The other side of the mountain
Outside developers discover Winchester area’s advantages

by Jessica Sabbath
Virginia Business
October 2006

In the past, Winchester and Frederick County officials struggled to persuade national retail chains to consider expanding into the northern Shenandoah Valley. The community, across the Blue Ridge Mountains from the bustling Northern Virginia suburbs of Washington, D.C., generated little outside interest.

But starting about five years ago, and accelerating rapidly in the past two or three years, national developers and retailers started recognizing the investment potential that local developers already had been capitalizing on. They realized Winchester offered a diverse economy in a prime location, located on Interstate 81 just 75 miles from the nation’s capital and already serving as the retail and economic hub for the growing northern Shenandoah Valley.

It seems the secret of Winchester’s economic potential got out.
“ It just popped up on people’s radar screens overnight,” says Richard Bell, CEO of the Winchester-based commercial real estate group The Adams Cos. and chairman of the Winchester-Frederick County Economic Development Commission. “With a lot of the retail development and food service development, when we tried to entice them a few years ago, it was if they didn’t know Winchester existed. Now it’s as if they’re all scrambling to get out here.”

New development will bring almost 3 million square feet of additional retail space to the region — most of it in six major retail centers. Already, Winchester Station, a 168,000-square-foot retail center in Winchester, has recruited retailers such as Border’s, Old Navy, Ross, Red Lobster and Linens-N-Things. The region’s retail sales grew an impressive 14.2 percent during the 12 months ending in the third quarter 2005, a rate faster than any other region in the state, according to Richmond-based Chmura Economics and Analytics.

Winchester’s growth reaches beyond retail developments. Thousands of new homes also are being built. “Winchester and Frederick County both have over the course of the last four years seen a significant boom in development of all types,” says Charlie Weiss, president of the Winchester-Frederick Regional Chamber.

The Winchester-Frederick County re¬gion had the second fastest population growth of all metropolitan areas in the state during the past five years, according to the Weldon Cooper Center for Public Service at the University of Virginia. The region’s population reached an estimated 93,300 people in 2005, up 12.7 percent, or 10,500 residents, from 2000.

In the past few years, the region’s unemployment rate has hovered between 2.5 percent and 2.9 percent and its job growth rate has outpaced that of the state. For the 12 months ending in March, 2,600 jobs were added to the local economy, a growth rate of 4.8 percent. “Winchester quite often is going to run in the half dozen or so best areas in the country [based on low unemployment rate],” says William Mezger, chief economist for the Virginia Employment Commission.

The Winchester region benefits heavily from its location. “The Washington-area economy is one of the best economies in job growth and low unemployment in the entire country, and Winchester is so close to that,” Mezger says. “Winchester has not become a part of Northern Virginia yet, but it’s very much a satellite of it.”

SpecialMade Goods & Services Inc. has benefited from Winchester’s proximity to the D.C. market. The company is a distributor of a variety of commercial products such as Rubbermaid and Nova Ortho-Med medical products and provides product modification services. The federal government is the 46-employee company’s largest and fastest-growing customer. “With our focus on the federal government, being close to Washington, D.C. is a distinct advantage for us,” says Paul Delmerico, SpecialMade’s vice president of marketing. “There are so many contacts and relationships that are in the vicinity that are important to us physically being here.”

Despite being close to the Northern Virginia suburbs, Patrick Barker, director of the economic development commission, contends Winchester’s economy can stand on its own, even rebounding faster than Northern Virginia following the economic downturn in 2001. “We’re close to the juggernaut of the state’s economy,” says Barker, “but we are not based solely on Northern Virginia.”
Instead, Barker says Winchester’s growth comes from a diverse economy, pro-business climate that focuses on nurturing existing businesses and its position as the retail and economic hub for the northern Shenandoah Valley.
Economic development officials aren’t taking the region’s growth for granted.

They are actively forming an economic development plan to expand the region’s economic sectors and secure its long-term health. The commission launched a marketing campaign in September to attract new business sectors to the region. The area isn’t targeting just anyone, but going after sectors recommended by Austin, Texas-based AngelouEconomics. The commission hired the firm to study the local economy and recommend sectors that would fit and generate high-paying jobs. “The community has a lot of things to offer,” Barker says. “By having this targeted study done, it will lend further credibility that this community has a good future. An outside party has come in and shown us that we’ve got something to offer.”

The study lists businesses in five sectors the area should pursue: business services, defense/advanced security, life sciences, food processing and assembly/distribution. In the near-term, the study identifies several potential niches for the region, including data centers and small-scale products manufacturing for the defense industry, call centers, medical manufacturing, packaged food production, and assembly and distribution of medical and automotive supplies. The region’s top-rated Winchester Medical Center and proximity to the Virginia Inland Port in Front Royal help it jive with these sectors.

Also, the addition of 2,000 federal government jobs during the next few years will add a new dimension to the local economy. The FBI is locating its records management center in in the region, and the Federal Emergency Management Agency is moving its Virginia National Processing Center to the area as well. Although economic development officials aren’t entirely sure how the influx of federal jobs will affect the local economy, their hopes are high. “We don’t fully understand all the spin off from this current activity of the federal agencies, but subcontractors to the federal government and homeland security are certainly within our targeted business categories that we have determined to solicit,” says Bell of The Adams Cos.

Officials are hopeful that the addition of the federal agencies will create opportunities for small, private firms looking for government clients. The agencies should also bring higher-paying jobs to Winchester, where a recent surge in home prices has made affordable housing a key concern. Data from the Virginia Association of Realtors show the average home price in the northern Shenandoah Valley for the first seven months of 2006 was $321,218, more than double the $155,941 average home price in 2001.

In addition, Winchester’s location has caught the eye of other federal agencies interested in remaining close to Washington, but away from potential terrorist targets. “We know for certain that the federal government and specific agencies are definitely looking in this market,” says Bell. “We don’t expect this to be the last influence of the federal agencies in this market.”

The Winchester region is not without its struggles. Its low unemployment rate requires companies to compete for employees. “In a market where the unemployment rate is so low, you have to offer something different,” says Delmerico of SpecialMade, “We can set ourselves apart by offering to that employee a smaller, family-friendly environment that doesn’t require third-shift work and by offering a competitive benefits and salary package, including a bonus program and 401(k) for all employees.”

The AngelouEconomics study says the region’s work-force issues represent the region’s major hurdle to attracting the long-term sectors it recommends. Filling jobs for high-skilled employees could poise a challenge for securing some high-tech businesses. The commission has already begun working with local education partners, Shenandoah University and Lord Fairfax Community College, to create a work force skilled in the sectors targeted by the economic development commission.

The region also faces a major transportation challenge. While its position along I-81 is significant for its economic well-being, traffic and safety concerns have plagued the interstate. Ideas to correct the road’s problems are currently caught up in the state’s larger debate about how to fix transportation. Meanwhile, the region has struggled for years to find money to build the Route 37 eastern bypass to alleviate local traffic problems. The most recent estimates predict building the bypass would cost at least $262 million. “Building 37 is the chamber’s top priority,” says Weiss. “We’ve got to build 37 before we have so much development that it becomes impossible to build. The question is where is the money going to come from?”

Another struggle is protecting the region from becoming a bedroom community for people commuting east to high-paying jobs in Northern Virginia. Statistics from the 2000 Census show more people travel into Winchester to work than travel out, but half of the region’s new residents commute outside Winchester to work. In response, the economic development commission has pushed a campaign to show commuters the financial and quality-of-life costs of long commutes. “The more people that can live and work in a community, the stronger the community is,” says Barker.

Officials hope with the additional retail and federal jobs in the community, residents will have more reason to stay put. After all, while economic development officials want Winchester’s secret to get out, they need their work force to stay in.