in popular suburban retail clusters like Short Pump where almost 20 percent of the inventory was built in the last decade. In July, Armada Hoffler Properties delivered 68,400 additional square feet in Southgate Square. NVRetail is developing 62,314 square feet at 12120 W. Broad St. for owner MetLife, which opens in early 2020.
Investors have Richmond on their radars as well. A five-shopping-center portfolio sold in February for $125 million. Rosenthal Properties and PGIM Real Estate acquired Stonehenge Village, Staples Mill Marketplace and Parham Plaza, among others. In October, First National Realty Partners purchased Ashland Hanover Shopping Center for $18 million. The six buildings, anchored by Food Lion, Peebles and Petco, sold for $83 per square foot, a number far less than the regional average. Locally based Medalist Properties acquired Hanover Square North for $165 per square foot, in line with the average price but with a cap rate of 8.75 percent, an investment producing a far higher yield.
Rents grew and leveled off in the last year, ending 7.1 percent year over year for an average of $16.42 per square foot. By fall 2018, rents doubled over the five-year average. Staples Mill and Tuckahoe submarkets saw the largest increases, possibly because of their proximity to the very hot Short Pump area. If rents continue climbing, tenants may look downtown to fast-growing neighborhoods like Manchester and Church Hill. However, new multifamily/retail hybrids in the Fan, Scott’s Addition and the urban core are charging around $2.50 per square foot over spaces in retail or office buildings. These prices follow millennials’ cravings for convenience and walkability to where they eat, drink and shop.
The suburbs have large retailers, but young professionals still desire downtown living. The most rapidly changing neighborhoods include Manchester, Scott’s Addition and the East End. Reurbanization brings dramatic development of multifamily properties, and retail demand follows. Sauer Center on Broad near the Fan will be anchored by a 45,000-square-foot Whole Foods Market that will open later this year. The Carytown Exchange is the redevelopment of the former Richmond Shopping Center with a Publix in the 120,000-square-foot complex, adding essential retail opportunities to the area.
Dining options for Richmonders have escalated with first-to-markets Rusty Taco at Westchester Commons and Burger IM at Nuckols Place. Pizza & Beer of Richmond leased its second site in The Shoppes at Rutland Place, and Mission BBQ leased its third at Swift Creek Place. Other expanding restaurants include MOD Pizza, Chicken Salad Chick and Chipotle Mexican Grill, while Panera Bread and Starbucks continue actively seeking locations with drive-thrus.
The final stand-out user segment as active as restaurants and grocers in Richmond is fitness. Crunch Fitness, Gold’s Gym, Planet Fitness, Solidcore, Orangetheory Fitness and virtually any gym concept imaginable have leased many area vacancies, including NOVA Aquatic Center that replaced a former Macy’s in Regency Square.
— By Peter Vick, Senior Vice President and Harrison Hall, Senior Vice President at Divaris Real Estate Inc. This article originally appeared in the August issue of Southeast Real Estate Business.