How Low is Too Low? Vacancy Rates in Charlottesville

Pic BorderOctober 25, 2018

Recently in this space, we discussed the annual job numbers for the City and surrounding area as compiled by the Chamber Jobs Report. You may recall that our area has experienced significant growth in the number of jobs over the last five and even ten-year period.  A reasonable follow-on question would be where, in our City of only 10 square miles, are these jobs and what type of spaces are they occupying? It is after all reasonable to assume, that despite advances in technologies and efficiencies, that more jobs would necessitate more space at some point.

Earlier this year the Charlottesville Economic Development Authority (CEDA) commissioned HR&A Advisors, Inc. to conduct a market study of the office and retail space in the City. The report was intended to serve as a source of foundational data and information to guide future actions. While some high-level market data is occasionally published on the Charlottesville office and retail markets, it is not geared to the specific interests of the City and is not available on a regular basis. HR&A, a respected real estate and economic development consultancy, provides for the first time a comprehensive review of these important sectors that are integral to the overall economic health of the City and broader community.

Key findings of Office & Retail Market Study

Office market:

  • The City is a regional employment hub with 38% of the region’s jobs. Office-occupying industries are expected to grow, generating additional demand for office space.
  • The City’s office vacancy rate (i.e., the space available for businesses to grow) is 1.7%. Rates in comparable markets are in the 5-10% range.
  • In the downtown area, the office market is even more constrained with a vacancy rate of 0.9%.
  • The tight office space market is the result of both rising demand and no new deliveries of Class A office space since 2008.
  • The City has 44% of the current office space inventory in the region and 79% of the planned office space.
  • The report notes that 500,000 SF of Class A office space is planned to be built in the City over the next 2-3 years, largely in the downtown area.

Retail market:

  • There is more than 3 million SF of retail space in the City, which makes up 30% of the total space in the region.
  • The current vacancy rate in the City retail market is 3%. The average vacancy rate nationwide is 11%.
  • 140,000 SF of retail space is planned or under construction in the City. This represents 58% of the currently planned retail space in the region.
  • Purchases by City residents are a major component of retail demand, second only to Albemarle County residents, and more than twice the combined purchases of students and visitors.
  • The Charlottesville MSA has 42 SF of retail space per person, which is slightly lower than the national average of 50 SF per person.

In conclusion, the report provides a variety of key metrics that help both public and private interests understand and gauge the commercial real estate market in the City. Given the job growth and residential increases in recent years, the prospect for healthy office and retail markets seems promising. However, there are potential headwinds and concerns.

With respect to office space, the large pipeline of planned projects, if delivered all at once, may cause a spike in vacancy rates for several years. A good problem to have, especially given the dearth of new product over the past decade. Also notably, in the office sector, the report confirms that providing for the full lifecycle of company space needs is important and the City’s current regulatory process and resistance to height and density could pose challenges to meeting these needs.

Within the retail sector, the growth of e-commerce is expected to continue to reshape the landscape and may cause some retailers to struggle.

For all the details, please download and review the entire Office and Retail Market Study.

-Chris Engel, Director

OED Updates:

  • The Women & Minority Business Expo will be held on Thursday, November 8th from 10am to 1pm at Carver Recreation Center. Help us support women and minority-owned businesses in the local community. You will have an opportunity to walk around and meet the various businesses represented. Stop by the tables and find out about the products and services these businesses can offer your business, office, department, organization, or home. To find out more information or to register, visit:  www.charlottesville.org/minoritybusinessprogram.
  • Join us on November 13th at Common House at 5:30 for our next Go Connect event. GO Connect is networking reimagined. Filled with tailored value, creative talks, innovative environments and tons of aha moments. We’re creating actionable opportunities for businesses, professionals and those who aspire to be anywhere in-between.