08/22/09: “Recession Breeding Creativity,” The Free Lance-Star

Recession Breeding Creativity

Virginia Properties in Spotsylvania County is being creative to attract retailers to its developments.

It’s helping them obtain permits, giving them an allowance to build out their space and, in some cases, doing the improvements so the tenants can focus on business.

“We call ourselves user-friendly,” said Don Hart, who co‑owns the company with his wife, Donna Hart.

Overall retail vacancy in the Fredericksburg area was up 7.6 percent in the second quarter of this year and is continuing to climb, according to Thalhimer/Cushman & Wakefield.

That’s causing landlords and developers such as Virginia Properties to offer incentives they might not have offered during the boom when prospective tenants were willing to bid above and beyond an asking price.

“In the older retail centers in particular, landlords are bending over backward,” said Shawn Carrington, who handles retail sales and leasing for the Thalhimer/Cushman & Wakefield office in Fredericksburg.

“They’re making rent concessions, giving free upfront improvements, graduated rent, everything we can think of,” she said. “It does put tenants in the driver’s seat.”

Lease rates, which had been as high as $25 to $26 per square foot in places such as Central Park, are now below the $20 mark, said Brian Cunningham, who heads the commercial real estate division of Realty World Select in Fredericksburg.

“I would say $15 to $17 is kind of where things are falling at the moment,” he said. “It’s a little less for an older center. It might be $12 to $14. I know Central Park is doing $19 per square foot.”

Lower prices mean tenants are scouting around for deals when their leases are up.

“For every landlord A who’s saying, ‘We’ll trim your rent by 5 percent,’ you’ve got landlords B and C who will trim it by 30 to 40 percent,” Cunningham said. “It just makes it a no-brainer for the tenant to relocate if the space is on par or equal to where they are now.”

New and revamped centers are doing the best in the current economic downturn, Carrington said.

Among them is Eagle Village, the former Park & Shop shopping center, which the University of Mary Washington is turning into a mixed-use development.

“Eagle Village has a new look and a new feel,” Carrington said. “It’s just something new and different. Tenants I’m working with are willing to take a chance on something like that.”

But retailers may balk at leasing unfinished space, because they want to hold onto their cash reserves instead of spending it upfront to get a space ready for business.

“Some landlords will take on the bulk of tenant improvements, although there’s some risk that if the tenant goes bad, they’ll be left holding the bag,” Cunningham said. “Most are coming to the realization that something is better than nothing.”

These days most prospective retail tenants are local businesses looking to expand their footprints, he and Carrington said. The exception is at bigger retail centers such as Spotsylvania Towne Center and its new, open-air The Village at Towne Centre, where Richmond-based Saxon Shoes just opened. Several new chain restaurants will open there soon, as well as Coldwater Creek, Sephora and Swarovski.

“It’s our impression that there are some retailers out there who were sitting on cash and were paralyzed by the economic condition,” said Joe Bell, spokesman for Cafaro Co., the Towne Centre’s owner. “Many realize that once the recession eases, it’s going to be very profitable and advantageous for them to be in that market.”

Cathy Jett: (540) 374-5407
Email: cjett@freelancestar.com
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Published: August 22, 2009 by The Free Lance-Star

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