Developer Justin French recently invested in a new tenant's organic coffee shop, the Urban Farmhouse, in the R.V. Cole building. Sarah Walor photo
Even in a down economy, Anne Kennon's 4-year-old maternity-clothing boutique in Carytown has a couple of things going for it.
"People are getting pregnant," Kennon says. "And it's socially unacceptable to leave the house naked."
At a time when businesses big and small are falling victim to tighter credit and a weak consumer market, Kennon is going the opposite direction. In mid-August, she'll open a second location of her store, It's Hip To Be Round, in West Broad Village.
She says she's making the move because, even though it's not a boom cycle, she felt the timing's right. With a lot of vacant retail space in the Richmond region, she was able to take some time with her decision and pick her place.
"Knowing how much real estate was out there and how few people were opening or expanding made me glad that we put things in motion when we did," she says.
The story of businesses opening or expanding against the current economic backdrop is an anomaly, to be sure. As federal officials struggle with solutions for revitalizing major sectors of the U.S. economy, the outgoing tide of market forces will be hard to fight, even for Richmond, which has long been heralded as being more resilient than other regions.
Resilient it may be, but Richmond has steadily become overbuilt with retail space.
"Part of that is the result of the sprawl we've had in the last decade," says Brian Glass, senior vice president of retail brokerage for Grubb & Ellis | Harrison & Bates Inc.
The axiom in commercial real estate is that "retail follows rooftops." The Richmond region has about 25 percent more retail space per person than the national average, Glass reports.
Meanwhile, local retail reports show overall vacancies of anywhere from 6 percent to 9 percent — meaning that as much as 4 million square feet is sitting empty in the region.
Think of it as the end of a whip. When the residential real-estate market began to collapse two years ago, it created a ripple effect, setting off a contraction of credit markets and consumer spending. With shoppers reeling in their spending habits, retailers have suffered — some going bankrupt — leaving retail-property owners with huge gaps in occupancy.
Economists and financial experts now expect the second half of this year to bring another round of doom and gloom as more than $250 billion in commercial mortgages come up for renewal. With property values falling, many owners many find themselves hard-pressed to refinance — an echo of what has already occurred nationally in the housing market.
For well-positioned retailers like Kennon, however, the loose commercial real-estate market offers a foothold.
"If you are a good, stable retailer, the vacancies give you an opportunity to move into a retail area you've always wanted to," says Nancy Thomas, president of the Retail Merchants Association of Greater Richmond.
It's a tenuous proposition, though, because "if you're a longstanding independent retailer, you have to remember that you are a destination, and that is where people are used to finding you."
Admittedly, Thomas says, many Richmond-area retailers are struggling — those with leverage to grow their businesses represent a sliver of the group's membership, which has fallen off by 10 percent or more in the past year.
The group is trying to bolster its membership with workshops designed to help small businesses along with a big "buy local, shop local" campaign.
While it can be a mixed bag from the retail side, property owners are pushed to the wall.
"If you're a landlord, there's not much of a silver lining," says Will Bradley, a research analyst for CB Richard Ellis in Richmond.
Evan Magrill, senior vice president of Thalhimer / Cushman & Wakefield, notes that landlords are playing harder to fill the gaps. "To attract new tenants, they're definitely being aggressive with incentives we've not seen before."
This means retailers can push for lower rates and what are known as "tenant improvements" — upgrades to a space that save a shop owner time and money and allow them to get up and running.
Richmond developer Justin French has found that using a creative approach to filling his available properties can result in a promising alliance between the tenant and the landlord that might help defy market forces.
This summer, he is working with a new tenant, Kathleen Richardson, to help open an organic coffee shop, the Urban Farmhouse, in the R.V. Cole building in Shockoe Slip, near the Martin Agency.
Even though French was asking a higher rate for his vacant space than Richardson had budgeted, he was willing to lower the rate to help get her business going.
"I'm bartering rent in order to get interest in her company," French says. With a stake in Richardson's success, he says it will make him more committed as a landlord who's willing to do more than just take the rent money. "In the end, she'll profit more in her company."