Economy: Regional Growth Drivers Accelerate
Richmond continues to strengthen its position as one of the mid-Atlantic’s most dynamic growth markets, backed by major economic development wins, infrastructure investments, and expanding talent attraction. Richmond International Airport (RIC) was recognized as North America’s most efficient airport serving fewer than 5 million passengers, while LinkedIn ranked the region second as the fastest-growing metro area for jobs and new talent. Pharmaceutical giant Eli Lilly closed on the purchase of 227 acres in Goochland County, marking a major milestone toward construction of its $5 billion manufacturing campus in West Creek Business Park. Colonial Heights approved a $180 million sports and entertainment complex with a mix of hospitality and retail components, and VCU Medical Center was named the top hospital in Virginia by U.S. News & World Report.
Supply And Demand: Leasing Activity Moderates
Overall vacancy closed the quarter at 12.5%, up 60 basis points (bps) year-over-year (YOY) and up 110 bps quarter-over-quarter (QOQ) in large part due to sizable CBD sublease space vacated by CoStar Group after it took occupancy of its newly delivered 750,000-square-foot (sf) downtown tower. Net absorption numbers also dropped as a result after four consecutive quarters of positive gains, and CBD vacancy has increased 190 bps, closing the quarter at 18.6%. Year-to-date (YTD) leasing activity topped 1.2 million square feet (msf) after moderating in the third quarter following an active first half of the year. Suburban product carried the majority of third quarter deals, with YTD leasing and renewal activity highest in Innsbrook, the market’s largest submarket and home to more than 6 msf.
Speculative construction remains limited to two medical office projects underway in Chesterfield County, totaling 93,000 sf, with limited residual space available for lease. In addition to ground-up construction, the market continues to see renovation of second-generation product, most notably at Midtown 64, the former Genworth campus, which will bring more than 130,000 sf of modern office space online in a mixed-use setting.
Pricing: Rent Growth Stable
Overall quoted lease rates have increased 2.2% YOY and are up almost 9.0% since the start of 2024. Class A rates for suburban product closed the quarter up 2.6% YOY while CBD Class A rates remained effectively flat. Below-market sublease rates and unpriced offerings continue to impact average quoted pricing in several submarkets, pushing published Class A numbers below overall rates. Sale activity topped $110 million in the third quarter, with YTD volume over $332 million. Highwoods Properties sold a six-building portfolio in Innsbrook to Charlottesville-based Seminole Trail Properties for $53 million, bringing the buyer’s office market holdings to more than 1.3 msf in 17 buildings.
