Brokerage Outlook: Virginia

• Hampton Roads Retail

• Richmond Retail

• Virginia Industrial

• Northern Virginia Office

Hampton Roads Retail McKinney Submitted by Ann McKinney, president and principal broker with Norfolk, Va.-based Wheeler Real Estate Co. Posted 4-30-07. What area is your expertise? • Southeast Virginia and northeast North Carolina. What trends do you see presently in retail development in your area? • One of the most prevalent trends I see is the development of the “town-like” mixed-use shopping areas incorporating retail, office space and residential condos as opposed to strip centers and malls. Examples of mixed-use centers in our markets are City Center in Newport News, Va.; Town Center in Virginia Beach, Va.; and a proposed development at Benn’s Church area in Smithfield, Va. What type of retail product is doing well in your area? • Strip centers anchored by upscale grocery stores offering organic produce and a variety of products such as fresh sushi, spices, etc. are a growing trend. These stores do very well and meet previously underserved market needs. What retailers are new to your area? • In 2006, Blue Taxi Clothing Company (Virginia Beach) and Apple (Norfolk) made appearances in the market along with Qdoba Mexican Grill (Virginia Beach). In the last few years, we have seen Bass Pro Shop (Newport News), Coldwater Creek (Norfolk), J. Jill (Norfolk) and quite a few small independent retailers specializing in handmade imported products from less developed countries. Who are the active retail developers in your area? • Armada Hoffler, Precon, Robinson Developers, Ellis-Gibson Development Group and Wheeler Development. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • For Virginia Beach, we have the ongoing development of Town Center by Armada Hoffler. The project includes nationally known restaurants such as Ruth’s Chris Steakhouse, P.F. Chang’s China Bistro, Cheesecake Factory, California Pizza Kitchen. Retailers at the center include Brooks Brothers, Ann Taylor LOFT, Sunglass Hut. The development also features high-rise residential condos (Westin Virginia Beach Town Center Residences), apartments (The Cosmopolitan), and hotels (Hilton Garden Inn, Westin Hotel) in addition to office space (Morgan Stanley, Williams Mullen). • In northeast North Carolina, Wheeler Development is developing Edenton Commons (click here for site plan), a 173,000-square-foot community center anchored by Farm Fresh and Lowe’s. Other committed retailers of the multi-phase development include Family Dollar, Subway, U.S. Cellular and Quiznos. Other regional projects would include significant retail developments on the peninsula: • City Center at Oyster Point in Newport News, Va. This mixed-use project is by Harvey Lindsay Commercial Real Estate. Retailers include Ann Taylor LOFT, Jos. A. Bank and Talbot’s. • Edinburgh Commons in Chesapeake, Va. Ellis-Gibson Development is doing this mixed-use project. The retail is anchored by Target and Home Depot. The development includes high-end residential single-family detached homes. • Port Warwick in Newport News, Va. Advantis Real Estate is handling this mixed-use project. Retailers include Tropical Smoothie, Zoots and FruitFlowers. These are among the larger projects in the region. These developments will attract shoppers from different cities within a 100 to 200 mile radius. The influx of shoppers will influence traffic, boost shopping dollars spent with existing tenants, and affect city tax revenue through real estate tax and sales tax. Where is the majority of development taking place? Why is this area doing well? • I see development taking place in multiple areas through the region — from Newport News to Williamsburg, Suffolk, Smithfield and Isle of Wight. Downtown Norfolk is enjoying continued development with high-rise condos and office structures as well as new retail. The southeast corner of Virginia down into North Carolina along the 168 corridor as well as areas along routes 13 and 17 are burgeoning with new residential, retail and business developments. The region’s mild year-round climate, along with reasonable real estate and sales taxes, induce businesses and industry to locate here, and all local governments work hard to attract new business to the area. The abundant waterways, the ocean, good schools and adequate infrastructure all provide opportunities for the populace to enjoy. The area is also rich in cultural activities such as the opera, symphony, museums, theater and sports. All of these factors compound to make this region a great place to live, work and raise families. What area do you expect to be the next big retail development market? Why? • I don’t believe it is possible to say there is one area that will experience the next “big” retail development. I see future development spreading over the entire region – some projects bigger than others, but a consistent spread of development throughout the area. Please describe the retail leasing activity in your area. • Robust – leasing activity in our area is meeting developer and investor standards and all signs point to a strong future for retail in this area. What major leases have been closed recently? • Best Buy, Bed Bath & Beyond and Kohl’s have committed to leases at the Landstown Commons development in Virginia Beach on Dam Neck Road and Princess Anne Road (The Goodman Company). • Jerry’s Artarama opened 19,070 square feet in Fairfield Shopping Center in Virginia Beach, Va., located off of Providence Road (Wheeler Real Estate, October 2006). • Paul's Arts & Crafts moved into 16,060 square-feet at the Langley Square Shopping Center in Hampton, Va., on Mercury Boulevard (The Katsias Company, April 2007). • VB Planet, LLC. signed a 10,230-square-foot lease at the Holland Plaza Shopping Center located on Holland Road in Virginia Beach, Va. (The Katsias Company, December 2006). Please give a measure of retail vacancy rates. • The 2007 vacancy rate for Hampton Roads (Peninsula and Southside combined) is 6.81 percent, down from 7.55 percent in 2006. Available leaseable space in 2007 is 3.36 million square feet out of the total GLA of 49.3 million square feet (2007 ODU Retail Market Review & Forecast). What types of retailers should look into your market in the coming year? What type of retail is needed? • I would really like to see specialty food shops such as Trader Joes and Fresh Market in more locations as well as an influx of “Class A” department stores (ex: Bloomingdales, Saks Fifth Avenue, etc.). Would you like to make any additional observations about the retail market in your area? • As a lifelong resident of the area, I am excited to see the growth, especially in the last 10 years, and I believe the future is very bright.

Richmond Retail Bartosic Submitted by Sheila Bartosic, associate broker with the Richmond, Va., office of GVA Advantis. Posted 10-03-06. What area is your expertise? • Richmond, Va., retail market. What trends do you see presently in retail development in your area? • The most significant trend on the Richmond retail scene has been the tremendous growth around the newly completed State Route 288 loop, which spans from western Henrico to southern Chesterfield counties. Mixed-use developments are also growing in popularity, as are open-air formats. What type of retail product is doing well in your area? • Community strip centers and power centers, particularly those located along the major corridors of West Broad Street, Hull Street, Midlothian Turnpike and Mechanicsville Turnpike, are popular with tenants and shoppers. Investors, too, are seeking these property types, although it is virtually impossible to find an owner willing to part with a decently situated strip center anywhere in the metro area. Actually, finding an available one in the state of Virginia is a tall order. What retailers are new to your area? • Whole Foods is entering the market and will anchor West Broad Village upon completion. Barry Better Menswear and Ross Dress for Less are also new additions to the market. Who are the active retail developers in your area? • Active retail developers in the Richmond market include Forest City Enterprises, Pruitt Properties, The Breeden Company and Zaremba Group. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • Forest City Enterprises, the developer of Short Pump Town Center, recently announced details for its plan for The Shops at White Oak Village. The 914,000-square-foot shopping center will be located on South Laburnum Avenue at the site of the former Viasystems plant. Site work for the $100 million project, including demolition of the Viasystems plant, is to start in fall. According to Forest City and the Richmond Times Dispatch, about 2,300 jobs and $80 million in county revenues over 15 years can be expected. • The Zaremba Group, based out of Cleveland, Ohio, will develop Westchester Commons, the retail component of Watkins Centre, a 640-acre mixed-used development in Chesterfield County. The retail lifestyle center is expected to include more than 1 million square feet of space at the northwest corner of Route 288 and Midlothian Turnpike. • Other new retail centers on the horizon include Winterfield Village (300,000 square feet) Towne Center West (125,000 square feet) Hancock Village (428,000 square feet) Cloverhill Marketplace (400,000 square feet and West Broad Village (600,000 square feet). Where is the majority of development taking place? Why is this area doing well? • State Route 288 is proving itself a magnet for new development. Short Pump Town Center, Midlothian Turnpike, Hull Street Road and Route 288 are all hot-beds of activity. Route 288 is a traffic-light free, high-speed roadway that has profoundly altered the manner in which many suburban workers and citizens commute. Residential housing is growing rapidly along the 288 corridor. Furthermore, this area contains extremely good demographics with plenty of disposable income. What area do you expect to be the next big retail development market? Why? • The Watkins Centre at Route 288 and Midlothian Turnpike will be the next large scale development area. It isn't just the center itself; there are additional smaller venues in the pipeline as well. These include Winterfield Village (300,000 square feet) in Midlothian and a new Edens & Avant center at Charter Colony Parkway. Just west of this interchange is Powhatan County, which is poised to have a significant increase in development along State Route 60 due to tremendous growth in housing development and the scarcity of land in Chesterfield and Henrico counties. Additionally, there is no shortage of development interest in areas further west on Hull Street Road, including a prime 10-acre location just west of Swift Creek. Please describe the retail leasing activity in your area. • Leasing activity is solid. Virtually all of the major centers are comfortably occupied including Short Pump Town Center, Stony Point Fashion Park, Shoppes at Stratford Hills and Commonwealth Centre. Older centers such as Willow Lawn are re-inventing themselves to become more open-air environments, similar to that of Short Pump Town Center. Major big-box retailers continue to develop land including Wal-Mart, Lowe's, Home Depot and Target. All of these national retailers have at least one new site in the pipeline or have just finished construction. What major leases have been closed recently? • Wal-Mart will take the anchor position at the upcoming Cloverhill Marketplace on Hull Street Road. The 200,000-square-foot deal could be as much as half the tenancy of the new center. An 80,000-square-foot Kroger will anchor Ivymont Square on Midlothian Turnpike near Route 288. Ivymont is currently the western-most large retail center on the heavily traveled Route 60 (Midlothian Turnpike). This will all change when the Watkins Centre/Westchester Commons and Winterfield Village are developed. Please give a measure of retail vacancy rates. Please give a measure of available sublease space. • The vacancy rate continues to stay in the tight range of 7 percent to 8 percent. The Northwest quadrant, which includes Short Pump, continues to lead the market with a 4.4 percent vacancy rate. The Northeast quadrant, which includes Mechanicsville, trails the pack at 14.5 percent. The overall market is 7.6 percent. What types of retailers should look into your market in the coming year? What type of retail is needed? • Retailers that sell home ownership products such as home improvement, furniture, appliances and carpeting. Would you like to make any additional observations about the retail market in your area? • Retail has consistently been the best-performing property class in the area. Mixed-use developments are being embraced by developers, tenants and residents. These projects, which include retail, office, entertainment and residential product, are not only for the large sites such as Watkins Centre, West Broad Village and Rocketts Landing, which straddles the line between Henrico County and the city of Richmond on the James River. Smaller venues such as the Village at Amberleigh on Hull Street Road are also enjoying great success.

Virginia Industrial Porter Submitted by Clifford B. Porter, executive vice president with the Richmond, Virginia office of Porter Realty Company/CORFAC International. Posted 09/25/07. Click here for chart What area is your expertise? • My area of expertise is the central Virginia (Richmond) industrial market. What trends do you see presently in industrial development in your area? • One ongoing trend in our market is the noticeable higher sale prices for existing Class A and B industrial product, particularly for buildings 10,000 to 50,000 square feet and 50,000 to 75,000 square feet. What type of industrial product is doing well in your area? • Warehouse facilities, with available office space, that are accessible to Interstates 95, 64, 295 and Route 288 are doing well in our area. Also, various facilities are currently in the construction phase and others are planned to be built in the near future. Who are the active industrial developers in your area? • Graham & Company are actively involved in the development of the Airport Distribution Center. This development is creating new usages in an area of Richmond that is currently unavailable. • First Potomac (a Maryland based REIT) has been in market for a couple of years but continues its acquisition/expansion both in the flex and industrial sector by recently completing the balance of its purchase from Liberty Property Trust in River’s Bend (located at the NWQ of Route 10 near Route 295 in Chesterfield County). They also bought property in Ashland, Va., (Ashland Business Center), as well as the Air Park in Chesterfield, Va. • Weingarten Realty Investors (a Texas REIT) just purchased a 2.5 million-square-foot industrial portfolio from Devon, a regional industrial developer. Devon USA, a privately held and managed leading developer of warehouse, distribution and light manufacturing facilities in the Mid-Atlantic area recently sold approximately 2.5 million square feet (the majority of their Richmond area industrial holdings) to Weingarten Realty, one of the country’s largest National REIT’s participants. Devon will continue to assist in managing the properties for the new buyer. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? Airport Distribution Center has a new 115,957-square-foot multi-tenant, high-bay facility that is currently under construction. This is the first speculative building to be built in airport area in more than 7 years. Projected Availability: first quarter 2008. This will provide units of 11,000-square-foot bays to be leased at a minimum of 22,000, which is not readily available in Richmond Airport area at the present time. This is the first of the total of 707,457 square feet, which is planned to be distributed over four new buildings in the park. With their excellent visibility and location, these facilities are expected to meet the demands of the Richmond Industrial market in the airport area. Philip Morris USA just announced the consolidation of its North Carolina manufacturing operation to join the Richmond location (in 2010) where it currently has a 1.6 million-square-foot manufacturing complex, consisting of six buildings on a 200 hundred acre site. Richmond also serves as its corporate headquarters, located in the western portion of metropolitan Richmond. The company plans to invest about $230 million into the Richmond plant. This will include moving high-speed manufacturing equipment. The impact anticipated on the Richmond economy will be significant. They also are opening a 450,000-square-foot R&D/office complex that will cost an estimation of $350 million in the Virginia BioTechnology Research Park (downtown Richmond). Where is the majority of development taking place? Why is this area doing well? • The majority of large industrial development in the Richmond market is taking place in the North East Quadrant. There is plenty of land availability that offers quick access to Interstate 95 corridor in an upscale park setting. Plus, new developments occurring in this area will create new warehouse opportunities. What area do you expect to be the next big industrial development market? Why? • The airport area in the NEQ and along I-95 (north and south of Richmond). Companies looking for large warehouse sites have a difficult time because availability is scarce. Only four current facilities in this area are 150,000 square feet or larger, and the last new facility was built seven years ago. Companies are getting shipments in to Richmond and want to be closer to the airport. This demand is generating planning for a variety of buildings to be developed. Please describe the industrial leasing activity in your area.  • Leasing activity continues to stay steady throughout the previous second quarter 2007.  Please describe the industrial sales activity in your area. • Sales activity continues to be very high throughout the previous second quarter 2007.  FTY Group has purchased a 270,000-square-foot multi-industrial building complex at 2400 Elliham Road, fronting on I-95 south of Chippenham Parkway in Chesterfield, Va. The buyer will occupy the majority of the facilities for its own operation. The purchase price was $4.4 million ($16.29/SF). Cofer Road Properties purchased the former MeadWestvaco plant consisting of 246,615 square feet at 3001 Cofer Rd. for $3.1 million ($12.60/SF). The buyer will continue to occupy the majority of the facility for its gravure operation. 2500 Deep Water Terminal Road purchased the 90,000-square-foot rail served industrial facility at 2500 Deepwater Terminal Road for $1.2 million ($13.33/SF). Southern Distributors will relocate from its Scotts Addition location and occupy the front 50,000-square-foot section. MTM Properties purchased 2924 Bells Road, a 26,744-square-foot former printing facility. The sale price was $1.15 million ($43/SF). The buyer has similar utilization plans for the facility. Fullerton Properties purchased 1821 Battery Dantzler Rd., a 129,600-square-foot multi-tenant warehouse facility in Chesterfield, Va., at $4.1 million ($31.63/SF). The buyer also owns the bordering industrial facility. DC Cash and Carry bought a 38,000-square-foot rail served industrial facility at 4500 Deepwater Terminal Road. The purchase price was $2 million ($52.63/SF). Please give a measure of industrial vacancy rates and a measure of available sublease space. Richmond, Va. — Vacancy rates rise to 18 percent (sublease Space 4.4 million square feet currently vacant/total base = 24.4 million square feet). This was a 1 percent increase from the previous 17 percent vacancy in the first quarter 2007, which includes present vacant and investor owned industrial product of 40,000 square feet and larger. Regarding three of four large buildings totaling 1.1 million square feet in the NEQ, two are under contract (one to a user and other to an investor) with a third being closely looked at by users. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in the next year? • As long as interest rates remain in the 7 to 8.5 percent range, growth will continue. If interest rates climb higher, we believe development will slow down as the Richmond market will not be able to absorb the higher rental rates.  This would cause the demand for space to level off or decrease. With steady or lower interest rates, we should continue to see higher growth rate, and construction prices will continue to escalate. What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected? • Each market/locality desires manufacturers to absorb space, but logistics/warehousing related operations appear to be more active. Would you like to make any additional observations about the industrial market in your area? • The purchase market has been the most active we’ve seen in quite a while and investment purchase remains steady.

Northern Virginia Office Gray Submitted by Bryan S. Gray, associate vice president of the Arlington, Virginia, office of Donohoe Real Estate Services/CORFAC International. Posted 09/27/07. What area is your expertise? • I specialize in the northern Virginia office market. What trends do you see presently in office development in your area? • We see more and more development of Leadership in Energy and Environmental Design (LEED) or green buildings throughout the market. Tax incentives and evolving U.S. General Services Administration (GSA) standards are a motivating factor for this type of development. Who are the active office developers in your area? • The JBG Companies, Akridge, Boston Properties and Monument Realty are all active in our area. Please name one or two significant office developments in your area. What impact will these projects have on the market? • TheJBG Companies has received approval to construct two high-rise towers in Rosslyn, Va. The project calls for a 581,500-square-foot, 31-story office tower and a 30-story residential tower with 350 units and approximately 30,000 square feet of retail space. The project will be called Central Place and will be given silver status under the green building LEED rating system. This project is slated to deliver late 2010. To encourage development in the aging Rosslyn submarket, the county recently increased the FAR to existing landowners. This added incentive will significantly change to the Rosslyn skyline within the next 10 years. What area do you expect to be the next big development market? Why? • Metro plans to extend the orange line west to Dulles International Airport by 2011. Development in the submarkets along this extension (Tysons Corner, Reston, Herndon) will increase, as well as rental rates of existing buildings close to the new stations. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • Historically, buildings situated within walking distance of the Metro have had low vacancy rates and higher rental rates. This continues to be the case. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected? • GSA, government contractors and associations are well entrenched throughout northern Virginia.