HAMPTON ROADS REAL ESTATE MARKET REVIEW
E. V. WILLIAMS CENTER FOR REAL ESTATE AND ECONOMIC DEVELOPMENT
WWW.ODU.EDU/CREED
ASSOCIATE PUBLISHER Mike Herron Inside Business 757.222.3991 HAMPTON ROADS SPECIAL PUBLISHING MANAGER Olga Currie REAL ESTATE
GRAPHIC DESIGN MARKET REVIEW Pico Design & Illustration www.picodesign.net 757.493.0370
DIRECTOR OF SALES Bill Blake 757.222.3165 CONTENTS
ADVERTISING SALES Message From The Director Robin Simmons John Kinsley CREED Executive Committee BUSINESS MANAGER
Debbi Wilson CREED IPAC Members
Inside Business 150 W. Brambleton Avenue CREED Council Members Norfolk, Virginia 23510 757.222.5353 Hampton Roads Retail Market Survey
Hampton Roads Industrial Market Survey
Hampton Roads Office Market Survey
Hampton Roads Residential Market Survey
Hampton Roads Multi-Family Market Survey
E. V. Williams Center for Real Estate & Economic Hampton Roads Development Capital Markets & Real Estate Finance Review www.odu.edu/creed
Data for Old Dominion University E.V. Williams Center for Real Estate and Economic Development Market Survey was collected in the fourth quarter — 2011
3 MESSAGE FROM
elcome and thank you for joining us for the 2012 Old Dominion University E. V. Williams Center for Real Estate and Economic Development (CREED) Hampton Roads Real Estate Market Review and Forecast. This is our 17th annual market report and review and we sincerely Wappreciate your continued support. Our report this year features a review of capital markets and real estate finance examining the role that commercial and government sponsored lending played in 2011 market performance. The 2012 report also features an expanded residential overview reviewing new and existing home sales in Hampton Roads. The Real Estate Information Network (REIN) has graciously provided us with the data and analysis by James Pritchard. This information, in conjunction with our ongoing evaluation of residential development, now provide you with a more informative and comprehensive overview of the residential market. Growth and development at CREED is driven significantly by support from our members. In 2011, the Industry Professional Advisors to the Center (IPAC) and the CREED Council numbered 115. Together, these membership bodies are dedicated to creating a nationally prominent center of excellence in economic development and real estate research and education here at Old Dominion University. The high degree of support and involvement demonstrated by our membership is positioning CREED to invest greater resources in research, additional educational programming, networking opportunities, and practical applications that benefit the Industry as a whole and sustain the real estate community here at Old Dominion University. CREED membership continues to be one of the most cost effective networking organizations you can ever support. There are many benefits to CREED membership, including complimentary registration to CREED events such as the Hampton Roads Real Estate Market Review and Forecast and the annual CREED Business Meeting and Luncheon. Moreover, there are several opportunities to meet promising students for possible internships or career symposiums. CREED Council and IPAC membership also provides further opportunity for those of you who want to see real estate establish itself as an academic major of choice for Old Dominion University students. With member support, CREED continues to expand student offerings and member services and programming. In 2011, CREED invited several industry leaders to campus and sponsored numerous events in the College of Business and Public Administration including a guest speaker series. In November, CREED presented the inaugural Hampton Roads Residential Market Review featuring Dr. Michael J. Seiler, the Robert M. Stanton Chair of Real Estate and Economic Development, who presented his cutting edge research in areas of behaviorial real estate. His research is featured in top level publications, enhancing the reputation of real estate related
2012 Hampton Roads Real Estate Market Review 4 THE DIRECTOR
research in the College and University. Also presenting at this inaugural event, ODU’s leading economist, Dr. Vinod Agarwal, as well as Van Rose of Rose and Womble, and the Honorable Judge Frank Santoro spoke on the economic and legal aspects of current home buying and residential lending trends at both the regional and national levels. Looking ahead to 2012, CREED is expanding its partnership with the local chapter of the Urban Land Institute, in addition to many other regional industry partners, to bring the nationally- acclaimed ULI Reality Check land-planning exercise to Old Dominion University on May 17, 2012. This event will bring together 300 practitioners specializing in development, infrastructure, engineering and land-use policies for a one-day visioning exercise to determine sustainable and effective planning for our region’s projected growth for the next 25 years. The post-implementation engagement of Reality Check will be housed at CREED and will set the platform for mobilization of the recommendations and land-use strategies that evolve from the Reality Check event. In addition, CREED, in partnership with the College of Business and Public Administration, will launch the Commercial Real Estate Institute (CREI) in the spring of 2012. This week-long instructional program will offer commercial real estate practitioners the opportunity to earn continuing education credits by completing courses in CCIM foundations, Excel and Real Estate Financial Analysis, and Ethics and Leadership. Fall 2012 will bring the 1st Annual CREED Tennis Pro-Am back to Old Dominion University. This exciting networking event sold out in 2011 and generated some friendly industry competition. CREED will also host the 2012 Hampton Roads Residential Market Review in November 2012, so watch for details to be announced later this year. There are many people to thank for their contributions to this report and the annual market review. Many writers and speakers make this program such a success. Of course, a special thank you to all the volunteers within the real estate and economic development community for providing their expertise and sharing their data. None of this is possible without your commitment. In closing, please note that we have changed the way we present some of our information. Every effort is made to provide the most accurate information in these reports. If you find an error, or have a suggestion on how to improve upon these reports, please contact me with comments. Your continued support is truly appreciated.
John R. Lombard, Ph.D.
John R. Lombard, Ph.D. Associate Professor and Chair | Department of Urban Studies and Public Administration Director, E. V. Williams Center for Real Estate and Economic Development Old Dominion University | College of Business and Public Administration | Norfolk, VA 23529-0218
Direct line: (757) 683-4809 Center line: (757) 683-5352
5 MISSION OF CREED
The E.V. Williams Center for Real Estate and Economic Development (CREED) at Old Dominion University (ODU) is a member-based organization that serves the real estate and economic development communities. CREED is a non-profit, non-political organization, established to serve as a liaison between ODU and the business community. CREED supports the real estate and economic development industry through the application of research, resources and continuing education to further land planning and development initiatives. CREED also provides an accessible, interactive, and innovative portal for ODU students to interact with leading industry partners in the public and private sectors.
For membership information, contact CREED Program Manager, Kyllie Brinkley, 757.683.5352, [email protected]
2012 Hampton Roads Real Estate Market Review 6 THE 2012 OFFICERS AND MEMBERS OF CREED ARE AS FOLLOWS:
Executive Committee Market Review Committee
Chair ...... Stephanie Sanker Industrial...... William C. Throne and Director...... John Lombard ...... Stephanie Sanker Sponsorship Chair ...... Candi James Office...... Casey J. O'Hearn Publications Chair ...... Brian Dundon Retail ...... David Machupa, Kyllie Brinkley Membership Chair ...... Craig Cope ...... and David Chapmin Curriculum Co-Chairs...... Jon Crunkleton Multi-family...... Charles Dalton/Real Data ...... Brad Sanford Residential...... Ron Wildermuth, Blair Hardesty, By-Laws Chair ...... Andrew Keeney James Pritchard and Van Rose Past Chair...... Brad Sanford Capital Markets & Real At-Large ...... Billy King Estate Finance ...... Victor L. Pickett ...... Tom Dillon
CREED Program Manager...... Kyllie Brinkley
Research/Editorial Committee
Kyllie Brinkley Nancy Gossett Dove John Lombard Kristi Sutphin David Chapman Elizabeth Hancock Maureen Rooks Albert Duncan Janice Hurley Brad Sanford Brian Dundon Joy Learn Lane Shea
To obtain additional copies of this report, please go to our website: www.odu.edu/creed
Send to: Kyllie Brinkley Program Manager E. V. Williams Center for Real Estate and Economic Development Old Dominion University 2088 Constant Hall Norfolk, VA 23529
Telephone: (757) 683-5352
E-Mail: [email protected] 7 INDUSTRY PROFESSIONAL ADV
Honorary Member Cecil V. Cutchins David M. Gianascoli Robert M. Stanton, Olympia Development Gee’s Group Real Estate CSM and CPM Corporation Development Stanton Partners, Inc. Robert L. Dewey John L. Gibson, III Jeff Ainslie Willcox & Savage, PC Ellis-Gibson Development Ainslie Group Group Thomas M. Dillon G. Robert Aston, Jr. Fulton Bank Warren Harris TowneBank City of Virginia Beach N. Joseph Dreps Economic Development Ramon W. Breeden, Jr. BB&T The Breeden Company Miles B. Leon Pamela J. Faber S. L. Nusbaum Realty Sanford (Sandy) M. Cohen LeClair Ryan Company Divaris Real Estate, Inc. Joel T. Flax, CPA Michael W. McCabe Craig Cope Dixon Hughes Goodman LLP Harvey Lindsay Commercial Liberty Property Trust Real Estate
THANK YOU 2012 SPONSORS
2012 Market Review Reception Sponsor
2012 Hampton Roads Real Estate Market Review 8 ISORS TO THE CENTER (IPAC)
Michael Newsome Bradley R. Sanford, MAI Jon S. Wheeler Clark Whitehill Enterprises, Inc. Dominion Realty Advisors Wheeler Interests
Harrison J. Perrine Burrell F. Saunders Robert T. Williams Perrine Investments Lyall Design Architects Tri City Developers, LLC Reese Smith Don Perry Steven Wright Reese Smith & Associates Continental Development City of Chesapeake Economic Development Tony Smith Victor L. Pickett Robinson Development Group Grandbridge Real Estate Capital, LLC Deborah K. Stearns, CPM, SIOR Thomas E. Robinson Harvey Lindsay Commercial Robinson Development Group Real Estate
Jim V. Rose Richard Thurmond Rose & Womble William E. Wood Realty Co., LLC & Associates
9 CREED COUNCIL MEMBERS
J. Scott Adams Laura B. de Graaf Dorcas T. Helfant-Browning CB Richard Ellis|Hampton Roads Bank of America Merrill Lynch DTH Properties, LLC
Tom Atherton Michael Divaris Charles Hutchison Atherton Real Estate Development Divaris Real Estate, Inc. Vanasse Hangen Brustlin, Inc.
Judy Boone Helen Dragas Michael A. Inman Judy Boone Realty The Dragas Companies Inman & Strickler, P.L.C.
Stewart Buckle, II Brian Dundon Candi James The Morgan Real Estate Group Dundon & Associates HBA Architecture & Interior Design, Inc. M. Albert Carmichael Tom Elder Harvey Lindsay Commercial Hampton Roads Economic Cherie James Real Estate Development Alliance Cherie James, CPA
W. Page Cockrell Sandra Ferebee Terry Johnson Hurt & Proffitt GSH Residential Sales Abbitt Realty
David Collier Bart Frye, Jr. Mallory Kahler First Atlantic Restoration Frye Properties, Inc. City of Portsmouth Economic Development Lawrence J. Colorito, Jr., MAI Brian E. Gordineer, A.A.S Axial Advisory Group, LLC City of Hampton, E. Andrew Keeney Office of the Assessor Kaufman & Canoles, P.C. Hahns L. Copeland DARVA Group LLC Howard E. Gordon R. I. King, II Williams Mullen Cushman & Wakefield | Ann K. Crenshaw THALHIMER Kaufman & Canoles, P.C. Dennis W. Gruelle Appraisal Consultation Group William E. King, SIOR Don Crigger, CCIM Harvey Lindsay Commercial CB Richard Ellis of Virginia, Inc. Elizabeth O. Hancock Real Estate Office of Real Estate Assessor, Norfolk Jon R. Crunkleton, Ph.D. April Koleszar Old Dominion University Russell G. Hanson, Jr. Koleszar Properties, Inc. Hanson Capital, LLC Kim Curtis Barry M. Kornblau Tidewater Home Funding Carl Hardee Summit Realty Group, Inc. Lawson Realty Corporation William G. Darden Tyler Leinbach Hearndon Construction Co. John Harry Meredith Construction John C. Harry, Inc. Company
2012 Hampton Roads Real Estate Market Review 10 John R. (Jack) Lewis, II Charles E. Rigney, Sr. Michael Sykes ECS Mid-Atlantic, LLC City of Norfolk Department of Bank of Hampton Roads Development Harvey Lindsay, Jr. Robert M. Thornton, CRE, Harvey Lindsay Commercial Maureen G. Rooks CCIM, SIOR Real Estate Jones Lang LaSalle Cushman & Wakefield|THALHIMER
Jeffrey R. Mack J. Randy Royal William C. Throne, SIOR, The CIM Group Kimley-Horn and Associates CCIM, ALC Cushman & Wakefield|THALHIMER M. B. Mike Mausteller, Jr. Robert J. Ruhl Harvey Lindsay Commercial Real City of Virginia Beach Jamie Tollenaere Estate Economic Development McKenzie Construction Corporation
G. Cliff Moore Stephanie Sanker, SIOR, CCIM Stewart Tyler, ASA Virtexco Corporation S.L. Nusbaum Realty Co. Right of Way Acquisitions & Appraisals Michael Nice Robert M. Sherman III, CPM George Nice and Sons, Inc. Harrison & Lear, Inc. George D. Vick, III Harvey Lindsay Commercial Thomas O’Grady Kenneth Sisk, P.E. Real Estate Clancy & Theys Construction Bowman Consulting Group Edward W. Ware James N. Owens, CCIM Anthony W. Smith Norfolk Redevelopment and Housing Harvey Lindsay Commercial Robinson Development Group Real Estate H. Mac Weaver, II Robert M. Stanton Wells Fargo Real Estate Group Robert L. Philips, Jr. Stanton Partners, Inc. Cushman & Wakefield|THALHIMER Edward M. Williams Jeremy R. Starkey William E. Wood & Associates Chris Read Monarch Bank Commercial Real CB Richard Ellis|Hampton Roads Estate Finance/Monarch Capital, LLC F. Blair Wimbush Norfolk Southern Corporation F. Craig Read Daniel R. Stegall Read Commercial Properties Daniel Richard Stegall, Peter E. Winters, Jr. A Professional Law Corporation Bank of Hampton Roads Worth Remick CB Richard Ellis|Hampton Roads Terrie L. Suit Chris Wood The Office of Commonwealth JD & W John C. Richards, Jr. Preparedness CB Richard Ellis/Melody & Co. John P. Wright Leo Sutton Waverton Associates Rennie Richardson EXIT Realty Central Richardson Real Estate Commercial Michael P. Zarpas Corporation Global Real Estate Investment Inc.
11 2012 Hampton Roads Real Estate Market Review 12 HAMPTON ROADS MARKET REVIEW
RETAIL
Author David Machupa Cushman & Wakefield | THALHIMER
Survey Collection Kyllie Brinkley E.V. Williams Center for Real Estate and Economic Development Old Dominion University
Data Analysis/ David Chapman Layout Old Dominion University
Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are funded by
donations from the CREED IPAC and Council Advisory Boards, 2012 organizations, and individuals.
Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real RETAIL Estate and Economic Development, nor sponsoring companies and/or individuals makes any representation or warranty as to its accuracy.
13 2012 R E TA I L
General Overview
his report analyzes the 2011 retail real estate conditions within the Virginia Beach-Norfolk-Newport News, Virginia Metropolitan Statistical Area (MSA) which is commonly T referred to as Hampton Roads. The report examines supply, vacancy, construction, absorption, and rent data to provide a comparison of data for the specific submarkets and product types located within the Southside and Peninsula regions of the Hampton Roads MSA. Southside properties surveyed for the purpose of this report included those located in the cities of Chesapeake, Norfolk, Portsmouth, Smithfield, Suffolk and Virginia Beach. Peninsula properties surveyed are located in the cities of Gloucester, Hampton, Newport News, Poquoson, Williamsburg, and York County.
This survey is recognized as the most comprehensive analysis of retail real estate trends in the Hampton Roads MSA. The report includes information on all retail property types including regional malls, freestanding buildings and strip centers of various classifications. The scope of the report also includes a summary of new retail construction activity, an analysis of absorption, and a review of selected retail investment sales that have occurred in the region in 2011.
METHODOLOGY
This survey gathered information about strip shopping centers and regional malls located in the Hampton Roads MSA that were generally 30,000 square feet in size or larger. Additionally, information on retail-oriented freestanding buildings at least 23,000 square feet and freestanding buildings that contained furniture stores, discounters, grocery stores or category killer retailers that met the established size criteria were included in the survey.
Automotive uses and buildings containing “downtown storefronts” were not included. Although available retail space in many submarkets (e.g. Ghent) is best described as a collection of small specialty shops, storefronts or freestanding buildings, practical limitations dictated that the focus of the survey be on larger product types.
The survey data was collected between October 2011 and January 2012. Questionnaires were mailed to owners, leasing agents and property managers responsible for retail properties meeting the selection criteria. Direct contact was utilized as a follow-up to the mailing to encourage participation. Information on square footage for freestanding buildings was obtained from building owners, tax records, store managers and retail real estate representatives. Sales information was obtained from property owners, real estate agents, appraisers and real estate assessors.
2012 Hampton Roads Real Estate Market Review 14 2012 RETAIL cil of The market per square foot of a retail property rate (excluding freestanding Contiguous retail space that is at least 23,000 square feet and located in any that is at least 23,000 square feet and Contiguous retail space and discount department store anchored supermarket or drug store anchored DEFINITIONS OF TERMS DEFINITIONS Asking Rates: net lease. be paid under a triple rents that may exclusive of additional buildings and malls), Interpretation of average retail rates in different product types and submarkets retail rates in different product types and should be Interpretation of average and for prop- products tremendous variability in rates for like cautiously given the viewed erties located within the same submarket. Factors such as visibility, co-tenancy and acces- co-tenancy erties such as visibility, located within the same submarket.Factors market sources of variation in rates which should be con- the many sibility are some of sidered. Big Boxes: but are not lim- big boxes include, product types. Retailersone of the identified occupying ited to, the following: category killers, specialty stores, discounters, furniture stores, gro- furniture stores, discounters, the following: category stores, specialty killers, ited to, roller rinks and ice-skating rinks automotive uses, cery stores and theaters. Bowling alleys, not included. were - Submarket anchored by regional mall. Submarket anchored by Type of lease under which a tenant pays its pro-rata share of real estate taxes, insurance and common area taxes, its pro-rata share of real estate of lease under which a tenant pays Type Properties product types. The International classified according to one of the following nine retail Coun were Hampton Roads is divided into 35 retail submarkets (25 Southside submarkets and 10 Peninsula submarkets) 10 Peninsula Hampton Roads is divided into 35 retail submarkets (25 Southside submarkets and In-line retail space usually less than 10,000 square feet located in a multi-tenanted shopping center. In-line retail space usually less than 10,000 square feet located in a multi-tenanted Common Area Maintenance Other center that does not fit into a typical category Any Theme Festival Center Theme Festival Outlet Center Freestanding entertainment feet; restaurants, 80,000 to 250,000 square anchored Mall outlet store anchored 50,000 to 400,000 square feet; manufacturer’s shopping center Individual building not considered a Shopping center with area designed for pedestrian use only Neighborhood Center Community Center 30,000 to 150,000 square feet; supermarket anchored Center Fashion/Specialty Center Power 100,000 to 350,000 square feet; discount department store, fashion anchored 80,000 to 250,000 square feet; home improvement 250,000 to 600,000 square feet; category killer, 15 Submarkets: Regional Mall Node: Small Shop: which reflected general concentrations, pockets or corridors pockets of the retail sub- of retail product type. Geographical boundaries which reflected general concentrations, Product Types: Product Types: CAM: Shopping Centers included to accurately categorize the defined the first were six categories. Three additional categories remaining properties. markets were influenced by density of existing retail product, physical or geographical obstacles, existing transportation net- or geographical obstacles, physical density of existing retail product, influenced by markets were works, municipal boundaries, population concentrations and retailers’ perceptions of the MSA. Final determination municipal boundaries, of specif- works, ic boundaries of each submarket was made by a subcommittee of retail real estate professionals who are actively involved in a subcommittee of retail real estate professionals who are actively involved made by was ic boundaries of each submarket the MSA. Also highlighted were specific submarkets that are anchored by regional malls. A map which identifies the general regional malls. A map which that are anchored by specific submarkets the MSA. Also highlighted were location of each submarket is included in the centerfold of this report. Triple Net Lease: Triple maintenance. 2012 RETAIL
YEAR IN REVIEW
Gradual recovery, which has been the mantra on a local and national level, is exactly what the Hampton Roads retail market is experiencing. As 2010 came to a close, we were hopeful that the worst had come to pass. Market watchers were witnessing vacancy rates decreasing in conjunction with decreasing rental rates along with an increase in retail tenant activity. Lenders had not opened the purse strings to the extent of years past, but obtaining financing, while still difficult, was less difficult than the prior year. Overall, 2011 brought us less than what we hoped for, but exactly what we expected, a gradual recovery.
What we saw in 2011 was increased activity from various mid-size and big box users. This new development speaks well as to the direction of the market. On the Southside, Harris Teeter is under construction in Portsmouth, Target is under construction behind Pembroke Mall in Virginia Beach, Dicks Sporting Goods opened in northern Suffolk, Cinemark opened a 40,000 sf theater in the Chesapeake Square, and Wal-Mart opened in the Edinburgh area of Chesapeake. The Peninsula saw The Fresh Market relocate and open a location in Williamsburg. We are hearing of and seeing additional grocery store activity in the entire Hampton Roads market. The Neighborhood Market, a Wal-Mart concept, has purchased multiple sites in Hampton Roads this past year. The fact that the grocery stores are touring and evaluating opportunities is another validation of the stability of Hampton Roads. The highlight of the past year was confirmation that Hampton Roads will welcome it first Whole Foods as they open in Virginia Beach in 2012.
Concerning the small space users, we can say the bedding industry is alive and well in Hampton Roads as The Mattress Firm and Sleepy’s have aggressively expanded this past year. Blockbuster continues to close stores and many have been or are in the process of being repositioned. The fast casual users such as Panera Bread and Chipotle remain active. The mobile phone industry continues to drive retail locations with Verizon Wireless and Ntelos having opened new stores in 2011. The market has also seen the frozen yogurt retailers expanding. If you need coffee, you need not look far. Starbucks has two stores under construction, Dunkin Donuts has one location under construction in Virginia Beach, while Krispy Kreme opened two stores and is looking for additional sites.
As in years past, we have seen a culling of the retail herd. Not indicative of the Hampton Roads market, A.J. Wright and Borders closed all locations nationwide. Total Wine and Beverage quickly expanded into the former Borders in the Hilltop submarket of Virginia Beach. Many of the A.J. Wright locations were converted to Marshalls or leased by other tenants. Market watchers are keeping a keen eye on Sears and Kmart as these companies are starting to close stores and have been unsuccessful in implementing merchandising plans that will attract customers. Sears has announced plans to close its Norfolk location in 2012. Sears owns many of their sites; therefore, these sites may generate prime redevelopment opportunities in the future.
Retail investment sales continue to be few and far between. The logjam of lender owned property that is constantly discussed has not hit the market. What we have seen this past year is a new way for lenders to deal with troubled assets. Rather than work through the foreclosure process, we have seen lenders sell the loan/note to investors enabling them to remove the non-performing loans from the books.
Overall, the Hampton Roads retail market remains stable and continues to gradually improve. The increased port activity, the stabilizing military presence, and increased consumer confidence has led to increased tenant activity in our market. Provided fuel pricing does not reach a level that seriously impacts consumers’ disposable income, we should see 2012 outperform 2011 just as 2011 outperformed 2010.
2012 Hampton Roads Real Estate Market Review 16 2012 RETAIL Roads MSA is approximately 1.7 million resulting in a 32.30 square feet of retail supply per person. Certain methodological differences in this survey (e.g. the inclusion of it difficult to compare per make capita supply in the MSA to a statistic. national average freestanding buildings and malls) approximately 52,644,569 square feet of approximately 52,644,569 in 417 (“GLA”) gross leasable area properties rental rate asking with an average The US Census Bureau of $15.79 triple net. HAMPTON MARKET ROADS SURVEY retail marketThe Hampton Roads contained indicates the population of the Hampton In years past, we did not see a great deal of from see a great participation did not we past, years In landlords days these however, build-out; in tenant landlords are offering free rent, tenant improvement allowances, to of three the a combination or structures rental graduated rate vacancy the reduced have actions These tenants. assist 8.51% in 2011. 8.94% in 2010 to from 17 Hampton Roads consists of two markets, the Southside and Peninsula. The Southside market has approximately the Southside and Peninsula. Hampton Roads consists of two markets, properties. in 279 asking roughly 66% of the total square footage in the market, The average 34,150,108 square feet, deal of participation from landlords in tenant build-out; however, these days landlords are offering free rent, tenant landlords are offering free rent, these days deal of participation from landlords in tenant build-out; however, The Peninsula also experienced some mixed change this past year. The 138 properties that were on the Peninsula also experienced some mixed change this past year. The Peninsula surveyed space decreased by asking price of small shop combined for 18,494,461 square feet of product. The average a greater decrease in the saw this reduced rate help drive absorption and we $.37 to $15.28 per square foot triple net, The vacancy rate dropped 1.22% to 10.51% and interest remains veryvacancy rate on the Peninsula. strong for select Lion and a relocation Food did welcome we in the Williamsburg submarket, development over submarkets. Despite previous Market location has been back filled. Market is that the former to the area. A positive indicator Fresh of The Fresh rent for small shop space increased ever so slightly $.03 over 2010 numbers net. The increase in rental to $16.03 triple so slightly $.03 over rent for small shop space increased ever 7.42%. In vacancy rate for Hampton Roads as the vacancy rate remained stable at rates had little effect on the overall square feet of projects built on the Southside this past year. 103,380 there was 2011, Landlords continue to be motivated and creative in finding ways to fill vacancies. In years past, we did not see a great we to fill vacancies. In years past, Landlords continue to be motivated and creative in finding ways improvement allowances, graduated rental structures or a combination of the three to assist tenants. These actions have allowances, improvement Fortunately 2011, like the previous year, saw an overall decrease in the vacancy rate for the Hampton Roads market. an overall saw year, the previous like Fortunately 2011, reduced the vacancy rate from 8.94% in 2010 to 8.51% in 2011. While we will face many of the same challenges as 2011 will face many reduced the vacancy rate from 8.94% in 2010 to 8.51% in 2011. While we retail sales are up, supply is slowly reducing and tenants continue to express interest in the Hampton Roads market. retail sales are up, We move forward acknowledging 2012 is trending in the right direction. We have consistently stated that the recovery have will acknowledging 2012 is trending in the right direction. We forward move We rates gradually increase. Additionally, we are seeing the initial stages of new development, further demonstrating the development, seeing the initial stages of new are we rates gradually increase. Additionally, be slow and gradual and 2011 numbers reflect that projection. As supply continues to be absorbed, we will see rental we be slow and gradual and 2011 numbers reflect that projection. As supply continues to be absorbed, stability of the Hampton Roads retail market. 2012 RETAIL
Market Overview Table New Number of Construction Occupied Absorption Properties GLA in SF Vacant SF % Vacant in SF in SF in SF
2012 Southside 279 34,150,108 2,534,765 7.42% 103,380 31,615,343 794,577 Peninsula 138 18,494,461 1,944,109 10.51% 999,389 16,550,352 782,099 Total 417 52,644,569 4,478,874 8.51% 1,102,769 48,165,695 1,576,676 2011 Southside 274 34,019,555 2,523,754 7.42% 18,880 31,495,801 675,035 Peninsula 138 18,548,407 2,175,793 11.73% 16,372,614 604,361 Total 412 52,567,962 4,699,547 8.94% 18,880 47,868,415 1,279,396 2010 Southside 273 33,535,280 2,714,514 8.09% 302,352 30,820,766 (288,440) Peninsula 136 18,160,963 2,392,710 13.18% 981,463 15,768,253 362,777 Total 409 51,696,243 5,107,224 9.88% 1,283,815 46,589,019 74,337 2009 Southside 265 33,265,028 2,155,822 6.48% 275,252 31,109,206 238,525 Peninsula 133 17,112,012 1,706,536 9.97% - 15,405,476 (109,898) Total 398 50,377,040 3,862,358 7.67% 275,252 46,514,682 128,627 2008 Southside 263 33,086,160 2,215,479 6.70% 1,038,291 30,870,681 339,596 Peninsula 133 17,133,079 1,617,705 9.44% 1,009,000 15,515,374 100,485 Total 396 50,219,239 3,833,184 7.63% 2,047,291 46,386,055 440,081 2007 Southside 259 32,407,761 1,876,676 5.79% 1,552,392 30,531,085 1,741,962 Peninsula 131 16,895,155 1,480,266 8.76% 1,042,451 15,414,889 576,788 Total 390 49,302,916 3,356,942 6.81% 2,594,843 45,945,974 2,318,750 2006 Southside 246 30,852,210 2,063,087 6.69% 593,520 28,789,123 1,280,869 Peninsula 129 16,337,458 1,499,357 9.18% 618,179 14,838,101 687,097 Total 375 47,189,668 3,562,444 7.55% 1,211,699 43,627,224 1,967,966 Southside 243 30,184,395 2,676,141 8.87% 271,610 27,508,254 341,736 2005 Peninsula 125 15,799,778 1,648,774 10.44% 185,000 14,151,004 496,338 Total 368 45,984,173 4,324,915 9.41% 456,610 41,659,258 838,074 Southside 243 30,336,266 3,169,748 10.45% 419,458 27,166,518 419,138 2004 Peninsula 127 16,094,161 2,027,477 12.60% 330,000 14,066,684 412,018 Total 370 46,430,427 5,197,225 11.19% 749,458 41,233,202 831,156 Southside 245 30,180,691 3,433,311 11.38% 574,400 26,747,380 535,167 2003 Peninsula 126 15,546,085 1,891,419 12.17% 676,000 13,654,666 932,008 Total 371 45,726,776 5,324,730 11.64% 1,250,400 40,402,046 1,467,175 Southside 239 29,760,443 3,548,230 11.92% 828,800 26,212,213 1,185,818 2002 Peninsula 123 14,906,530 2,183,872 14.65% 202,750 12,722,658 242,563 Total 362 44,666,973 5,732,102 12.83% 1,031,550 38,934,871 1,428,381 Southside 230 29,436,515 3,760,087 12.77% 918,100 25,676,428 (158,181) 2001 Peninsula 121 14,477,970 1,997,875 13.80% 212,229 12,480,095 147,115 Total 351 43,914,485 5,757,962 13.11% 1,130,329 38,156,523 (11,066) 2000 Southside 220 28,816,383 2,933,294 10.18% 2,064,727 25,883,089 1,344,209 Peninsula 118 15,249,617 2,012,637 13.20% 758,370 13,236,980 292,785 Total 338 44,066,000 4,945,931 11.22% 2,823,097 39,120,069 1,636,994 1999 Southside 208 27,089,939 2,551,059 9.42% 1,414,805 24,538,880 1,961,927 Peninsula 112 14,548,482 1,604,287 11.03% 1,253,342 12,944,195 1,592,805 Total 320 41,638,421 4,155,346 9.98% 2,668,147 37,483,075 3,554,732 1998 Southside 195 25,463,588 2,886,635 11.34% No Data 22,576,953 No Data Peninsula 102 12,952,845 1,601,455 12.36% No Data 11,351,390 No Data Total 297 38,416,433 4,488,090 11.68% No Data 33,928,343 No Data
2012 Hampton Roads Real Estate Market Review 18 2012 RETAIL 8 1,822,451 178,847 9.81% $18.00 5 666,183 85,015 12.76%85,015 5 666,183 $13.80 1 39,691 6,314 15.91%6,314 1 39,691 $21.00 5 281,150 1.44% 4,050 $17.00 6 332,904 82,600 24.81%82,600 6 332,904 9 2,218,786 97,486 4.39% $12.56 7 1,510,437 60,119 3.98%4 1,329,283 $18.00 33,275 9.89% 2.50%39,368 9 398,161 $18.33 $17.56 $14.83 5 290,718 19,702 6.78%19,702 5 290,718 25.51%48,899 4 191,655 $15.28 $11.95 18 1,867,591 265,109 14.20% $14.38 14 1,130,829 87,735 7.76% $16.45 25 4,249,737 231,930 5.46% $19.65 14 1,724,498 91,718 5.32% $17.35 10 841,300 51,524 6.12%51,524 10 841,300 12 1,216,659 163,265 13.42% $13.11 12 1,459,428 11,677 $15.50 0.80%15 1,768,265 176,615 9.99%16 3,252,612 120,624 13.59% $16.44 3.71%86,779 12 638,344 $12.68 $12.82 22 2,793,180 $12.68 277,485 9.93% $16.23 15 1,196,260 42,780 3.58% $16.43 18 1,375,042 138,492 10.07%13 1,554,944 133,357 8.58% $16.40 $20.83 Average Average Properties GLA in SF SF Vacant % Vacant Rate PSF Number of Small Shop (Including Chesapeake) (From Kempsville Road To Holland Road) To (From Kempsville Road (Virginia Beach Boulevard To Holland Road) Holland To (Virginia Beach Boulevard 279 34,150,108 2,534,765 7.42%$16.03 2,534,765 34,150,108 279 19 There were 25 retail submarkets in the Southside survey this year. The average size of the submarkets was 1,366,004 of the submarkets size was The average retail submarkets 25 survey in the Southside There were this year. Military Greenbrier and with combined square footage of Southside marketssquare feet. The largest were Highway The range of vacancy rates in the Southside submarkets are reviewed in the table below. in the table below. rates in the Southside submarketsThe range of vacancy are reviewed 7,502,349 square feet. The Greenbrier /Battlefield submarket at 4,249,737 square feet has a low vacancy rate of 5.46%, at 4,249,737 square feet has a low vacancy The Greenbrier /Battlefield submarket 7,502,349 square feet. square foot triple net. the small shop asking rates to $19.65 per did see a dip in although we SOUTHSIDE BY SUBMARKET SOUTHSIDE SUBMARKETS SOUTHSIDE Total Total Suffolk Pembroke Princess Anne Road Smithfield Military Highway/Janaf Newtown ODU Little Neck Road Lynnhaven Middle Portsmouth Holland/Green Run Park Indian River/College Kempsville View Corner/Ocean Little Creek Road /Wards Great Bridge Great Bridge Greenbrier/Battlefield Boulevard Hilltop/Great Neck Dam Neck Downtown Ghent Campostella Square Chesapeake Churchland-Portsmouth/Harborview Bay Front Bay Birdneck/Oceanfront 2012 RETAIL
PENINSULA SUBMARKETS
There were 10 retail submarkets in the Peninsula survey with an average size of 1,849,446 square feet. The two largest Peninsula submarkets are now Patrick Henry and Williamsburg. The Patrick Henry submarket is anchored by a regional mall, and has the lowest vacancy rate on the Peninsula.
The Patrick Henry submarket continues to be one of the most highly desired submarkets in Hampton Roads having 4,374,256 square feet and a vacancy rate of just 3.27%. The Coliseum Market has shown improvement with a reduction of the vacancy rate; however, the relocation of Target created a 112,000 square foot vacancy that accounts for 3% of the submarket vacancy.
PENINSULA BY SUBMARKET Average Number of Small Shop Properties GLA in SF Vacant SF % Vacant Rate PSF
Coliseum Central 15 3,665,442 440,629 12.02% $17.88 Denbigh 15 1,785,121 376,657 21.10% $12.58 Foxhill/Buckroe/East Mercury 7 681,614 49,231 7.22% $12.60 Gloucester 8 894,676 63,164 7.06% $14.38 Hampton Misc 2 118,972 19,470 16.37% $10.75 Newmarket/Main (To Include Hampton) 13 1,389,156 229,607 16.53% $9.98 Patrick Henry/Oyster Point/Kiln Creek 31 4,374,256 143,239 3.27% $17.08 Poquoson 2 108,521 14,675 13.52% $14.00 Williamsburg 33 4,636,980 531,635 11.47% $18.69 York County 12 839,723 75,802 9.03% $14.41 Total 138 18,494,461 1,944,109 10.51% $15.28
RETAIL PRODUCT TYPE
The Neighborhood Center remains the predominant product type with 160 properties with over 12 million square feet of GLA. The Community centers comprised over 10 million square feet with both product types showing a slight increase in both vacancy rate and rental rate in 2011.
2012 Hampton Roads Real Estate Market Review 20 2012 RETAIL
New Average New Average New Average Properties GLA in SF in SF SF Vacant Vacant % Rate PSF CAM PSF Properties GLA in SF in SF SF Vacant Vacant % Rate PSF CAM PSF Properties GLA in SF in SF SF Vacant Vacant % Rate PSF CAM PSF Number of Construction Small Shop Average Number of Construction Small Shop Average Number of Construction Small Shop Average 21 Total 138 18,494,461 999,389 1,944,109 10.51% $15.28 $2.59 Mall 3 2,068,996 999,389 119,671 5.78% No data $17.75 Outlet CenterOtherFreestanding 1 33 349,927 20 3,466,773 834,484 - - 320,332 - - 119,786 9.24% No data 14.35% No data $11.25 $15.15 No data $2.27 $2.46 Fashion/Specialty CenterFashion/Specialty CenterPower CenterTheme Festival 2 483,000 - 10 4,165,283 - - 54,967 11.38% - - 523,060 $26.00 12.56% $5.40 - $20.85 No data $2.88 No data No data Neighborhood CenterCommunity Center 48 3,366,115 21 3,759,883 - 332,543 - 473,750 9.88% 12.60% $14.01 $15.83 $2.23 $2.41 Peninsula By Type By Peninsula OtherFreestandingMallTotal 42 44 4,463,021 1,564,152 279 34,150,108 7 103,380 2,534,765 5,649,645 - 7.42% - 18,300 161,352 $16.03 0.41% $2.85 - 10.32% 313,064 $15.90 $15.93 5.54% $3.60 $2.99 $20.50 $18.86 Fashion/Specialty CenterFashion/Specialty CenterPower CenterTheme Festival Outlet Center 8 1,056,384 1 20 100,000 6,425,330 - - 85,076 83,000 - 8.05% 318,327 - 4.95% $24.13 - $3.81 $20.26 No data - $3.43 No data No data - No data No data No data Neighborhood CenterCommunity Center 120 8,739,907 37 6,151,669 20,380 1,080,174 12.36% - $15.01 558,472 $2.59 9.08% $15.33 $2.41 Southside By Type Southside By OtherFreestandingMallTotal 75 64 7,929,794 2,398,636 10 7,718,641 417 52,644,569 999,389 1,102,769 432,735 4,478,874 5.61% 8.51% - - 338,632 $20.50 $17.75 $15.79 281,138 $2.77 4.27% 11.72% $13.83 $15.67 $3.60 $2.99 Power CenterPower CenterTheme Festival Outlet Center 1 30 100,000 10,590,613 1 83,000 349,927 841,387 - 7.94% - - $20.48 No data $3.43 No data - No data No data No data No data Neighborhood CenterNeighborhood Community Center CenterFashion/Specialty 168 12,106,022 10 58 1,539,384 20,380 9,911,552 1,412,717 11.67% - - $14.72 140,043 1,032,222 10.41% 9.10% $2.60 $15.52 $24.33 $2.41 $3.81 Total Retail Product By Type By Retail Product Total 2012 INDUSTRIAL
BIG BOX VACANCY
Despite retailers such as A.J. Wright and Borders vacating the market, Big Box Vacancy in Hampton Roads decreased in 2011 to 1,650,463 square feet. This number represents 37% of the total retail vacancy in the market; a decrease of 67,130 square feet over last year’s numbers. We did see some Big Box activity this past year. Wal-Mart opened at Edinburgh Commons in Chesapeake and tenants such as Goodwill and Marshalls occupied former A.J. Wright locations.
Big Box Vacancy
4,000,000
3,500,000 Southside 3,000,000 Peninsula
2,500,000 TOTAL
2,000,000
1,500,000 Vacant Square Feet Vacant 1,000,000
500,000
0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Big Box Vacancy
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Southside 1,607,323 2,073,115 2,207,416 2,220,935 1,906,391 1,513,523 1,142,319 957,887 948,288 907,688 1,102,093 880,568 855,979
Peninsula 1,232,255 1,328,841 1,435,489 1,407,021 1,556,029 1,141,207 982,263 819,163 827,360 880,805 989,305 837,025 794,484
TOTAL 2,839,578 3,401,956 3,642,905 3,627,956 3,462,420 2,654,730 2,124,582 1,777,050 1,775,648 1,788,493 2,091,398 1,717,593 1,650,463
2012 Hampton Roads Real Estate Market Review 22 Retail Submarkets
Southside Peninsula 1 Bayfront 11 Hilltop/Great Neck 21 ODU 26 Coliseum Central 2 Birdneck/Oceanfront 12 Holland/Green Run 22 Pembroke 27 Denbigh 3 Campostella 13 Indian River/College Park 23 Princess Anne 28 Foxhill/Buckroe 4 Chesapeake Square 14 Kempsville 24 Smithfield 29 Gloucester 5 Churchland/Harbourview 15 Little Creek Road/ 25 Suffolk 30 Hampton Miscellaneous 6 Dam Neck Wards Corner 31 Patrick Henry 7 Downtown Norfolk 16 Little Neck 32 Poquoson 8 Ghent 17 Lynnhaven 33 Newmarket/Main 9 Great Bridge 18 Middle Portsmouth 34 Williamsburg 10 Greenbrier/Battlefield 19 Military Highway/Janaf 35 York County Boulevard 20 Newtown
23 The following is a list of the Marketcenter at Harbourview A 86,130 Crossways Center I & Eden Way Shops D 438,725 properties included in this year’s sur- Marketplace Square A 12,461 Crossways II D 152,686 vey listed by submarket with a code Planet Fitness Plaza A 52,966 Edinburgh Commons D 184,232 representing the type of property. Poplar Hill Plaza B 102,326 Edinburgh East D 133,000 The GLA of the property is also list- Sterling Creek A 75,660 Gainsborough Square A 88,862 ed. Town Point Square A 58,989 Greenbrier Mall I 899,665 F Outlet Center Greenbrier Market Center D 487,580 A Neighborhood Center DAM NECK G Other Greenbrier South SC A 97,500 B Community Center H Freestanding Dam Neck Crossing B 138,571 Home Depot H 130,060 C Fashion/Specialty Center I Mall Dam Neck Square A 67,917 D Power Center K-Mart/OfficeMax H 165,000 General Booth Plaza A 73,320 E Theme Festival Knell's Ridge Square G 40,000 Red Mill Commons D 750,000 Lowes H 114,000 SOUTHSIDE Red Mill Walk B 240,000 Orchard Square A 88,910 Sandbridge SC A 66,800 Parkview @ Greenbrier A 83,711 BAY FRONT Strawbridge Marketplace A 173,829 Plantation Woods A 16,800 Cape Henry Plaza A 58,424 Regal Cinemas H 60,763 Chic's Beach Shopping Center A 79,397 DOWNTOWN The Shoppes at Greenbrier G 40,000 Kroger H 47,000 Berkley Center A 47,945 Towne Place at Greenbrier C 127,109 Lake Shores Plaza Shopping Center A 58,230 Church Street Crossing A 51,000 Village Square G 15,000 Marina Shores G 47,667 MacArthur Center Mall I 1,100,000 Volvo Parkway SC G 41,874 Waterside Festival Marketplace I 130,338 Wal-Mart Way Crossing G 80,160 BIRDNECK / OCEANFRONT Wal-Mart/Sam's Club/Kohl's D 433,821 Birdneck SC A 65,460 GHENT Farm Fresh H 29,296 201 Twenty One A 15,616 HILLTOP / GREAT NECK Harris Teeter H 48,000 21st Street Pavilion G 21,000 Great Neck Square A 93,887 Linkhorn Shops A 48,899 Center Shops A 139,081 Great Neck Village A 73,836 Colley Village A 44,585 Hilltop East C 144,100 CAMPOSTELLA Ghent Place G 13,000 Hilltop North B 202,511 Atlantic Commons A 63,393 Harris Teeter H 27,000 Hilltop Plaza B 152,025 Bainbridge Marketplace A 46,444 Palace Shops I, II C 78,367 Hilltop Square B 220,413 Campostella Corner A 43,375 Palace Station G 38,000 Hilltop West G 60,000 George Washington Commons A 44,942 The Corner Shops G 21,512 La Promenade C 63,280 Holly Point SC A 65,321 Marketplace at Hilltop C 113,000 Southgate Plaza A 69,429 GREAT BRIDGE Cahoon Commons D 278,023 Mill Dam Crossing A 25,776 CHESAPEAKE SQUARE Cedar Lakes Center A 35,659 Regency Hilltop B 236,549 BJ's H 115,660 Centerville Crossing A 50,000 Renaissance Place G 47,667 Chesapeake Center B 270,602 Country Club Shoppes H 17,700 Target H 122,000 Chesapeake Square Mall I 800,000 Crossings at Deep Creek A 68,970 HOLLAND / GREEN RUN Crossroads Center at Chesapeake Square D 332,464 Dominion Marketplace A 73,103 Auburn Place A 42,709 Food Lion @ Chesp. Sq. H 45,000 Dominion Plaza SC A 63,733 Chimney Hill B 207,175 Home Depot H 130,060 Glenwood Square A 73,859 Green Run Square A 75,000 Lowes H 115,000 Great Bridge SC A 156,937 Holland Plaza SC A 155,000 Taylor Road Plaza A 60,000 Hanbury Village A 100,560 Holland Windsor Crossing B 47,400 Wal-Mart Supercenter/Sam's Club H 350,000 Harbor Watch Shoppes G 21,505 Lowes H 125,323 Las Gaviotas A 82,000 Lynnhaven Green A 50,838 CHURCHLAND / PORTSMOUTH / Millwood Plaza G 16,930 HARBOURVIEW Rosemont Center A 1,000 Mt. Pleasant Shopping Center A 100,000 Academy Crossing G 45,483 Shipps Corner A 63,355 Mt. Pleasant Village A 34,180 Churchland Place Shoppes G 21,000 Timberlake SC A 73,500 Wilson Village A 52,500 Churchland SC A 149,741 Woodford Shoppes B 9,760 INDIAN RIVER / COLLEGE PARK Churchland Square A 72,189 Woodford Square B 139,623 College Park I & II B 181,902 Grand H 30,000 College Park Square H 183,874 Harbor View Shoppes A 17,000 GREENBRIER / BATTLEFIELD BOULEVARD Indian River Plaza B 126,017 Harbour View East D 172,000 Battlefield Marketplace G 30,000 Indian River SC A 123,752 Harbourview Station East D 217,308 Chesapeake Crossing B 287,679 Tidewater Plaza A 50,638 Harbourview Station West D 83,007 Country Club Square H 12,600
2012 Hampton Roads Real Estate Market Review 24 KEMPSVILLE MIDDLE PORTSMOUTH Collins Square A 123,870 Arrowhead Plaza A 97,006 Afton SC A 106,500 Columbus Village East A 63,000 Fairfield SC B 239,763 Airline Marketplace A 69,000 Columbus Village Entertainment Center E 100,000 Kemps Corner Shoppes G 25,929 Airline Plaza A 99,549 Dean Plaza (Former HQ) D 140,000 Kemps River Center A 62,507 Alexander's Corner Shopping Center A 50,826 Former Bloom Brothers H 165,000 Kemps River Crossing B 245,268 Elmhurst Square A 66,250 Giant Square B 150,000 Kempsville Crossing A 94,477 Gilmerton Square G 43,236 Goodwill H 34,000 Kempsville Plaza A 60,778 Manor Commerce Center G 67,060 Haverty's H 55,000 Parkway Marketplace A 26,602 Manor Shops G 14,573 Haygood SC B 178,533 Providence Square SC A 135,915 Old Towne Marketplace A 42,000 Haynes H 228,000 University Shoppes A 26,100 Rodman SC A 45,000 Hunter's Mill Shoppes G 22,827 Witchduck Exchange A 50,000 Super Wal-Mart H 200,000 Loehmann's Plaza C 139,380 Woods Corner A 152,314 Triangle SC A 82,430 Northern Super Center G 36,588 Victory Crossing D 500,000 Pembroke East B 27,200 Ames/Kroger B 140,568 Victory West Shopping Center A 167,102 Pembroke Mall I 570,000 Dollar Tree Shopping Center A 51,415 Williams Court B 214,739 Pembroke Meadows SC A 81,592 East Beach Marketplace B 202,000 Pembroke Place B 165,000 East Beach Shoppes A 63,000 MILITARY HIGHWAY / JANAF Pembroke Plaza G 34,900 Farm Fresh - Little Creek H 66,000 3455 Azalea Garden Road A 1,024 Roomstore H 50,000 Glenwood Shoppes A 53,255 Best Square B 140,030 The Town Center of Virginia Beach C 313,590 Little Creek and Tidewater Shops B 119,820 Broad Creek SC D 205,417 Little Creek Square A 82,300 Bromley SC A 67,790 PRINCESS ANNE ROAD Meadowbrook S C G 27,260 CostCo H 110,000 Brenneman Farm SC A 228,197 Mid-Town A 75,768 Dump/Mega Office G 115,854 Courthouse Marketplace A 122,000 Mid-Way SC G 31,000 Farm Fresh H 60,000 Home Depot H 130,000 Ocean View SC A 73,658 Food Lion #170 H 41,000 Kempsville Marketplace A 71,460 Roosevelt Gardens SC A 109,175 Grand Outlet H 35,000 Landstown Commons D 505,766 Southern Shopping Center B 239,719 Janaf D 878,381 Lynnhaven Square S C G 22,933 Suburban Park B 116,113 Lowes H 115,000 Parkway SC A 64,820 Super Wal-Mart H 225,000 Military Crossing D 192,000 Pleasant Valley Marketplace A 88,107 Wards Corner Strip A 61,540 Military Triangle G 10,061 Princess Anne Marketplace B 209,500 Wedgewood SC A 130,000 Super K-Mart & Shoppes B 200,000 Princess One SC A 84,725 Super Wal-Mart H 224,513 Salem Crossing D 92,316 LITTLE NECK The Gallery @ Military Circle I 856,542 Salem Lakes Marketplace A 42,087 Birchwood SC A 358,635 Salem Lakes SC A 37,087 Home Depot H 130,060 NEWTOWN Woodtide SC A 25,500 Kroger H 45,000 Cypress Plaza SC A 59,012 London Bridge Plaza B 114,584 Cypress Point A 117,958 SMITHFIELD Lowes H 160,000 Diamond Springs North (Shopping Center) A Cypress Run SC G 25,000 Lynnhaven 2600 A 13,326 23,880 Eagle Harbor A 77,400 Lynnhaven Convenience G 36,900 Diamond Springs Shoppes H 18,840 Shoppes at Eagle Harbor A 24,386 Lynnhaven Shopping Center B 191,136 Newpointe SC A 92,978 Smithfield Plaza B 89,120 Princess Anne Plaza West C 77,558 Newtown Baker Crossing A 91,687 Smithfield Square A 65,244 Regatta Bay Shops G 60,000 Newtown Center G 19,876 SUFFOLK Sam's Club Plaza D 248,604 Newtown Convenience Center G 19,800 Northampton Business Center G 85,000 Bennetts Creek Crossing A 109,812 LYNNHAVEN ROAD Thomas Corner SC G 23,557 Bennetts Creek Food Lion A 64,544 Lynnhaven Crossing G 55,550 Weblin Square G 31,552 Harbor View Shoppes A 18,835 Lynnhaven East B 97,303 Wesleyan Commons Shopping Center A 54,204 Holland Plaza A 69,345 Lynnhaven Mall I 1,293,100 Kensington Square A 6,000 Lynnhaven North B 176,254 ODU Lowes H 150,000 Lynnshores Shopping Center G 12,692 First Floor Retail Shops Mattress Discounters Plaza A 59,892 Lynnway Place G 30,213 at University Village Apartments G 39,691 Oak Ridge A 38,700 Parkway Plaza G 44,227 Suffolk Plaza B 176,733 PEMBROKE Wal-Mart H 113,112 Suffolk Plaza West A 60,000 Aragona SC A 69,700 Suffolk Shopping Center B 155,733 Best Buy H 45,000 Suffolk Specialty Shops G 15,200
25 Suffolk Village SC G 11,875 Shoppes at Gloucester B 82,025 Yoder Plaza SC D 337,053 Wal-Mart Super Center H 194,160 Wal-Mart Super Center H 220,000 York River Crossing B 175,000 POQUOSON PENINSULA Poquoson SC A 57,458 HAMPTON MISCELLANEOUS Wythe Creek Plaza SC A 51,063 COLISEUM CENTRAL Kecoughtan SC A 64,327 Coliseum Corner A 49,267 The Shops at Hampton Harbor G 54,645 WILLIAMSBURG Coliseum Crossing B 221,004 Colony Square A 66,806 Coliseum Marketplace A 86,681 NEWMARKET / MAIN Ewell Station A 68,048 Coliseum Specialty Shops G 15,026 4113 W Mercury Blvd. H 49,770 Festival Marketplace G 16,216 Coliseum Square G 45,041 4205 W. Mercury Blvd. H 28,080 Gallery Shops G 18,187 Hampton Towne Centre D 376,100 Brentwood SC A 53,600 Governor's Green SC A 100,000 Hampton Woods A 89,092 Dresden SC G 35,000 Home Depot H 130,000 Home Depot H 130,060 Forest Park Square B 150,000 James York Plaza B 137,708 Peninsula Towncenter I 994,235 Francisco Village A 55,865 Kingsgate Green B 138,348 Riverdale Plaza D 280,133 Hampton Plaza B 173,199 Lowes H 163,000 Sports Authority H 40,000 Hilton SC A 74,000 Marketplace Shoppes G 32,026 Target H 122,000 Midway Shopping Center G 58,780 Marketplace Shopping Center A 36,000 The Power Plant D 621,150 Newmarket South D 368,085 Monticello Marketplace B 299,792 Todd Center & Todd Lane Shops B 242,000 Plaza @ Newmarket B 117,377 Monticello SC A 82,000 Wal-Mart Super Center H 193,316 Warwick Center A 150,000 New Town Shops on Main C 253,000 Warwick Village A 75,400 Norge Crossing H 52,000 DENBIGH Olde Towne SC G 30,000 Beaconsdale SC A 28,000 PATRICK HENRY / OYSTER POINT / Prime Outlets F 349,927 KILN CREEK Denbigh Speciality Shops G 24,504 Quarterpath Crossing A 85,600 Bayberry Village A 72,883 Denbigh Village Centre B 334,299 Settlers Market at New Town B 37,051 Best Buy Building H 135,000 Denbigh Village Shopping Center H 327,322 Staples H 37,400 City Center C 230,000 Ferguson Center G 118,000 The Marquis (Phase I) D 1,000,000 Commonweatlh Center G 30,279 Former Hills Denbigh H 86,589 The Shops at High Street B 114,449 Fairway Plaza G 37,950 Jefferson Crossing (formerly Denbigh Crossing) A Village Shops at Kingsmill G 82,200 Glendale SC G 30,000 145,000 Wal-Mart SuperCenter H 210,000 Grand Furniture H 35,000 Kmart H 115,854 Williamsburg Crossing A 149,933 Harris Teeter H 52,334 Lee Hall Plaza A 36,000 Williamsburg Farm Fresh A 79,188 Haverty's H 45,000 Newport Crossing B 200,088 Williamsburg Marketcenter B 120,920 Haynes H 85,000 Richneck Shopping Center A 63,425 Williamsburg Outlet Mall I 180,000 Hidenwood SC A 100,000 Stoneybrook Shopping Center A 74,340 Williamsburg Pavillion Shops G 50,000 Jefferson Commons D 400,000 Turnberry Crossing A 53,775 Williamsburg SC I & II B 251,000 Jefferson Greene G 57,430 Village Square A 40,000 Williamsburg Towne and Cnty A 49,802 Jefferson Plaza D 178,200 Warwick Denbigh SC B 137,925 WindsorMeade Marketplace D 174,379 Kroger H 55,000 Yankee Candle H 42,000 FOXHILL / BUCKROE / EAST MERCURY Lowes H 120,000 Buckroe SC A 76,000 Market Place @ Oyster Point A 69,660 YORK COUNTY Farm Fresh Phoebus H 39,000 Newport Marketplace D 450,000 Grafton SC A 32,000 Kmart H 94,500 Newport Square B 184,126 Heritage Square A 73,665 Langley Square A 120,646 Office Depot H 30,122 Kiln Creek Center A 45,700 Marketplace @ Nickerson A 70,450 Oyster Point Plaza A 73,197 Lakeside 17 H 8,400 Nickerson Plaza A 83,849 Oyster Point Square A 83,089 Marketplace @ Yorktown A 73,050 Willow Oaks Village Square S.C. B 197,169 Patrick Henry Mall I 714,607 Patriots Square A 47,231 Patrick Henry Place A 17,000 Pavilion at Kiln Creek A 26,820 GLOUCESTER Sam's Club H 133,880 Shady Banks SC A 56,634 Food Lion H 40,000 The Shoppes at Oyster Point G 30,000 Wal-Mart SuperCenter H 220,000 Hayes Plaza SC A 52,651 Victory Center @ Kiln Creek A 78,000 Washington Square Shopping Center B 183,403 Hayes SC A 100,000 Village Square @ Kiln Creek B 263,000 York Square A 48,720 Home Depot H 100,000 Villages of Kiln Creek G 45,300 Yorkshire Downs G 23,900 Lowe's H 125,000 Wal-Mart Super Center H 201,146 HAMPTON ROADS MARKET REVIEW
INDUSTRIAL
Author William C. Throne, SIOR, CCIM, ALC
Data Preparation Stephanie Sanker, SIOR, CCIM
Survey Coordination Stephanie Sanker, SIOR, CCIM
Reporters Greenbrier...... Christine Kaempfe Bainbridge/S. Elizabeth River Area...... Chip Worley Cavalier Industrial Park...... Pat Mumey Norfolk Commerce Park/Central Norfolk Area ... Worth Remick Norfolk Industrial Park...... Charles Dickinson West Side/MidTown Norfolk Area...... Billy King Lynnhaven...... Brian Baker
Greenwich/Cleveland Streets Area ...... Bobby Beasley 2012 Airport Industrial Area ...... Bobby Beasley Portsmouth...... Sam Walker Suffolk ...... Bill Throne INDUSTRIAL Isle of Wight...... Billy King Copeland/Lower Peninsula ...... Clay Culbreth Oyster Point/Middle Peninsula Area ...... Bobby Philips Oakland/Upper Peninsula Area ...... Clay Culbreth Williamsburg Extended Area ...... Bobby Phillips
Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are funded by donations from the CREED IPAC and Council Advisory Boards, organizations, and individuals.
Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals makes any representation or warranty as to its accuracy.
27 2012 I N D U S T R I A L
General Overview
his report analyzes the 2011 industrial real estate con- ditions within the Virginia Beach-Norfolk-Newport News, VA-NC Metropolitan Statistical Area (the MSA) that is T also known as Hampton Roads. It provides inventory, vacancy, rent, sale and other data for the MSA. The survey includes properties in the cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg, plus the counties of Gloucester, James City, York and Isle of Wight.
METHODOLOGY
This survey includes the following types of properties: ■ Office-warehouse, industrial and shop facilities of 5,000 square feet or greater, although some facilities of less than 5,000 may be included. ■ Properties must have less than 80% office space to be included in the ODU survey. ■ Both owner-occupied and leased properties are included. Owner-occupied is defined as property that is 100% occu- pied by a business that is the same as or is related to the owner of the building. ■ All properties that are available and are listed for sale or lease regardless of whether they are occupied, unless they are strictly available for sale as an investment property, for example, a property that is available for sale and is cur- rently occupied on a short term lease is included. ■ All properties that have commenced construction (foundations installed as a minimum).
The Survey excludes the following types of properties: ■ Land ■ Warehouse or shop facilities on shipyard properties. ■ Warehouse or industrial facilities on federal government property (e.g. military installations). ■ Industrial facilities on government property (e.g. Norfolk International Terminal or Newport News Marine Terminal).
Functional submarket delineations are determined with some regard to city boundaries but boundaries are not determi- native. The entire market is divided into 16 submarkets defined by industrial building concentrations, the transportation network, and pertinent physical features. The area map included in this report provides a location for key reference.
The E.V. Williams Center for Real Estate and Economic Development (CREED) at Old Dominion University has been track- ing the inventory of the Hampton Roads industrial market since 1995. The results of this year’s survey (collected during the 4th quarter of 2011) indicate that the Hampton Roads industrial market currently encompasses 106,691,857 square
2012 Hampton Roads Real Estate Market Review 28 feet or space located in 2,866 buildings throughout the region. This is a decrease of 2,030,258 square feet or 1.9% from last year’s survey. The decrease is primarily due to the demolition of approximately 1 million square feet on the former Ford plant and increased accuracy of surveyors over previous years. Totals may differ from other market surveys due to the self-imposed limitations established by the ODU CREED methodology described above.
INTRODUCTION
The industrial market, while showing no improvement in the market below 50,000 square feet, fared better in 2011 than in 2010 for larger transactions. These major transactions obscured the overall weakness in the general industrial market.
Prior to the current recession, the Hampton Roads region began a significant transition toward servicing global markets through the Port of Virginia. Developers purchased land and began construction of new cross-dock and deconsolidation centers. By 2008, over 20 million square feet of industrial buildings were planned. Ultimately, less than half that total was built.
In 2011, the market saw absorption of much newly constructed Class A product. As a result, there is very little remaining high cube warehousing space. Over the past few years, building design has continued to evolve. Companies entering the market are demanding higher clear heights, larger truck courts, Developers holding entitled properties, with site concrete construction, ESFR fire plan approvals and financing in place, should be in suppression and sustainable facilities. As a result, older generation distribution the best position to capture significant new tenants. space will see greater vacancy and declining rental rates. Companies looking to relocate or expand in the market will have to look west for build-to-suit opportunities. Developers holding entitled properties, with site plan approvals and financing in place, should be in the best position to capture significant new tenants. Ironically, land may again become a desired commodity, with developers looking to position themselves as ‘build-ready’ for these companies. Waverton Commerce Park, CenterPoint Properties, McDonald Development, the Regional Companies, Liberty Properties, ProLogis, Devon USA and others all have significant entitled land holdings in Suffolk. 2012
The general industrial market has remained weak. Softness in the construction industry, defense spending, and light manufacturing continues to inhibit recovery. The service sector has also suffered in the current economy. Buildings that
used to command a premium, such as small warehouse properties with yard space, have taken longer to lease, with INDUSTRIAL diminished rental rates in comparison to past years.
VACANCIES AND ABSORPTION
In 2011, the Hampton Roads region saw vacancy rates edge downward. It appears vacancy rates peaked in 2010 at 12.48% with a reduction in 2011 to 12.12%. The Southside saw vacancy declines in 7 of the 12 submarkets, finishing the 2011 year 1.1% lower than in 2010. Markets that saw improvements were ‘core’ markets, such as Norfolk Industrial Park (4.2% drop in vacancy) and Airport Industrial Park (6.12% drop). Outlying markets, further from the center of population in Hampton Roads, continue to work through vacant space.
Southside submarkets that improved included two of Chesapeake’s three submarkets: Greenbrier Area and the Bainbridge/Elizabeth River area. Both saw absorption of over 200,000 square feet by multiple tenants and multiple transactions. Vacancy rates for both finished the year around 8%. These are indicators of a return to health in these submarkets.
29 2012 INDUSTRIAL
Suffolk also recorded a reduction in vacancy of 4.19%. Distribution and supply chain related companies accounted for the bulk of the leasing, with positive absorption of over 475,000 square feet in existing space. Suffolk also saw renewed activity in development, with CenterPoint Properties constructing two new build-to-suites totaling almost 700,000 square feet.
Markets that saw significant increases in vacancy rate include:
Lynnhaven +5.09% Greenwich/Cleveland Street +3.2% Portsmouth +4.14% Isle of Wight +7.05%
The Peninsula submarkets were consistent in 2011 with virtually no change in the total vacancy rate. There were a number of internal changes of note, including the demolition of the Hiden warehouses, a group of WWII vintage buildings owned by the Huntington-Ingalls shipyard. These buildings totaled approximately 900,000 square feet, and reduced the size of the Copeland/Lower Peninsula area Submarket substantially.
Copeland has historically had to carry Camp Morrison as a vacancy. At approximately 600,000 square feet, this has contributed, perhaps unfairly, to the total vacancy of 17.73%. Also in Copeland, the former Speigel warehouse at 5201 City Line Road came on the market in 2011, adding 352,000 square feet to vacancy, bringing the total to almost 2 million square feet empty.
On the other side of the ledger, Oyster Point/Middle Peninsula and the Williamsburg Extended Submarkets both held to vacancy rates of less than 7%. These would be good rates in a healthy economy.
Submarket Totals Bldgs Submarket City Surveyed Reporter Total Sq Ft Vacancy Sq Ft Vacancy % Greenbrier Area Chesapeake 283 Kaempfe 8,593,530 718,667 8.36% Bainbridge/S. Elizabeth River Area Chesapeake 143 Worley 5,829,489 447,921 7.68% Cavalier Industrial Park Area Chesapeake 189 Mumey 6,138,520 884,537 14.41% Norfolk Commerce Park/ Norfolk 143 Remick 5,492,451 622,279 11.33% Central Norfolk Area Norfolk Industrial Park Area Norfolk 352 Dickinson 10,408,152 788,433 7.58% West Side/Midtown Norfolk Area Norfolk 277 King 6,780,759 546,271 8.06% Lynnhaven Area Virginia Beach 283 Baker 8,618,677 1,648,242 19.12% Greenwich/Cleveland Streets Area Virginia Beach 125 Beasley 3,057,300 300,717 9.84% Airport Industrial Park Area Virginia Beach 72 Beasley 3,641,362 445,215 12.23% City of Portsmouth Portsmouth 158 Walker 4,228,501 478,849 11.32% City of Suffolk Suffolk 126 Throne 11,637,163 1,638,902 14.08% Isle of Wight Isle of Wight 34 King 3,807,023 980,650 25.76% Southside Totals 2,185 78,232,927 9,500,683 12.14% Copeland/Lower Peninsula Area Peninsula 346 Culbreth 11,218,810 1,989,149 17.73% Oyster Point/Middle Peninsula Area Peninsula 129 Phillips 4,395,259 284,829 6.48% Oakland/Upper Peninsula Area Peninsula 116 Culbreth 4,829,759 669,549 13.86% Williamsburg Extended Area Peninsula 62 Phillips 9,128,673 625,487 6.85% Peninsula Totals 653 29,572,501 3,569,014 12.07% Totals 2,838 Sanker 107,805,428 13,069,697 12.12%
2012 Hampton Roads Real Estate Market Review 30
2012 INDUSTRIAL Median Price Sold Price Median $100.00 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 $1,500,000 $1,000,000 $500,000 $ Size Price Median Price per Square Foot # of Deals Price per Square Foot Avg. 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
14,000 13,500 13,000 12,500 12,000 11,500 11,000 10,500
0
80 60 40 20 Median Square Feet Square Median
Median Industrial Properties Hampton Roads Sold: Deals of #
Total Dollar Amount Dollar Total Average Price Sold Price Average were completed in 2011. While nowhere near peak transaction completed were $150,000,000 $100,000,000 $50,000,000 $ $0 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Size Price Avg. SizeAvg. Price Avg. Larger building sales continue to skew the average results. the average Larger building sales continue to skew Generally trending upward across the board. Generally trending upward 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 - They were leasing the property. were They Boulevard in Norfolk. Boulevard • 272 Benton Road in Suffolk sold to the City of Suffolk. 83,413 square feet on 17 acres. • also in Norfolk. Iron Mountain purchased 112,000 square feet at 4555 Progress Road at foreclosure, • Nash Finch MDV purchased their leased building of 601,640 square feet at 3616 Virginia Beach • in Norfolk of 664,000 square feet sold to KTN. building at 2424 Springfield Avenue The former Ford 80,000 60,000 40,000 20,000 500,000
2,500,000 2,000,000 1,500,000 1,000,000
volumes in 2008 and 2009, we are seeing a broad improvement market wide. market are seeing a broad improvement we volumes in 2008 and 2009, A significant number of smaller building sales Average Size: Average Numbers: Square Feet Square Total Square Feet Square Total ■ ■ ■ Average of Industrial Properties of Sold: Hampton RoadsAverage Number of Industrial Properties Sold: Hampton Roads A few analytical notes: A few Industrial Properties Roads Sold: Hampton Sales activity grew fairly dramatically in 2011. 36 buildings sold, totaling 2,106,555 square feet, valued at almost $78 square feet, totaling 2,106,555 fairlySales activity grew sold, dramatically in 2011. 36 buildings $36 million. at over of 1,143,117 square feet sold valued 2010 totals jump over million. This is a significant BUILDING SALES BUILDING 2012 INDUSTRIAL
OTHER REPRESENTATIVE BUILDING SALES
3527 Business Center Drive, Chesapeake February 2011 7,434 square feet $815,000 $109.63 per square foot Fenced yard area.
2010 Amedeo Court, Suffolk August, 2011 30,000 square feet $1,272,000 $42.40 per square foot New, tilt-concrete, no improvements, bank REO property.
1164 Kingwood Avenue, Norfolk April, 2011 11,611 square feet $747,000 $64.34 per square foot Older facility undergoing retrofit
230 Enterprise Drive, Newport News September, 2011 83,413 square feet $1,900,000 $22.78 per square foot
805 Live Oak Drive, Chesapeake July, 2011 22,645 square feet $1,650,000 $72.86 per square foot 46% office build-out
121 Old Aberdeen Road, Hampton July, 2011 5,440 square feet $435,000 $79.96 per square foot Smaller building
2861 Crusader Circle, Virginia Beach December, 2011 23,000 square feet $1,650,000 $71.74 per square foot Owner financing
LEASING
Lease rates saw modest increases in 2011. CBRE Hampton Roads reported in their 4th Quarter Hampton Roads Industrial Report that “Current average leasing rates rose from $4.41 per square foot triple net to $4.62 per square foot triple net.” It is expected that rates will continue to increase in 2012 as absorption continues to remove quality product from the market. The small space market and the large block market are expected to experience increasing rents. Both can expect to experience shortages of available space.
Older generation distribution space will continue to have high vacancy rates, particularly those properties in the 50,000 to 100,000 square foot range. Functionally obsolete mid-size properties between 10,000- 40,000 square feet in older environs will also face challenges filling their space.
New speculative space should be received well in the market.
2012 Hampton Roads Real Estate Market Review 32 2012 INDUSTRIAL Warehouse crane service added Custom retrofit, Warehouse Warehouse Warehouse space High quality manufacturing Warehouse General industrial yard fenced and stabilized 1 acre General industrial General industrial . CenterPoint also secured this build-to-suit requirement of 350,000 square feet in Suffolk. . CenterPoint . This project traded first to Jacoby Development in total for $14.25 million, who in turn sold million, in total for $14.25 Development . This project traded first to Jacoby . CenterPoint landed this build-to-suit of 336,960 square feet at their project in Suffolk. . CenterPoint . McDonald Development landed this cross-dock requirement of 385,000 square feet at their . McDonald Development for sale. the main manufacturing building to KTN for $10.4 million. Jacoby retained 46 acres of land now on the market the main manufacturing building to KTN for $10.4 million. Jacoby Virginia Commerce Center off Kenyon Road in Suffolk, Virginia. Road in Suffolk, Virginia Commerce Center off Kenyon Ace Hardware Exchange US Navy CalCartage Former Ford Plant Ford Former 33 ■ ■ ■ ■ Aside from normal market transactions, there have been a number of significant industrial market developments there have Aside from normal market transactions, MAJOR MARKET ACTIVITY 5,000 to 20,000 square feet20,000-40,000 square feet40,000-60,000 square feet>60,000 square feet $4.50-$6.00 $3.25-$5.25 $3.00-$4.50 $1.00-$4.00 RENTS FOR AVAILABLE SPACES BY SIZE RANGE 2011 BY SIZE SPACES RENTS FOR AVAILABLE <5,000 square feet $5.00-$7.00 3700 Village Avenue, Norfolk3700 Village Avenue, 110,000 square feet $3.25 NNN psf/yr 5601 City Line Road, NN 5601 City Line Road, Chesapeake Drive, 550 Woodlake feet 67,615 square 42,000 square feet $5.75 NNN psf/yr $3.58 NNN psf/yr 713 Fenway Avenue, Chesapeake Avenue, 713 Fenway 38,000 square feet $3.60 NNN psf/yr 981 Scott Street, Norfolk981 Scott Street, Chesapeake 2125 Smith Avenue, square feet 37,623 24,657 square feet NNN psf/yr $5.00 $7.95 NNN psf/yr 1347 Diamond Springs Road, VB Road, 1347 Diamond Springs 23,033 square feet $5.30 NNN psf/yr 5621 Raby Road, Norfolk Road, 5621 Raby VB1417 Miller Store Road, 8,000 square feetsquare feet 8,509 $6.25 NNN psf/yr $5.94 NNN psf/yr 160 Wellman Street, Norfolk Street, 160 Wellman 4021 Seaboard Court, Portsmouth 4,153 square feet 6,500 square feet $5.80 NNN psf/yr NNN psf/yr $9.79 REPRESENTATIVE INDUSTRIAL LEASING INDUSTRIAL REPRESENTATIVE worthy of note. 2012 INDUSTRIAL
■ DANA. Another build-to-suit project landed in Northern Suffolk at Liberty Properties Bridgeway Commerce Center: 126,000 square feet. ■ Regional Commerce Center, the Regional Company. This building of 400,000 square feet in Suffolk off Rt. 460 scored no less than four tenants for their new building: Art FX, 80,000 square feet; Caspari, 65,000 square feet; Massimo Zanetti, 67,500 square feet, and Best Brakes, 38,000 square feet. ■ Green Mountain Coffee. Johnson Development announced the pending sale of their 330,000 square foot warehouse building along with additional acreage for expansion. ■ IMS Gear. Miller Group in Virginia Beach will be providing a new facility for IMS Gear in the Lynnhaven area. Total square footage: 112,000 square feet. ■ Enviva LP purchased and opened their new 60 acre deep water terminal on the Elizabeth River to export over 3 million tons of wood chips and pellets per year to Europe.
A few thoughts on these major transactions:
First, the leasing and sales may be a precursor to activity in the market related to the Panama Canal expansion, with expected completion in 2014. Second, we may be seeing the leading edge of an economic recovery, led by major corporations anticipating the upturn and need for space. Third, build-to-suits dominate the larger transactions. This is a common occurrence nationwide. The absence of speculative building, coupled with a lack of remaining large facilities, has forced large users to look to developers with entitled land to construct facilities to their specifications. Look for 2012 to continue this trend as long as large entitled sites are still available. Note the following comments from around the country:
Raleigh, North Carolina
“Vacancy rates continue to demonstrate disparate performance between Class A assets with clear heights above 24’ and ESFR sprinkler systems versus older facilities without these features. While the overall market vacancy continues to hover around 20%, vacancy rates within Class A product continue to be relatively tight at 7% market wide.” — Christopher Norvell, Managing Director Cassidy Turley Southeast Real Estate Business, January 2012
Tampa, Florida
“We are beginning to see a shortage of Class A warehouse space for users 100,000 square feet or larger. With the combined Tampa, Pinellas and Lakeland markets ending 2011 at 6.7% vacancy, you would think develop- ers would start new construction.” — Bruce K. Erhardt, Executive Director Cushman and Wakefield of Florida Tampa Bay Land Market Overview 4Q 2011
Nationwide
“Industrial markets in the United States have also begun the recovery process. Integra Realty Resources research indicates that the underlying fundamentals in the industrial sector have improved only slightly over the course of the last three years, as a glut of speculative space built throughout the country prior to the crash is only now beginning to be absorbed. With this space beginning to be absorbed and little speculative building adding supply to the market in recent years, the sector could be poised for the strongest rebound in coming years as demand for space recovers.” — Integra Realty Resources Real Estate Value Trends Viewpoint 2012
2012 Hampton Roads Real Estate Market Review 34 2012 INDUSTRIAL General manufacturing. Domestic and inter- and Domestic manufacturing. General Roads Hampton consider companies national a good place Virginia of Commonwealth and cost state, right-to-work Labor, business. do to of living and quality of life consistently rank areas. other to compared high when should occur in 2012 with growing demand for break bulk should occur in 2012 with growing demand offloading and exporting. Recent examples include agricul- tural product exported imported stone to China, for road and manufac- and tunnel construction Roads, in Hampton facilities. turing and maintenance for offshore wind pellet industrial real estate. Wood demand for heavy steel and metal recycling. coal export, exports, quality cost of living and right-to-work state, of VirginiaCommonwealth a good place to do business. Labor, to other areas. of life consistently rank high when compared build on the modest improvements shown in 2011. shown improvements build on the modest Island. Craney 26%. by rail container traffic increased CSX and NS rail lines. In 2011, Suffolk for both the
• Exports of specialty products are also expected to increase • General manufacturing. Domestic and international and companies consider Hampton Roads • properties large waterfront of the remaining Development • the Port to into 2012 with a resolve move is expected to Board of Directors, of a new the installation With • TEU (import volumes export) and at the Port 1.2% to 1.9 million TEU’s. of Virginia by up in 2011 were • at includes $26.9 million for the expansion has agreed to a FY12 budget that Government The Federal • Intermodal transport containers APM terminal off the in moving to innovation is expected to be a major • The Virginia barge traffic. providing Port the Port Authority signed a five year lease to operate of Richmond, feet signed in 2010, and the highest level of activity since 2007. Of the 33 U.S. industrial markets tracked by of activity since 2007. Of the 33 U.S. industrial markets tracked and the highest level feet signed in 2010, More than 306.3 million square feet of new leases were completed during the year, up 14% from 268.8 square completed during the year, leases were More than 306.3 million square feet of new Industrial Properties: The Port of Virginia: 35 ■ ■ ■ with Cushman and Wakefield in New York: in New with Cushman and Wakefield “The US Labor Department the largest increase jobs in January reported added 243,000 payroll 2012, that the economy in employment since last April. The strongest job growth was in the professional business services since last April. The strongest job growth was in employment increas- sector…Large Where is the market going in 2012? Will the Panama Canal really stimulate the local industrial warehousing mar- the local industrial warehousing Canal really stimulate the Panama Where is the market going in 2012? Will of Virginia? a continue to see major announcements for Hampton Roads and the Commonwealth First, Will we ket? look at the national industrial market for a little perspective: Research Senior Economist, McCarthy, Ken Mr. as related by is beginning to show some life, The national economy BAY ENVIRONMENTAL, AND AMAZON.COM AND ENVIRONMENTAL, BAY CONCLUSION: CUSHMAN AND WAKEFIELD, CUSHMAN AND WAKEFIELD, CONCLUSION: Beyond real estate transactions, the following events occurred events the following Hampton Roads indus- will influence the in 2011 and transactions, real estate Beyond trial market for years to come. REGIONAL INFLUENCES ON THE LOCAL MARKET LOCAL MARKET ON THE INFLUENCES REGIONAL es were also reportedes were the real estate industry in the manufacturing sector (50,000+ jobs). For there is nothing more impor- tant than employment. More jobs represent demand for space. So a return to healthy job growth is the most positive sign job growth is the most positive a return More jobs represent demand for space. So tant than employment. to healthy in the last six months. Rising spending will also spur higher demand for manufacturing, warehouse and other industrial warehouse in the last six months. Rising spending will also spur higher demand for manufacturing, are cautiously optimistic on 2012…” spaces. We Southern Director, more thoughts on the national market from Tina Arambulo of Cushman and Wakefield, A few California & U.S. Industrial Research: 2012 INDUSTRIAL
Cushman & Wakefield, 22 reported an increase in new activity. Markets with the largest year-over-year gain in leasing included: Central & Northern New Jersey (+ 83.2%), Phoenix (+ 76.1%), Miami (+ 44.2%) and Dallas/Fort Worth (+ 32.4%).
■ For leases over 100,000 square feet, there were 538 deals signed during the year, an increase of 14.0% over 2010 and 28.1% over 2009. This year’s total is also more in-line with levels seen prior to the recession. With big- box users dominating leasing activity in 2011, the large distribution hub markets have captured a significant share of the activity. The Inland Empire market in Southern California captured 37.8% of new leases signed over 500,000 square feet in the U.S.
■ With double-digit growth in on-line retail sales, E-commerce firms like Amazon.com have emerged as an important part of U.S. industrial demand. During the year, Amazon.com signed a 1.2-msf lease for a fulfillment U.S. Leasing Activity over 100,000 square feet center in Phoenix and two facilities totaling 1.8 600 million square feet in Indianapolis. Demand for big-box warehouse and distribution centers accel- 550 erated significantly in 2011 and we expect to see continuing demand for Class A big-box space in 500 key logistics hubs such as Inland Empire, New Jersey, Chicago, and Dallas/Fort Worth. 450
400 It should be reasonable to expect the Hampton Roads market to benefit from a national upturn in 350 the economy and the industrial market in general. The recent announcement concerning Amazon.com 300 locating two new fulfillment centers in Virginia 2007 2008 2009 2010 2011
should help the confidence of Hampton Roads looking Source: C&W Research Services. NOTE: Only markets tracked by into next year. Amazon chose Virginia over other Cushman & Wakefield offices are included in this analysis which includes new leases, expansions and subleases not counting renewals. states, and most of the positive business features of Virginia as a business environment apply to our region.
On the other end of the spectrum, Bay Environmental is a local Chesapeake firm providing environmental surveys of commercial buildings and land in Hampton Roads. Phase I environmental inspections are commonly done prior to the purchase and/or financing of real estate. Bay Environmental reported the following summary of Phase I stud- ies they have performed by year, giving us a ‘street level’ view of the market.
Bay Environmental number Year of Phase I studies performed 2006 120 2007 120 2008 60 2009 30 2010 40 2011 60
Finally, the Port of Virginia with plenty of TEU capacity, positions the Hampton Roads region for a good 2012. Look for the decreasing vacancy trend to continue, rental rates in most sectors to firm up, and more build-to-suit construction.
2012 Hampton Roads Real Estate Market Review 36 2012 INDUSTRIAL
Industrial Submarkets
Southside Peninsula Airport Industrial Park Lynnhaven Copeland Bainbridge Norfolk Industrial Park Oakland Cavalier Portsmouth Oyster Point Central Norfolk Suffolk Williamsburg Extended Cleveland West Norfolk Greenbrier
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OFFICE
Author Casey J. O’Hearn Associate Vice President Jones Lang LaSalle
Data Analysis Geoff Thomas Research & Financial Analyst Jones Lang LaSalle
Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are funded by donations from individuals, organizations and the CREED IPAC and Council Advisory Boards.
Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies 2012 and/or individuals makes any representation or warranty as to its accuracy. OFFICE
39 2012 O F F I C E
General Overview
he Hampton Roads office market ended 2011 with positive absorption year over year but overall, the statistical performance T reflected another sluggish year end with a luke warm outlook on potential growth through 2012. Still representing a tenant-oriented marketplace driven by economic incentives and stagnant leasing activity, the Hampton Roads office market is forecasted to have another year of sluggish growth with the 2012 elections on the horizon affecting the local core defense industry.
The 4th quarter 2011 overall vacancy rate for Hampton Roads decreased to 13.5% from the 4th quarter 2010 rate of 14.6%. This positive absorption can be credited to no new product being delivered to the Hampton Roads office market in 2011. Hampton Roads did outperform the national office market vacancy rate which finished 2011 down twenty basis points from the end of 2010 at 16.0% direct vacancy. However, the total vacancy for the national office market finished 2011 at 17.6% reflecting a significant amount of sublease space throughout the market.
METHODOLOGY
The information in this report relies on market reports from the RCAnalytics, REIS, the CoStar Group Inc., and individual interviews of local office brokers. The methodology or parameters of building size included in the report for all of Hampton Roads were 20,000 SF and higher for the largest completed lease transactions in 2011; 5,000 SF and higher were included for the top completed office building sales transactions in 2011; approximately five acres and higher were includ- ed for the top completed office land sales transactions in 2011; and 20,000 SF and higher were included for top new construction deliveries in 2011.
2012 Hampton Roads Real Estate Market Review 40 STILL KICKING THE CAN DOWN HAMPTON ROADS
Economy The Hampton Roads economy has taken a discernible blow in the past two quarters. Major changes in defense spending and private industry out of state relocations have created economic tension for the area. This migration will most likely be reflected in the first quarters of 2012. Contrary to recent events, unemployment is still on a downward trend. Preliminary data suggests the November unem- ployment rate fell 30 basis points from October to 6.7 percent. Gross metro product has actually climbed by 90 basis points, signaling no slow down in Hampton Roads' output. Considerable achieve- ments have been made to improve the areas ports and alleviate traffic congestion by expanding the Midtown tunnel. Gaps left by the decommissioned USJFCOM have been partially filled by the expan- sion of Navy Cyber Forces. However, reflecting on recovery progress of other Virginia cities, Hampton Roads has seen the smallest percentage increase in GDP, increases in credit delinquencies, and still heavy dependence on defense spending.
Market Conditions Endogenous shocks that occurred in the end of 2011 will likely be felt into 2012, decelerating forward progress. Tour activity has been extremely active with a major increase in defense contractors shop- ping for space. The expansion of Navy Cyber Forces has caught the eye of technology firms-one indus- try which Hampton Roads lacks. Although the activity looks promising, the area has just witnessed a major outflow of tenants. Current tenants in the mar- ket are taking advantage 12-month forecast of vacancies and consoli- Key Market Indicators dating offices, others are 2012 looking to relocate to more Supply 30,934,900 sf desirable properties. Direct vacancy rate 13.5 %
Total vacancy rate 13.9% OFFICE Although major steps have been taken to improve the Under construction (% preleased) 262,289sf local economy, Hampton Leasing activity 12 mo. % change 10.2% Roads relies on two indus- YTD net absorption 44,306 sf tries: defense and ship- ping. Past events have 12-month overall rent % change -4.1% proven that one pen stroke Class A overall asking rent $21.27 psf
can severely impair the Pricing Demand Supply Class B overall asking rent $16.48 psf area’s economic vitality and Hampton Roads is not out of the woods yet. Current plans to relocate one of the area’s three carrier divisions to Florida has the possibility of removing 6,000 jobs and $425 million in annual revenue. Green Mountain Coffee recently opened a facility in Isle of Wright, but rumors are circulating that they will be losing their patent for the K-Cup instant-brew packaging in 2013, which may severely affect their revenue if other coffee companies can now compete with Green Mountain lines.
41 2012 O F F I C E
Net New Supply, Net Absorption and Total Vacancy 1,200,000 20%
800,000 15%
400,000 10% Square Feet 0 5%
-400,00 0% 2007 2008 2009 2010 2011
Net New Supply Net Absorption Total Vacancy
Leasing Activity vs. Sublease Vacant Space
2,000,000
1,500,000 Outlook Conditions in Hampton Roads are not going to improve significantly in 2012. Most likely, 1,000,000 commercial real estate markets need to re- Square Feet stabilize after the last wave of negative 500,000 absorption. Continued reliance on defense spending will most likely keep growth on 0 standby as the market holds its breath for the 2007 2008 2009 2010 2011 2012 elections. Leasing Activity Sublease Space
Sublease space includes vacant space
Tenant Perspective Tenants are still controlling the market in Hampton Roads with vacancy rates driving concession packages. Forward looking tenants should lock-in longer terms to take advantage of lower rental rates. Longer terms will ultimately provide stronger concessions packages which currently run $2 to $3 dollars per square foot per lease year for a new deal. Hampton Roads is currently one of the least expensive areas for businesses in the State of Virginia. The combination of state and local government support and tenant concessions provides favorable leas- ing conditions for new tenants. Speculative development is all but nonexistent and developers, due to financing constraints, are only able to build when a credit tenant has signed a long term lease. New construction should remain sluggish as the market absorbs existing high vacancies and does not warrant additional supply.
2012 Hampton Roads Real Estate Market Review 42
2012 OFFICE
0 sf >200,000
200,000 sf 200,000 Southside Southside
0 1 - 100,000
100,000 sf 100,000 5 1 - 50,000
Peninsula Peninsula
50,000 sf 50,000 7 - 25,000 13 5 0
20 15 10 $0
$20 $10
Number of Blocks of Number $ Square Feet Square $ Southside Southside Peninsula Peninsula 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 8 6 4 2 0
$5 $0
$10 $15 $20 $25
Months $ Square Feet Square $ 43 Class A Free RentClass Contiguous Space Vacant A Blocks of Class Class A Asking Overall Rents Allowance Improvement Class A Tenant Landlord Perspective The objective of landlords is to hold onto warm bodies. A shallower tenant pool should ultimately continue the tenant pool should ultimately bodies. A shallower is to hold onto warm The objective of landlords as aggressive as 2011, 2012. Concession packages will not be slightly into rates, rental trend of effective lower competitive. Industrybut should still remain stabilize the office to diversification will be the most effective way market. Property companies to owners incentives to attract new better to provide must encourage local officials the market. 2012 O F F I C E
Submarket Leverage – Market History and Forecast
Submarket 2009 2010 2011 2012 2013 Newport News Property Clock – Current Market Conditions Hampton Williamsburg Peaking Falling Yorktown TenantLeverage Market Market Norfolk Virginia Beach Rising Bottoming Market Market Portsmouth
Landlord Leverage Chesapeake Peninsula Southside Suffolk
Landlord-favorable conditions Balanced conditions Tenant-favorable conditions
Completed Lease Transactions
Tenant Address Submarket SF Type Navy Cyber Forces 116 Lake View Parkway Suffolk 125,000 Expansion US Coast Guard 300 Main Street Norfolk 121,643 Renewal Hewlett-Packard Development Company, L.P. 1434 Crossways Boulevard Chesapeake 112,297 Renewal AMSEC 550 Wood Lake Circle Chesapeake 67,615 Renewal SSAI 208 Golden Court Virginia Beach 63,029 Renwal Norfolk Department of Human Services 741 Monticello Ave Norfolk 60,000 Renewal General Dynamics Information Technology, Inc 700 Independence Parkway Chesapeake 59,509 Renewal Sentara 1441 Crossways Boulevard Chesapeake 54,476 Renewal AECOM 741 Monticello Avenue Norfolk 35,000 Expansion SAIC 2877 Guardian Lane Virginia Beach 32,000 New SDV Properties LLC 133 Waller Mill Rd Williamsburg 28,764 New Amerigroup 1301 Executive Boulevard Chesapeake 25,500 New Strayer University 675 Old Oyster Point Road Newport News 25,000 New Crescent Recovery 510 Independence Boulevard Chesapeake 23,424 Renewal CDYNE Corporation 505 Independence Boulevard Chesapeake 23,328 New Commonwealth of VA, Dept. of General Services 2600 Washington Ave Newport News 23,129 Renewal H&A Architects & Engineers 222-236 Central Park Ave Virginia Beach 23,000 New Bon Secours 1040 University Boulevard Portsmouth 13,729 New CACI 999 Waterside Drive Norfolk 11,600 Expansion Hunton Williams World Trade Center Norfolk 10,000 New Harry Jernigan CPA, PC 5101 Cleveland St Virginia Beach 9,481 New PAPCO, INC 5101 Cleveland St Virginia Beach 6,050 New
Hampton Roads methodology: Inventory includes all Class A, B, & C office properties > 20,000 square feet, excluding all condo, medical and government owned buildings, and owner occupied buildings
2012 Hampton Roads Real Estate Market Review 44 2012 OFFICE medical and government owned buildings, and buildings, owned medical and government ord Properties LLC / City of Portsmouth 4 $900,000/$20 The Custom Shop 55th Street Corp.The Custom Shop 55th Street Cox Communications 133,000 $95 45 780 Lynnhaven Pkwy780 Lynnhaven Virginia Beach / Continental Capital Management 77,622 $109 41 Old Oyster Point Rd 41 Old Oyster Point Newport News Real Estate Inc Divaris 33,000 5424 Discovery Park Blvd 5424 Discovery Park View Blvd 6005 Harbour Rd 99 Old Oyster Point Williamsburg Suffolk LLCWilliamsburg Medical, AH Newport News Real Estate Inc Divaris Bank Towne 40,000 33,000 39,399 Address Submarket Buyer / Seller SF Address St)Civic Center parking Lot (Water Portsmouth Oxf Submarket Buyer / Seller Acres $ PSF 1104 Madison Plz3527 Business Center Dr Chesapeake Chesapeake WB / Heard Pumping LLC & E Holdings LLC Station LLCTowne Medical / Tidewater Emergency 7,486 7,080 $97 $115 549 E Brambleton Ave549 E Brambleton Ave 3701 Pacific Norfolk Virginia Beach JMCG Norfolk LLC / Regions Bank Corp LLC / Brasco Bay Assocs, Avenue Pacific 3701 9,827 $153 16,334 $38 2697 International Pkwy Oak Dr805 Live Virginia Beach CPC Realty / Rosemont Realty Chesapeake LLC / Roland L Jr & Laura C Ore WT Holdings, 22,600 64,186 $84 $72 850-860 Greenbrier Circle850-860 Greenbrier St5701 Cleveland Chesapeake Properties Realty / Parkway First Potomac Virginia Beach Corp / Development Olympia 173,456 $115 Address Submarket Buyer / Seller SF $ PSF owner occupied buildings owner Hampton Roads methodology: Inventory includes all Class A, B, & C office properties > 20,000 square feet, excluding all condo, & C office properties excluding all condo, > 20,000 square B, feet, InventoryA, Hampton Roads methodology: includes all Class Source: RCAnalytics, REIS, CoStar Group, Inc. CoStar Group, REIS, Source: RCAnalytics, Top Select New Construction Deliveries (2011) Top Source: RCAnalytics, REIS, CoStar Group, Inc. CoStar Group, REIS, Source: RCAnalytics, Top Completed Office Land Sales/Transactions Completed Office Land Sales/Transactions Top Source: RCAnalytics, REIS, CoStar Group, Inc. CoStar Group, REIS, Source: RCAnalytics, Top Completed Office Building Sales/Transactions Completed Office Top 2012 O F F I C E
Class A Office Market Statistics Hampton Roads (Year-end 2011)
Market Existing Inventory Vacancy YTD net YTD Under Quoted Absorption Deliveries Const SF Rates # Blds Total r.b.a. Direct SF Total SF Vac % Peninsula 32 2,773,770 311,653 345,040 12.5% 9,016 0 60,000 $19.80 Southside 96 9,483,513 1,305,149 1,331,456 15.0% 77,765 39,399 61,980 $21.71 Totals 128 12,161,052 1,616,802 1,676,496 14.4% 86,781 39,399 121,980 $21.27
Class B Office Market Statistics Hampton Roads (Year-end 2011)
Market Existing Inventory Vacancy YTD net YTD Under Quoted Absorption Deliveries Const SF Rates # Blds Total r.b.a. Direct SF Total SF Vac % Peninsula 101 4,981,084 654,909 671,587 13.5% 86,888 106,000 0 $15.79 Southside 240 11,398,605 1,747,469 1,781,035 16.2% (149,262) 27,476 92,300 $16.71 Totals 341 16,379,689 2,402,378 2,452,622 14.9% (62,734) 133,476 92,300 $16.48
Class C Office Market Statistics Hampton Roads (Year-end 2011)
Market Existing Inventory Vacancy YTD net YTD Under Quoted Absorption Deliveries Const SF Rates # Blds Total r.b.a. Direct SF Total SF Vac % Peninsula 20 769,276 70,442 70,442 9.2% 30,413 0 0 $9.95 Southside 44 1,528,652 99,621 99,621 6.9% (10,514) 0 0 $13.01 Totals 64 2,297,928 170,063 170,063 7.6% 19,899 0 0 $10.36
Total Office Market Statistics Hampton Roads (Year-end 2011)
Market Existing Inventory Vacancy YTD net YTD Under Quoted Absorption Deliveries Const SF Rates # Blds Total r.b.a. Direct SF Total SF Vac % Peninsula 153 8,524,130 1,037,004 1,087,069 12.8% 126,317 106,000 108,000 $16.70 Southside 380 22,410,770 4,189,243 3,212,112 15.0% (82,011) 66,875 154,280 $19.10 Totals 533 30,934,900 5,618,212 4,299,181 14.4% 44,306 239,750 262,289 $18.51
Class A - Significant Office Market Statistics Hampton Roads (Year-end 2011)
Market Existing Inventory Vacancy YTD netYTD Under Quoted Absorption Deliveries Const SF Rates # Blds Total r.b.a. Direct SF Total SF Vac % Downtown Norfolk 10 2,309,331 314,643 319,586 15.3% (16,049) 0 0 25.9% Harbour View 9 695,149 154,486 156,864 22.6% 26,188 0 0 0.3% Oyster Point 15 1,095,202 128,327 138,028 12.6% 30,218 0 0 16.5% VA Beach CBD 12 1,238,264 73,194 73,194 5.9% 40,893 0 0 15.8% Totals 46 5,337,946 670,650 687,672 13.5% 81,250 0 0 18.8%
Source: CoStar Group, Inc.
2012 Hampton Roads Real Estate Market Review 46 2012 OFFICE NA NA N/A $19.38 $24.11 $17.14 $19.84 $16.71 $26.00 $15.87 $17.22 $14.75 $19.36 $16.55 $14.75 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66,000 66,000 66,000 66,000 0 0 0 2,672 2,672 39,137 61,264 12,959 28,374 10,566 (67,184) (22,661) (51,135) (63,554) (73,356) Absorption Deliveries Const SF Rates Absorption Deliveries Const SF Rates Absorption Deliveries SF Const Rates 9.1% 9.5% 0.3% 0.0% 3.5% 0.0% 15.9% 18.8% 20.1% 13.4% 14.5% 25.9% 16.5% 15.8% 13.1% 0 0 5,932 1,441 31,000 96,929 36,932 917,549 158,305 473,819 170,123 329,859 566,963 995,192 1,719,796 0 0 5,932 1,441 31,000 92,888 36,932 911,406 155,927 447,440 166,082 565,763 313,181 973,273 1,680,855 0 0 171,673 236,199 488,862 708,701 407,872 ,185,124 4,730,654 1,184,011 3,267,333 1,946,965 2 2,000,458 5,383,145 11,128,963 9 6 0 6 0 44 18 63 30 28 42 18 97 12 155 # Blds r.b.a. Total Direct SF SF Total % Vac # Blds r.b.a. Total Direct SF SF Total % Vac # Blds r.b.a. Total Direct SF SF Total % Vac Downtown Norfolk Downtown Harbour View Oyster Point Beach CBD VA Totals Downtown Norfolk Downtown Harbour View Oyster Point Beach CBD VA Totals Downtown Norfolk Downtown Harbour View Oyster Point Beach CBD VA Totals 47 Market Market Existing Inventory Vacancy YTD net YTD Under Quoted Market Market Existing Inventory Vacancy YTD net YTD Under Quoted Market Market Existing Inventory Vacancy YTD net YTD Under Quoted The office vacancy rate in the Richmond, VA office market area ended the year at a direct vacancy of 10.9% and VA The office vacancy rate in the Richmond, Q4 2011 DATA — FROM COSTAR OFFICE MARKET REPORT COSTAR — FROM Q4 2011 DATA The relative vitality of the Hampton Roads office market can be more clearly illustrated by comparing the area’s The relative vitality of the Hampton Roads office market can be more clearly illustrated by REGIONAL OFFICE MARKET COMPARISON Source: CoStar Group, Inc. Source: CoStar Group, Significant Office Market Statistics Hampton Roads (Year-end 2011) Hampton Roads (Year-end Statistics Significant Office Market Source: CoStar Group, Inc. Source: CoStar Group, Class C - Significant Office Market Statistics Hampton Roads (Year-end 2011) (Year-end Statistics Hampton Roads Office Market Class C - Significant Source: CoStar Group, Inc. Source: CoStar Group, Class B - Significant Office Market Statistics Hampton Roads (Year-end 2011) Roads (Year-end Statistics Hampton Significant Office Market Class B - of Columbia (Washington D.C.) office market finished 2011 at 13.0% direct vacancy and 14.2% total. D.C.) of Columbia (Washington Charlotte, NC market And finally the office vacancy rate in the District finished at 16.8% direct and 18.1% total. Charlotte, total vacancy of 11.8%. In Raleigh-Durham, NC the market closed the year at 16.0% direct and 16.8% total. The total vacancy of 11.8%. In Raleigh-Durham, 2011 performance to the nearby Virginia markets of Richmond, the District of Columbia, as well as the North as well the District of Columbia, Virginia2011 performance to the nearby markets of Richmond, Carolina markets of Raleigh-Durham and Charlotte. in compari- Clearly competitive areas fared well our regional son to the United States’ national office vacancy rate. 2011 Office Building OWNER OCCUPIED Greenbrier Tech Center One (flex) ...... 95,414 CMA/CGM (USA) ...... 90,000 Greenbrier Tech Center Two (flex) ...... 82,340 Directory Commander Corporate Center ...... 65,000 Hanbury Office Park ...... 24,000 Silver Oak ...... 78,200 Hanbury Road Business Center ...... 9,000 Zim-American Israeli Shipping ...... 30,000 Independence Technology Center I ...... 98,000 DOWNTOWN NORFOLK Rose and Womble Business Center ...... 13,432 CENTRAL NORFOLK SunTrust Bank Building ...... 23,000 CLASS A 737 Volvo Parkway ...... 36,000 150 West Main Street ...... 226,183 CLASS B Volvo Park (Progressive Drive) ...... 52,000 Bank of America ...... 340,000 100 Kingsley Lane, DePaul Health Park” ...... 48,000 Volvo VII ...... 13,000 Crown Center ...... 62,000 110 Kingsley Lane, DePaul Medical Building” . . . .39,054 Greenbrier Business Center ...... 50,000 Dominion Tower ...... 403,276 160 Lingsley Lane, DePaul Medical Atrium” ...... 40,000 Greenbrier Square ...... 26,250 Fort Norfolk Medical Office Tower ...... 196,000 241 Corporate Blvd. (VA Eye Development) ...... 34,070 Heritage Bank Building ...... 12,654 Main Street Tower ...... 200,000 930 Majestic Avenue ...... 9,500 Riverwalk Professional Bldg ...... 10,000 Norfolk Southern Tower ...... 301,463 5360 Robin Hood Road ...... 42,000 Woodbrier Terrace ...... 10,000 Town Point Center ...... 130,266 Almeda Business Center (flex) ...... 84,000 Wright Building ...... 12,000 World Trade Center ...... 366,941 Central Center Office Building ...... 53,815 Wells Fargo Center ...... 255,000 Commerce Park Place(flex) ...... 58,783 CLASS C Gateway II(flex) ...... 45,000 2125 Smith Avenue ...... 42,423 CLASS B Lafayette Executive Center ...... 18,641 Knells Ridge Plaza ...... 15,500 101 Granby Street ...... 22,000 Lawson Building ...... 20,022 Old Greenbrier Village ...... 34,015 141 W. Virginia Beach Blvd. (ABC Building) ...... 10,000 Norfolk Business Center (flex) ...... 89,000 201 Granby Mall Building ...... 76,071 Norfolk Business Center II (flex) ...... 126,926 OWNER OCCUPIED 250 W. Brambleton Avenue ...... 17,984 Norfolk Commerce Center I(flex) ...... 73,000 Cox Communications ...... 150,000 345 W. Freemason ...... 11,000 Norfolk Commerce Center III(flex) ...... 168,000 Dollar Tree ...... 300,000 500 Plume Street ...... 60,000 Norfolk Commerce Center IV(flex) ...... 79,980 First Data ...... 42,557 500 E. Main St. (BB&T) ...... 230,000 Norfolk Commerce Center V(flex) ...... 72,000 Household Finance ...... 60,000 City Centre ...... 54,138 Panasonic Call Center ...... 55,000 Hague Medical Center ...... 31,659 CLASS C Madison Office Building ...... 82,000 4100 Building ...... 20,614 Monticello Arcade ...... 44,500 HILLTOP/OCEANFRONT Atlas Building ...... 30,476 The Monticello Building ...... 70,000 Blair Building ...... 15,000 CLASS A Plume Center West ...... 82,375 Southern Office Building ...... 11,061 Pavilion Center (Towne Bank) ...... 85,177 RBC Centura Tower ...... 111,600 Time Building ...... 32,000 Potter Professional Center ...... 27,500 St. Paul Building ...... 47,308 William E. Wood Building ...... 20,000 Seaboard Center ...... 30,000 OWNER OCCUPIED Tazewell Building ...... 38,000 American Funds Building ...... 106,000 CLASS B The Helena Building ...... 20,100 1206 Laskin Road Executive Center ...... 33,000 Towne Bank Building ...... 52,698 CHESAPEAKE/GREENBRIER Beach Health Pavilion ...... 57,800 Wainwright Building ...... 83,151 Beach Tower ...... 23,000 York Street Center ...... 52,293 CLASS A Birdneck Office Park ...... 10,182 BECO Corp HQ (609 Independence) ...... 22,400 Birdneck Square ...... 17,285 CLASS C Crossways Center ...... 52,702 Camelot Professional Center ...... 40,725 220 West Freemason Street ...... 10,775 CHKD Health Center (Volvo Park VI) ...... 25,000 Colonial Mill Professional Center ...... 23,555 255 Granby Street ...... 30,000 Chubb Building ...... 97,500 Damalas Centre ...... 16,900 400 Gresham Drive (The Medical Building) ...... 78,867 Dendrite One ...... 50,000 First Colonial Office Park ...... 18,000 700 Monticello Avenue ...... 22,760 Dendrite Two ...... 50,000 General Booth Professional Center ...... 11,000 700 Boush Street ...... 16,825 EDS - 1434 Crossways Blvd ...... 111,000 Gibson Pavilion ...... 30,000 Anders Williams Building ...... 14,000 Greenbrier Tower I ...... 87,900 Great Neck Professional Bldg...... 20,000 Duke Grace Building ...... 26,417 Greenbrier Tower II ...... 86,976 Heritage Commons ...... 11,000 Ghent-Olney Building ...... 24,000 HR Realtors Association Bldg (638 Independence) .40,000 Hilltop West Executive Center ...... 23,000 Lonsdale Building ...... 18,000 Independence Place ...... 73,345 Louisa Avenue Building One ...... 11,000 Norfolk Community Services ...... 16,192 Lake Center I ...... 60,000 Louisa Avenue Building Two ...... 11,000 Wainwright Building ...... 82,318 Lake Center II ...... 64,000 Louisa Avenue Building Three ...... 8,195 Liberty One ...... 50,000 Mill Dam Crossing ...... 22,037 OWNER OCCUPIED Liberty Two ...... 50,000 Rudd Building ...... 13,000 AT&T ...... 200,000 Liberty Three ...... 75,000 Sandpiper Key Associates Bldg...... 32,000 Atlantic Building ...... 14,000 1403 Greenbrier Parkway (Gateway Bank) ...... 75,000 1092 Laskin Road ...... 18,240 Decker Building ...... 10,000 Dominion Enterprises ...... 220,000 CLASS B CLASS C Landmark Communications ...... 66,500 Atlantic Business Center ...... 60,000 Oceana East ...... 10,360” Norfolk Telcom Center ...... 60,000 Battlefield Corporate Center ...... 98,000 Peta ...... 25,000 Battlefield Lakes Tech Center I ...... 38,500 Standard Forms ...... 30,000 CORPORATE LANDING Battlefield Lakes Tech Center II ...... 29,000 Two Commercial Place ...... 234,450 Battlefield Lakes Tech Center III ...... 18,000 CLASS B Virginian Pilot Building ...... 174,141 Battlefield Technology Center ...... 51,578 Executive Center at Corporate Landing ...... 45,000” Battlefield Technology Center I ...... 97,000 Princess Anne Executive Park ...... 59,756” AIRPORT/NORTHAMPTON Battlefield Technology Center II (MCI) ...... 81,478 Verizon Building ...... 10,000 Branch Executive Quarter-Hamilton ...... 11,600 CLASS A Branch Executive Quarter-Jefferson ...... 23,838 OWNER OCCUPIED Twin Oaks I ...... 88,000 Branch Executive Quarter-Madison ...... 16,788 Al-Anon ...... 30,000 Twin Oaks II ...... 88,000 Chelsea Commons WCMB ...... 12,400 Liberty Tax Service ...... 30,000 The Concourse ...... 325,000 1580 Crossways Blvd ...... 10,800 GEICO ...... 250,000 Crossways Commerce Center II ...... 145,300 CLASS B Crossways Commerce Center I ...... 45,000 KEMPSVILLE Airport Executive Center ...... 70,609 Crossways I ...... 137,007 Circle South ...... 48,000 Crossways II (flex) ...... 84,751 CLASS A HRSA-ILA Bldg (Longshoremen’s) ...... 21,678 Crossways III ...... 61,992 Chadwick Building ...... 80,000 Northhampton Executive Center Dominion Business Center ...... 20,000 Grayson Building ...... 42,000 corrected buiding size ...... 69,904 Eden North Center ...... 18,700 Metroplex 1 ...... 35,000 Greenbrier Business Centre (flex) ...... 91,561 CLASS C Greenbrier Circle Corporate Center ...... 233,138 CLASS B Electrical Workers Corporation Office ...... 22,020 Greenbrier Executive Center II 1201 Lake James Office ...... 12,000 (I was torn down for a hotel) ...... 26,787 3386 Holland Road ...... 20,000 Greenbrier Point II ...... 16,000 5301 Providence Road (Providence South) . . . . .12,000 2012 Hampton Roads Real Estate Market Review 48 Arrowhead Office Court ...... 10,000 Rosemont Interstate Center II ...... 51,835 Copy Data (Ikon) ...... 20,000 Atrium of College Park Square ...... 36,379 Rosemont Interstate Center III* ...... 38,000 Lendman ...... 10,000 Central Park I (552 Central Dr) ...... 18,000 Sun Building ...... 11,600 Newtown Square ...... 78,000 Central Park II (544 Central) ...... 43,000 Transouth Building (3615 VB Blvd) ...... 12,500 College Park Square III ...... 30,150 Courtyard at Providence ...... 17,879 CLASS C PEMBROKE/ Fairfield Square ...... 12,933 Birchwood Office Park ...... 11,688 CENTRAL BUSINESS DISTRICT Holland South ...... 14,843 Byler Building ...... 16,592 Holland/Taft Professional Center ...... 11,850 CLASS A Kempsville Office Park ...... 30,722 OWNER OCCUPIED 249 Central Park Avenue ...... 59,000 Oxford Square ...... 13,544 Plan-It Building ...... 24,000 Convergence Center ...... 85,000 Woolpert Building ...... 36,700 Convergence Center II ...... 85,000 Convergence Center III ...... 99,000 LYNNHAVEN MILITARY CIRCLE Corporate Center VI ...... 59,000 Five Columbus Center ...... 20,000 CLASS A CLASS A Fulton Bank Plaza ...... 90,315 Chase Building ...... 31,910 Riverside Commerce Center (120 Corporate Blvd.) 70,000 One Columbus Center ...... 134,000 Lynnhaven Commons Complex ...... 25,000 Riverside Corporate Center ...... 86,682 OSS Building (former Ticketmaster) ...... 30,000 Lynnhaven Commons (office bldg) ...... 26,000 Six Columbus Center ...... 36,000 Lynnhaven II ...... 36,000 CLASS B Southport Center ...... 65,000 Lynnwood Plaza ...... 87,157 Centura Bank Building ...... 40,442 Town Center (222 Central Park) ...... 256,900 Marsh Landing ...... 62,117 Circle East ...... 41,047 Town Center North Tower ...... 53,000 Oceana Center One ...... 39,928 College Park Executive Center ...... 20,000 Two Columbus Center ...... 109,000 Oceana Place ...... 75,369 FBI Building ...... 50,000 Park West AMSEC ...... 66,180 I.T.T. Building ...... 49,379 CLASS B Pinehurst Centre ...... 103,000 4701 Columbus ...... 32,000 Reflections I ...... 62,924 CLASS C 4705 Columbus Street ...... 33,000 Reflections II ...... 73,676 Executive Office - Janaf ...... 28,800 4801 Columbus Street ...... 40,000 Reflections III ...... 67,000 Janaf Office Building ...... 37,329 Corporate Center I ...... 51,000 Reflections IV ...... 80,000 Corporate Center II ...... 52,475 Viking Building ...... 18,900 OWNER OCCUPIED Corporate Center III ...... 51,000 Windwood Center ...... 78,348 Portfolio Recovery Building ...... 34,850 Corporate Center IV ...... 76,012 Sentara ...... 45,000 Holland Commerce Center ...... 30,000 CLASS B Union Mission (former VA Natural Gas) ...... 75,403 Holland Office Park ...... 32,000 2700 International Parkway ...... 53,000 Independence Business Center ...... 62,000 Advanced Technology Building ...... 32,000 Independence Technology Center - Technocenter I .50,000 Basgier Bldg. I ...... 18,200 NEWTOWN/WITCHDUCK Independent Plaza ...... 36,655 Basgier Bldg. II ...... 20,000 Pembroke Commercial Bldg. (4425 Corporation Lane) Bennett Office Building (120 S. Lynnhaven) ...... 10,522 CLASS A 70,760 Commercial Place ...... 36,400 AAA Headquarters ...... 47,045 Pembroke Office Park ...... 294,000 Gateway Bank Building (641 Lynnhaven) ...... 18,000 Amelia Building ...... 64,660 Prism Plaza ...... 32,000 Lynnhaven Corporate Center I ...... 36,046 Amerigroup Building I ...... 106,000 Southgate Centre ...... 43,200 Lynnhaven Corporate Center II ...... 40,300 Amerigroup Building II ...... 106,000 Southport Business Center(flex) (Baskin Bldg) . . . .20,683 Lynnhaven Executive Center ...... 18,000 BB&T Building ...... 30,000 Southport Trade Center(flex) ...... 30,883 Lynnhaven Five ...... 24,549 Expressway Corporate Center ...... 85,658 Thalia One ...... 18,408 Lynnhaven North ...... 10,000 Gallery I ...... 30,000 Thalia Professional Center ...... 15,000 Lynnhaven Professional Center ...... 12,000 Gallery II ...... 30,000 The Meadows ...... 32,433 Lynnhaven Station ...... 26,226 Greenwich Center ...... 56,000 VST Building ...... 25,000 Parkway Center 3 and 4 ...... 64,567 Greenwich Commons ...... 55,000 Parkway Center I & II ...... 32,112 Greenwich Station ...... 29,000 CLASS C Parkway III (Unisys) ...... 50,428 Halifax Building ...... 71,100 4224 Holland Road ...... 10,104 Parkway West (flex) ...... 41,563 Mass Mutual Building ...... 45,500 Dragas Office Park ...... 30,896 RBM Building ...... 14,170 Smithfield Building ...... 145,000 Haygood Buildings ...... 22,392 Sabre Street I ...... 68,000 Verizon Center ...... 135,000 Haygood Executive Park ...... 36,472 Sabre Street II ...... 60,000 Westmoreland Building ...... 83,436 Holland Plaza Office Building ...... 14,513 Sabre Street III ...... 40,000 Old Donation Executive Park ...... 20,347 Sabre Street IV ...... 40,000 CLASS B Larkspur Village ...... 16,184 South Lynnhaven Business Park ...... 40,000 144 Business Park Drive ...... 17,000 Pocahontas Center ...... 17,800 U.S. Commerce Center (Tidewater Tech) ...... 26,819 168 Business Park Drive ...... 19,300 Yorktown Commerce Center 184 Business Park Drive ...... 27,784 (228 N. Lynnhaven) ...... 30,529 209 Business Park Drive ...... 11,250 OWNER OCCUPIED 232 Business Park Drive ...... 14,000 Alantec Financial Fed Credit Union ...... 12,000 OWNER OCCUPIED 396 Witchduck Road ...... 12,000 AVIS ...... 168,000 Cenit Bank Bldg ...... 40,000 6330 Newtown Road ...... 55,181 Coastal Training Technologies ...... 60,000 Global Technical Systems ...... 46,000 American Teleservices Building ...... 12,232 Commonwealth College ...... 30,000 Hall Automotive ...... 29,865 Azalea Village ...... 20,000 Electronic Systems Building ...... 10,000 SAIC ...... 60,000 BCF Building ...... 24,000 ISC ...... 40,000 BPC Building ...... 29,074 QED Building ...... 30,000 Colonial Corporate Center ...... 41,772 REIN Building ...... 24,500 LITTLE NECK Commerce Centre (200-259 Expressway Ct) . . . . .35,500 Virginia Natural Gas Building ...... 48,242 Commonwealth Building ...... 10,000 CLASS B Interstate Corporate Center ...... 430,000 3300 Building (Virginia Beach Blvd.) ...... 11,000 Parliament Drive Professional Bldg ...... 10,000 PORTSMOUTH King’s Grant Office Building ...... 13,000 TRC Center I ...... 62,000 Little Neck Office Park (3300 Bldg) ...... 33,000 TRC Center II ...... 36,884 CLASS A Little Neck Office Park (3300 South) ...... 50,000 TRC Center III ...... 52,000 BB&T Building (500 Crawford) ...... 35,327 Little Neck Office Park (3400 Bldg) ...... 22,000 Witchduck Crossing ...... 15,326 Harbourfront Corporate Center (801 Water St) . . . .53,000 Little Neck Towers ...... 48,860 Lynnhaven Station 101 North Lynnhaven ( ...... 28,000 CLASS C CLASS B NEXCOM Building ...... 75,000 Witchduck Office Court ...... 18,000 307 County Street ...... 13,475 NEXCOM Expansion ...... 18,000 355 Crawford Street Building ...... 79,367 Plaza Trail Office Building ...... 15,975 OWNER OCCUPIED 600 Crawford Street ...... 16,171 Rose Hall Commons ...... 12,266 Cox Cable Building ...... 45,000 Boyette Professional Center ...... 13,000 Rose Hall Professional Center ...... 20,000 Cox Expansion ...... 25,000 Bristol Square ...... 10,800 Rosemont Interstate Center I ...... 41,400
49 Towne Bank Building (200 High St) ...... 34,000 NDS Building ...... 35,000 Middle Ground Business Center ...... 62,000 JJH Building ...... 17,563 Raytheon ...... 50,000 Oyster Point Center ...... 44,000 New Kirn Building ...... 44,000 Research Office Building ...... 30,000 Oyster Point Business Center ...... 25,000 PortCentre I (flex) ...... 100,000 Oyster Point Place (flex) ...... 38,000 Port Trade Center ...... 14,223 CLASS C Oyster Point West ...... 176,560 The Seaboard Building ...... 65,000 NASA Langley Research Center ...... 11,790 Park Central Executive Center ...... 54,425 Wachovia Bank ...... 48,000 3217 Armistead Avenue ...... 24,043 Park Place (751 & 753 Thimble Shoals) ...... 25,000 Peninsula Business Center I (flex) ...... 21,817 CLASS C COLISEUM CENTRAL Peninsula Business Centre II (flex) ...... 40,475 Crawford Executive Center ...... 20,340 Peninsula Business Centre III (flex) ...... 60,000 CLASS A Rock Landing Corporate Center IV ...... 18,125 SUFFOLK Claiborne Building (Regional Mall Office) ...... 150,000 Rock Landing Corporate Center V ...... 18,125 Executive Tower ...... 134,164 Technology Center (flex) ...... 81,000 CLASS A Pinewood Plaza ...... 77,500 Thimble Shoals Business Center (flex) ...... 55,377 MAST One ...... 60,000 Thimble Shores Lakefront ...... 25,000 JTASC Building ...... 408,365 CLASS B 2115 Executive Drive ...... 62,000 CLASS C CLASS B 2310 Tower Place ...... 10,500 714-716-718 J.Clyde Morris Blvd...... 15,000 Bridgeway Technology Center I ...... 125,000 Bank of America Building ...... 14,434 Drucker & Falk Building ...... 30,000 Bridgeway Technology Center II ...... 67,500 Colony Square of Hampton ...... 30,050 Pilgrim Landing ...... 10,650 Bridgeway Technology Center III ...... 72,384 Riverdale Complex ...... 168,000 Regent Park ...... 25,000 Brinkley Building ...... 20,500 Sheraton Office Bldg...... 12,673 Brinkley Building II ...... 21,000 Todds Lane Professional Center ...... 12,500 OWNER OCCUPIED Harbour Breeze Professional Center ...... 52,265 West Telemarketing ...... 55,855 Applied Research Center ...... 121,000 Harbour View Medical Arts Center ...... 47,000 Fountain Plaza Two ...... 80,000 Harbor View Professional Center (1033 & 1035) .23,000” OWNER OCCUPIED Muller Martini Building ...... 24,000 Konikoff Medical Office Building ...... 22,675” Langley Federal Credit Union ...... 72,800 Peninsula Retail Credit ...... 30,000 Lakeview Technology GSA Center ...... 110,000 Lakeview Tech Center II ...... 86,400” NEWMARKET Main Street Center ...... 13,800 SUBURBAN NEWPORT NEWS Washington Street Center ...... 12,000 CLASS B Newmarket Building ...... 21,262 CLASS B OWNER OCCUPIED NetCenter ...... 546,171 Bay Savings Bank Building ...... 18,000 Rubicon NGP - Lakeview Technical Center ...... 351,075 UPS Call Center ...... 103,000 Colony Square of Denbigh II ...... 26,100 Lockheed Martin ...... 50,000 Denbigh Professional Park ...... 40,598 Overton Building ...... 12,940 CLASS C Ferguson Enterprises ...... 75,800 Rose & Womble Building ...... 25,000 Rouse Tower ...... 150,000 MCI Building ...... 60,000 Towne Bank Center ...... 19,318 Tidewater Tech (616 Denbigh Blvd) ...... 15,778 OWNER OCCUPIED DOWNTOWN HAMPTON NN Shipbuilding Employee Credit Union ...... 15,000 CLASS C Mariner Building ...... 26,000 CLASS A Teagle Building ...... 22,000 Harbour Centre ...... 158,855 OYSTER POINT OWNER OCCUPIED CLASS B CLASS A CNU Building ...... 40,000 10-16 W. Queens Way ...... 11,238 601 Thimble Shoals Boulevard ...... 30,000 47 W. Queens Way ...... 12,500 Atrium At Oyster Point ...... 62,971 Mill Point Center ...... 10,000 Cedar One ...... 15,467 WILLIAMSBURG/JAMES CITY/YORK One Mallory Street ...... 14,000 Cedar Two ...... 27,000 COUNTY Contemporary Cybernetics ...... 60,000 CLASS C Ferguson Corporate Center II ...... 150,000 CLASS A 55 W. Queens Way ...... 12,132 Fountain Plaza One ...... 100,000 263 McLaws Circle ...... 26,967 Fountain Plaza Two ...... 80,000 Atrium Building ...... 24,000 DOWNTOWN NEWPORT NEWS Fountain Plaza Three ...... 80,000 Casey New Town - SunTrust ...... 60,000 Langley Federal Centre ...... 51,982 Courthouse Green ...... 30,000 CLASS B Merchants Walk ...... 28,000 Design Center ...... 13,700 2600 Building ...... 118,018 One City Center ...... 70,000 First Union Center ...... 32,000 Wachovia Bank Building ...... 17,846 One Oyster Point ...... 36,226 Langley Federal Credit Union ...... 20,000 Oyster Point Interstate Center ...... 64,000 Williamsburg Commerce Center ...... 32,000 OWNER OCCUPIED Patrick Henry Corporate Center ...... 98,883 Palladian Office Building ...... 21,000 Newport News Shipbuilding, Bldg 520-521” . . . . .50,000 Riverside Health Center Building (Warwick) . . . . .104,500 Patriot Park Business Center ...... 24,000 Peninsula Professional Building ...... 30,800 Sentara New Town Medical Building ...... 50,000 Rock Landing Corporate Center II ...... 33,476 Sun Trust (Courthouse St.) ...... 60,000 HAMPTON ROADS CENTER SunTrust Building ...... 100,955 William E. Wood Building ...... 20,000” Symantec Corp. Building ...... 100,000 CLASS A CLASS B 6 Manhattan Square ...... 30,106 Tower Park (733 &735 Thimble Shoals) ...... 31,667 Town Center One ...... 60,000 104 Bypass Road ...... 11,100 1001 N Campus Parkway ...... 19,000 7601 George Washington Memorial Highway . . . . .10,000 Allstate Building ...... 17,000 TowneBank Center ...... 60,000 Two City Center ...... 63,600 Chartertowne Professional Center ...... 12,800 HealthNet Building ...... 60,482 Greens Springs Office Park ...... 37,000 Lakefront Plaza I ...... 77,442 Two Oyster Point ...... 39,137 Turner Bldg (1060 Loftis) ...... 21,000” Kristinsand Office Park ...... 15,221 Morgan Marrow Building ...... 12,000 Packets Executive Center ...... 23,000 Olympia Place ...... 72,395 Wachovia Building ...... 42,921 William E Wood Building (1030 Loftis) ...... 26,000 Quarterland Commons Office Condos ...... 120,000 Oxford Plaza ...... 64,297 Rivergate Center ...... 36,000 Parkway Executive Center ...... 45,000 CLASS B Wachovia Bank ...... 10,500 Research Quad - Building One ...... 60,000 Williamsburg Office Park ...... 79,600 Research Quad - Building Three ...... 100,000 11790 Jefferson Avenue ...... 20,662 745 Bluecrab (flex) ...... 16,000 CLASS B BB&T Plaza (603 Pilot House) ...... 37,348 Cale Colony 17 ...... 17,000 Disclaimer: The information in this report is deemed reliable. 400 Butler Farm Road ...... 96,446 The Old Dominion University E. V. Williams Center for Real 404 Butler Farm Road ...... 54,715 Canon Place ...... 26,000 Comb-Bay Park ...... 32,000 Estate and Economic Development makes no representation 421 Butler Farm Road ...... 56,515 or warranty as to its accuracy. Hampton I ...... 68,532 Dunwoody Place ...... 19,798 Executive Center ...... 95,399 ...... Hampton II ...... 67,000 BOLD indicates change/addition from last year. Hampton III ...... 45,000 Fishing Point Complex(flex) ...... 50,000 Hampton Technology Center I ...... 56,575 International Distribution Center ...... 36,000 McCale Professional Park ...... 40,000 2012 Hampton Roads Real Estate Market Review 50 2012 OFFICE
OFFICE SUBMARKETS
Southside Peninsula 1 Airport/Northampton 8 Little Neck 15 Downtown Hampton 22 Williamsburg/ 2 Chesapeake/Greenbrier 9 Lynnhaven 16 Hampton Roads Center James City Co./ 3 Downtown Norfolk 10 Military Circle 17 Coliseum Central York County 4 Central Norfolk 11 Newtown/Witchduck 18 Downtown Newport News 5 Hilltop/Oceanfront 12 Northern Suffolk 19 Newmarket 6 Corporate Landing 13 Pembroke 20 Oyster Point 7 Kempsville 14 Portsmouth 21 Suburban Newport News
51
HAMPTON ROADS MARKET REVIEW
RESIDENTIAL
New Residential Market
Authors Ron Wildermuth and Blair Hardesty Data Analysis/ Residential DataBank Layouts
Existing Residential Market
Author James Pritchard Data Analysis/ Manager, Data & Analytics Layouts Real Estate Information Network, Inc. Hampton Roads MLS 2012 Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are funded by donations from individuals, organizations and the CREED IPAC and Council Advisory Boards. RESIDENTIAL Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals makes any representation or warranty as to its accuracy.
53 2012 RESIDENTIAL
General Overview
he Hampton Roads Residential market statistics covered in this report analyze the new home building industry and the existing home sales activity for the year 2011. Included are the cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, T and Williamsburg, and the counties of Gloucester, Isle of Wight, James City, and York. The new homes portion of the report also includes information for Franklin and Southampton, while the existing homes section of the report contains additional information on Surry, Matthews and Currituck. The new construction data contained in this report was gathered from the actual deeds recorded and from the building permits issued by each city or county. The sales data and existing home closings data was gathered from the Real Estate Information Network (REIN).
NEW CONSTRUCTION
The housing tsunami that saw housing hyper- inflation fol- lowed by a housing depression has taken its toll on the industry nationally and locally. For now the public attitude toward housing as an investment has shifted to one of housing as a necessity. The “for sale” markets’ loss has been the “for rent” markets’ gain as many would be new home buyers chose to rent.
The year 2011 was a pivotal year in the long market adjustment process, now in its 5th or 6th year, depending on what metric you use to measure the market. Inventories of detached and attached new homes all but disappeared in 2011 and high rise condos showed their strongest inventory reductions since the housing recession began. The significant increase in high rise condo sales was due to aggressive price reductions by several key players and, in the case of one high profile condo project, the use of alternative marketing methods. The year was characterized by builders continuing to adjust their market position, re-evaluate margin expectations, value engineer, fine tune their products and deal with forced lot cost write downs. Meanwhile, banks stepped up efforts to find workout solutions for troubled residential build- ing sites.
Foreclosures were a drag on the new construction market as many potential new home buyers succumbed to the temp- tation of rock bottom distressed sale prices. In 2012, foreclosures will be less of a factor as inventories continue to draw down, but short sales will be a big factor as more owners who are ready to sell find themselves trapped in homes with underwater mortgage balances.
2012 Hampton Roads Real Estate Market Review 54 Amidst the doom and gloom there are indications of a bottoming in the key metrics of the residential new construction market as the downward trend lines in permits, closings, average sales price and revenue all show clear signs of leveling off.
The unprecedented affordability of a new home and near record low interest rates, combined with diminished homebuyer fears of a further decline in home values, have started to attract buyers back into the market.
What is needed now is a sustained economic recovery that generates robust employment growth which is the primary driver of a healthy residential new construction market.
2011 VERSUS 2010 RESIDENTIAL NEW CONSTRUCTION HIGHLIGHTS Permits down 9.3% with 289 fewer permits issued totaling 2,811 Closings down 2.8% with 67 fewer closings totaling 2,350 Average Sales Price down 3.4 %, a $10,802 decline to $309,238 Total Revenue down 6.1%, a decline of $46.8 mil to $726,710,422 (See Table # 1 for Details)
Table 1 02 03 04 05 06 07 08 09 10 11 Permits 6700 6978 7271 7854 7359 5035 3393 2911 3100 2811 Closings 5097 4841 5466 5128 4864 4153 3318 2775 2417 2350 Avg Sales Price 215,161 244,113 295,114 363,818 395,928 387,116 361,496 321,711 320,040 309,238 Total Revenue 1,097 1,182 1,613 1,866 1,926 1,608 1,199 893 774 727 (millions)
Graph 1 Permits Graph 2 Closings
9,000 6,000 2012 5,000 6,000 4,000 3,000 RESIDENTIAL 3,000 2,000 1,000 0 0 02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11
Graph 3 Average Sales Price Graph 4 Total Revenue (in Millions)
500 2,500 400 2,000
300 1,500
200 Millions 1,000 Thousands 100 500
0 0 02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11
55 2012 RESIDENTIAL
THE TEN YEAR TREND . . . .
The run-up to the market peak that occurred from 2002 to 2004 and 2005 was followed by several years of decline in permits, closings, sales price and revenue. But in 2010 and 2011, there were clear signs that the downward trend was leveling off to create a market bottom from which a recovery can take place.
FROM PEAK TO TROUGH . . . . Permits down 64.2% with 5,043 fewer permits issued in 2011 versus 2005 Closings down 57% with 3,116 fewer closings in 2011 versus 2004 Average Sales Price down 21.9%, an $86,690 decline from 2006 to 2011 Total Revenue down 62.3%, a decline of $1.2 billion in 2011 compared to 2006 (See Table # 1 and Graph #’s 1 – 4 for details)
2011 VERSUS 2010 CONSTRUCTION ACTIVITY BY PRODUCT TYPE
Detached Detached permits were down 3.4% to 2,044. Closings increased by 2.2% to 1,509 due to an increase in the availability of value priced detached homes in communities like Turtle Creek in Newport News, Hampshire Glen in Hampton and Rose Glen Manor in Virginia Beach. The average sales price declined 3.6% to $345,368 and detached revenue declined by 1.5% to $521.1 mil.
Attached — Multistory Multistory permits were down 14.6% to 105. Closings increased by 11.1% to 160 due to dramatic price concessions at several condominiums. The average sales price declined 6% to $261,194. Multistory condos were the only prod- uct type with increased revenues which was due to the significant increase in closings. Multistory revenues totaled nearly $41.8 mil.
Attached — Multiplex Multiplex permits were down 35% to 160. This portion of the residential market was hit hardest and is attributed to first time homebuyers that continue to stay away and those that chose to purchase distressed properties. Closings were down 15% to 198, the largest decline of the four product types. Average prices were down 5.7% to $216,140 as a result of increased competition in this market segment. This group experienced the largest revenue decline of 19.9% to just under $42.8 mil.
Attached — Townhouse/Duplex Townhouse/Duplex permits were down 18.4% to 502 as many buyers opted for detached foreclosure and short sale prop- erties. Closings were down 14.2% to 483 and average sales prices were down 6.5% to $250,440. Revenues experienced the 2nd largest decline of the four product types down 19.8% to $120.9 mil. (See Table # 2 and Graphs # 5 - # 9 for details)
2012 Hampton Roads Real Estate Market Review 56 2012 RESIDENTIAL 2010 Ave. Sales Prices 2011 Ave. Sales Prices 795,705 -19.9% 2011 Revenue 2010 Revenue 003,969 41,791,119 4.5% 529,323,913 521,160,889 -1.5% 773,535,832 726,710,422 -6.1% 0 100 200 300 400 500 0 50 100 150 Total Revenue Total Average Sales Price Average 21% Multiplex Detached Multistory Town/Dup 8% Multiplex Detached Multistory Town/Dup Millions Thousands Graph 8 Graph 6 7% 64% Product Mix 2011 Closings Product Mix Graph 9 2011 Permits 2010 Permits 2011 Permits 2010 Permits Detached Multistory Multiplex Town/Dup 2010 2011 Change % 2010 2011 Change % 2010 2011 Change % 2010 2011 Change % 0 200 400 600 800 1000 1200 1400 1600 0 500 1000 1500 200 2500 Closings Permits NEW CONSTRUCTION ACTIVITY 2010 vs 2011 ACTIVITY NEW CONSTRUCTION Multiplex Multiplex Detached Detached Multistory Multistory Town/Dup Town/Dup 57 Town/DupTotals/Avgs: 615 3100 502 2811 -18.4% -9.3% 2417 563 2350 483 -2.8% -14.2% 320,040 267,807 309,238 250,440 -3.4% -6.5% 150,775,239 120,962,709 -19.8% MultiPlex 246 160 -35.0% 233 198 -15.0% 229,325 216,140 -5.7% 53,432,711 42, Graph 7 Graph 5 Table 2 Table Type Product - by Va Hampton Roads, *Type Product Detached Permits 2116 2044 -3.4% 1477 Closings 1509 2.2% 358,378 345,368 -3.6% Avg Sales Price Revenue Multistory 123 105 -14.6% 144 160 11.1% 277,805 261,194 -6.0% 40, 2012 RESIDENTIAL
2011 VERSUS 2010 NEW CONSTRUCTION ACTIVITY BY CITY Permits Permits were up in four cities. The largest gainer was Newport News, up 23.5% to 226 permits issued. Permits were down in nine cities/counties. The largest percentage decline was in Isle of Wight County, down 31.4% to 83 permits issued. The largest reduction in the number of permits issued occurred in James City County, down 117 permits for the year. Closings Closings were up in 2011 compared to 2010 in five cities including Chesapeake, Hampton, Newport News, Portsmouth and Williamsburg. Although Williamsburg had the largest percentage increase of 50%, Newport News had the largest number increase, up 45 closings for a 45.9% increase. Virginia Beach, Suffolk, Norfolk and the counties of Isle of Wight, James City, York and Southampton all saw declines in closings. The largest percentage loser was Southampton County, down 43.8% and the largest number loss was Suffolk with 54 fewer closings in 2011.
Average Sales Price The average sales price declined in all but two cities/counties. James City County and Newport News both saw increases. The James City County average increased 4.2% to $327,752. Newport News increased 6.2% to $221,525.
Sales prices in the remaining cities Closings were up in 2011 compared to 2010 in five declined as little as -.7% in Virginia Beach to -11.7% in Norfolk. cities including Chesapeake, Hampton, Newport News, Portsmouth and Williamsburg. Revenue There were revenue increases in six cities. The largest percentage and dollar value increase occurred in Newport News with a 54.9% increase in revenue to $31.6 million, an $11.2 million increase compared to 2010. Seven cities/counties showed declines in revenue. York County had the largest percentage and dollar volume decline, down 47.5% with total revenue of $23.8 million, a $21.5 million drop. (See Table # 3 for details)
2012 Hampton Roads Real Estate Market Review 58 2012 RESIDENTIAL 34 35 2.9% 22 33 50.0% 281,942 256,770 -8.9% 6,202,729 8,473,424 36.6% 62 46 -25.8% 45 52 15.6% 196,439 190,488 -3.0% 8,839,770 9,905,385 12.1% 46 32 -30.4% 16 9 -43.8% 225,763 214,861 -4.8% 3,612,200 1,933,750 -46.5% 148 105 -29.1% 126 74 -41.3% 360,428 322,304 -10.6% 45,413,880 23,850,498 -47.5% 303 259587 -14.5% 538 272 -8.3% 218 557 -19.9% 540 301,694 296,328 -3.1% 378,364 -1.8% 375,554 82,060,691 -0.7% 64,599,528 210,748,648 202,799,417 -21.3% -3.8% 183 226173 210 23.5% 21.4% 98 165 143 150 45.9% 208,686 -9.1% 330,013 221,525 291,322 6.2% -11.7% 20,451,254 54,452,162 31,678,067 43,698,277 54.9% -19.7% 144 168121 16.7%468 83 105 351 -31.4% 130 -25.0% 95 334 23.8% 265,293 63 325 260,309 -33.7% -2.7% 317,470 314,511 -1.9% 299,641 27,855,806 327,752 -5.6% 33,840,178 4.2% 30,159,661 105,046,608 21.5% 106,519,476 18,877,380 -37.4% 1.4% 109 105 -3.7% 37 37 0.0% 259,809 238,463 -8.2% 9,612,946 8,823,119 -8.2% 722 653 -9.6% 545 576 5.7% 310,238 298,111 -3.9% 169,079,477 171,711,923 1.6% 2010 2011 Change % 2010 2011 % Change 2010 2011 Change % 2010 2011 Change % 59 Totals/Avgs: 3100 2811 -9.3% 2417 2350 -2.8% 320,040 309,238 -3.4% 773,535,832 726,710,422 -6.1% WMSBG YORK/POQ PORT SUFF VBCH JCC NNEWS NORF HAMP W I of SOHAM GLOUC For 2011, the top two subdivisions for permits were both attached residential products. The No 1 subdivi- for permits the top two subdivisions were 2011, For with 70 permits served for a mixture of non-elevator Branch in Chesapeake at Western Kings Pointe sion was multi-story Windy Knolls subdivision for permits condominiums and four-plex condominiums. The No 2 was Construction Beco in Newportby which had 63 permits News issued for three 21-unit buildings. The top sin- 57 Hampshire Glen in Hampton. Of the 60 permitsgle family detached subdivision for permits issued, was to HHHunt Homes. were City/County Permits Closings Avg Sales Price Revenue Sales City/County Permits Closings Avg Hampton Roads, Va — By City Va Hampton Roads, CHES NEW CONSTRUCTION ACTIVITY 2010 vs 2011 ACTIVITY NEW CONSTRUCTION The top subdivision for closings and revenue for 2011 was Colonial Heritage in James City County by The Colonial Heritage in James City County by for 2011 was The top subdivision for closings and revenue ing prices of $353,564 and $258,368. Hampshire Glen was No 2 for closings with 54 recorded and divid- ing prices of $353,564 and $258,368. Hampshire Glen was Lennar Corporation. Of the 63 closings recorded, 44 were detached and 19 were duplexes with average clos- duplexes with average detached and 19 were 44 were Lennar Corporation. Of the 63 closings recorded, ed between HHHunt Homes (46), Sadler Building Corp at Ridgely (5) and Stylecraft Homes (3). Southmoor HHHunt Homes (46), ed between Manor in Virginia Beach was No 3 with 46 closings recorded and an average price of $163,809. Manor in Virginia No 3 with 46 closings recorded and an average Beach was in Hampton Roads with $17,916,153 in Virginia the No 2 community for revenue Sherwood Lakes Beach was Heritage Park in Virginia Beach was the No 3 community for revenue with 29 closings totaling $17,690,898. in Virginia the No 3 community for revenue Heritage Park Beach was in revenue divided between Home Associates of VA with $11,378,816 and HBD Building with $6,537,337. with $11,378,816 Home Associates of VA divided between in revenue There were eight builders with closings in Heritage Park and L R Hill Custom Builder was the top builder with eight builders and L R Hill Custom Builder was with closings in Heritage Park There were (See Table # 4 for details) Table (See 10 closings recorded and $5,751,675 in revenue during 2011. 10 closings recorded and $5,751,675 in revenue HAMPTON ROADS 2011 SUBDIVISIONS TOP ROADS HAMPTON 2012 RESIDENTIAL
Ryan Homes is actively building in 11 new com- munities on the Peninsula including eight detached and three townhome communities. Their top detached subdivision for permits was Turtle Creek in Newport News with 36 permits, and for closings was Fenwick Hills in James City County with 31 closings recorded and Greensprings West in James City County was their top community for revenue with $10,208,067.
HAMPTON ROADS 2011 TOP BUILDERS
Ryan Homes was the top builder in Hampton Roads for permits, closings and revenue. Ryan Homes is actively building in 11 new communities on the Peninsula including eight detached and three townhome communities. Their top detached subdivision for permits was Turtle Creek in Newport News with 36 permits, and for closings was Fenwick Hills in James City County with 31 closings recorded. Greensprings West in James City County was their top community for revenue with $10,208,067.
HHHunt Homes was the No 2 builder for permits with 151 issued during 2011. HHHunt was active in seven commu- nities on the Peninsula during the year including five detached and two attached. Most of the permits were issued to Hampshire Glen in Hampton and Meridian Parkside in Newport News with 57 permits each. The Dragas Companies was the No 3 builder for permits with 134 issued across four communities in Chesapeake including Brighton Park, Kings Pointe, Oakbrooke Crossing and their latest community, The Grove at the Arboretum.
Dragas was the No 2 builder for number of closings with 155 recorded during 2011. Southmoor in Virginia Beach had the most closings at 46. HHHunt Homes was the No 3 builder for number of closings recorded with 106. Hampshire Glen in Hampton had the most with 46.
(See Table # 5 for details)
2012 Hampton Roads Real Estate Market Review 60 2012 RESIDENTIAL e l u n a t e o v T Total e R Revenue s r e d l i u B s g n i s e o l g e a C c i r r e v P 267,005 11V Rose Glen Manor, 244,446 13 C Brighton Park, 8,775,450 8,017,313 Price Subdivision A Average d s e g d n r i s o c o l e C Closings R Recorded s r e d l i u B s d t i e u m r s e s I Issued Subdivision P Permits s t i m r s r e e P P Permits Closings d l i u B Subdivision 9 Res Peterson Terry 52 9 Ashdon Bldrs 46 329,452 9VAAssoc of Home 16,592,640 8 Corp Lennar 52 8 Napolitano Homes 47 361,576 8 Homes Napolitano 16,994,085 7 Corp Dev Bishard 63 7 Res Peterson Terry 63 298,764 7 Res Peterson Terry 18,822,156 6 Constr Beco 88 6 Corp Lennar 63 324,854 6 Lennar Corp 20,465,794 1 Homes Ryan 2 HHHunt Homes3 Companies Dragas 4 Homes Chesapeake 205 1515 134 Inc McQ Bldrs & Dev 1 95 2 Homes 3 Ryan Companies Dragas 93 HHHunt Homes 4 Homes Chesapeake 5 Inc McQ Bldrs & Dev 155 178 106 104 176,032 79 309,177 244,019 288,987 2 285,894 Homes Chesapeake 1 3 4 Homes Ryan Companies Dragas HHHunt Homes 5 Inc McQ Bldrs & Dev 30,054,644 27,284,891 22,585,650 25,865,970 55,033,436 15 Platinum Homes 39 15 Franciscus Homes 34 236,978 15 Armada Hoffler 10,343,400 14 Virginia Ent 43 14 Constr & Dev Pace 35 342,249 14 Corp Bishard Dev 11,293,767 13VAAssoc of Home 44 13 Corp Bishard Dev 37 305,237 13 Inc & Dev Constr Pace 11,978,727 12 Hearndon Constr 45 12 Corp Dev Moody 39 205,234 12 Hearndon Constr 13,284,214 11 Ashdon Bldrs 47 11VAAssoc of Home 41 404,699 11Alexander Homes Stephen 13,830,947 10 Constr & Dev Pace 48 10 Hearndon Constr 46 288,787 10 Ashdon Bldrs 15,154,798 12 S Parkside, 13 Oakbrooke Crossing, C14 Y Townes, Riverwalk 3215 R East Beach, 13 34 28W Quarterpath, at Village 12 14V Park, Heritage Y Townes, 29 Riverwalk 27 15 C Culpepper Landing, 29 29 240,719 28 14 610,031 12 V The Westin, S Harbour Breeze Estates, 364,244 15 J Stonehouse, 8,277,167 7,973,000 7,890,241 8 J Whitehall, 9V Sajo Farm, 10 N Creek, Turtle 11 Woodbridge Point,V 38 37 36 35 8 9V Sajo Farm, 10 11V J Point, Fenwick Hills, Woodbridge S Harbour Breeze Estates, 31 33 35 32 367,636 9 391,880 8 283,521 10 C Culpepper Landing, J Fenwick Hills, JWest, Greensprings 10,198,831 11,872,067 9,072,675 7 C Culpepper Landing, 49 7 N Meridian Parkside, 37 195,965 7V Point, Woodbridge 12,131,975 1 C Kings Pointe, 2 N Windy Knolls, 3 H Hampshire Glen, 4 70 N Meridian Parkside, 5 63 1 60V Lakes, Sherwood 6 57 J 2 Colonial Heritage, 3 J Colonial Heritage, 4 H Hampshire Glen, V Southmoor, 54V Lakes, Sherwood 52 5 63 C Brighton Park, 6 54 C Crossing, Oakbrooke 324,854 44 1 46 281,509 2 J Colonial Heritage, 41 407,185 4 44V Lakes, Sherwood 163,809 3 H Hampshire Glen, 179,063 6V Park, Heritage 182,212 5 20,465,794 R East Beach, V Sajo Farm, 17,916,153 15,201,482 17,690,898 13,162,884 13,715,791 61 Table 5 Table Table 4 Table 2012 RESIDENTIAL
EXISTING HOMES
The Hampton Roads existing residential real estate market showed signs of stability throughout the year 2011. Existing home closings picked up from where the leading indicators left off at the end of 2010. Even without the influ- ence of the federal first-time home-buyer’s tax credit, closings on existing homes rose, though many of those closings were of distressed homes. Not all quarters of 2011 were positive. Although the first, third and fourth quarters expe- rienced growth in closings of existing homes each month, the second quarter was negative when compared to the sec- ond quarter of 2010. Overall, the region flourished as inventory levels dropped and closings rose for the vast majori- ty of local cities and counties.
The active inventory of existing homes for sale in the region for 2011 fell as measured at year end 12% when com- pared to 2010. There were 8,614 existing homes for sale at the end of 2011 whereas there were 9,809 existing homes for sale at the end of 2010. The sharp drop in existing homes for sale and the consistent growth of closings during the majority of 2011 caused the months’ supply of inventory in the Hampton Roads region to fall to 6.9 months. A measure between six to eight months inventory is within most experts’ ideal range of supply to signify a healthy mar- ket. However, this particular measure does not account for the added inventory new construction homes contribute to the entire real estate market supply.
25,000 $250,000 $224,900 $215,000
24,207 $219,900 20,000 23,209 $200,000 $208,000 $205,000 21,890 $194,000
20,881 $194,500 19,604 18,572 18,430 15,000 $150,000 $157,900 16,612 15,526 $130,000 15,017 14,517 14,265 $117,050 10,000 $109,900 $100,000 $99,999 $65,100 68,200 $68,200 $60,300 $56,600 $59,100 $51,000 $53,800 $55,200 5,000 $64,100 $50,000 $49,300 2,093 2,015 4,313 4,873 3,831 2,801 6,982 9,055 10,077 9,809 8,614 0 5,538 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Existing Active Homes for Sale Existing Home Closings Existing Home Median SP HUD Median Household Income
2012 Hampton Roads Real Estate Market Review 62 2012 RESIDENTIAL 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 11 DEC 101 11 NOV 11 OCT 11 SEP 11 AUG 11 JUL 11 JUN 87 87 11 MAY 11 APR 11 MAR 84 11 FEB 11 JAN 10 DEC 66 10 NOV 10 OCT 10 SEP 48 10 AUG 10 JUL % Distressed of Closings 10 JUN 28 10 MAY 10 APR Average Days on Market for Existing Homes 10 MAR 27 10 FEB 10 JAN 09 DEC 36 09 NOV Existing Home Closings 09 OCT 09 SEP 46 09 AUG 09 JUL 09 JUN 61 09 MAY 09 APR Distressed Existing Home Closings 09 MAR 69 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 09 FEB 09 JAN 0 20 40 60 80 100 120 Average Days on Market for Existing Homes on Market Days Average Existing Real Estate Closings Existing Real 0 63 Existing home closings rose 5% in 2011 to 15,017 from 14,313 closed in 2010. VirginiaExisting home closings rose 5% in 2011 to 15,017 from 14,313 closed in 2010. Beach had the largest percentage of the existing closings at 31%, down from the 33% measured in 2010. Chesapeake, Norfolk and down from the 33% measured in 2010. Chesapeake, percentage of the existing closings at 31%, Newport significant growth of exist- each had 10% or more of the existing home closings. Norfolk showed News to fall. The trend continued throughout 2011 for existing home closings. Each month, measured on a year-over- to fall. The trend continued throughout 2011 for existing home closings. Each month, 1% gain or loss as a percentage of all existing home closings in 2011. sale prices of existing homes in the region began Once the federal first-time home-buyer tax credit ended in 2010, ing home closings for a total of 14% in 2011. The rest of the local cities and counties experienced less than a ing home closings for a total of 14% in 2011. The rest of the local cities and counties 500 1,000 1,500 2,000 2,500 2012 RESIDENTIAL
year basis, experienced median sale price declines. Overall, the region’s median sale price of existing homes fell to $194,900 in 2011. This 5% decline follows the 1% fall in 2010 and a prior 5% drop in 2009. Since the peak median sales price in 2007 of $224,900, the region’s median sales price for existing homes has fallen 13%. In addition to the median sale price for existing homes being lower in 2011, the average sale price of these same homes in 2011 was down 10% when com- pared to 2010.
Not a single city or county in the Hampton Roads region experienced a median sale price increase for 2011. Suffolk and Williamsburg fared the best with each showing flat median sales prices of existing homes for the year. However, Williamsburg had a 9% increase in the average sale price of existing homes for the year in 2011 when compared to 2010 statistics. It was the only city or county to measure a positive increase in either median or average sales price of existing homes during 2011.
James City County had the highest median existing home sale price at $285,000 in 2011, down 5% from the median sale price of $295,000 in 2010. York County was the second highest median in 2011 at $270,000, down from $278,000 in 2010. Norfolk, Portsmouth, Poquoson, and Currituck County experienced median sale price drops of 7% to 8%. At the other
Existing Homes Median Sale Prices
$350,000 $301,900 $295,000 $293,700 $290,000
$300,000 $285,000 $279,000 $270,000 $270,000 $265,000 $256,000 $254,950 $250,000 $245,000
$250,000 $232,500 $230,000 $229,000 $215,500 $230,000 $230,000 $230,000 $223,950 $225,500 $223,950 $215,250 $215,000 $213,750 $212,000 $210,000 $205,000 $201,000 $198,350 $190,625
$200,000 $183,900 $179,800 $173,500 $175,000 $172,250 $169,250 $164,900 $162,500 $155,000 $152,750 $152,100 $150,500 $146,900 $135,000 $150,000 $135,000 $124,850
$100,00
$50,000
$0 JCC IWC POQ SUFF PORT YORK MATC GLOC CHES NORF VBCH SURC CURR HAMP NNEW WMBG
2009 Median SP Existing Homes 2010 Median SP Existing Homes 2011 Median SP Existing Homes
2012 Hampton Roads Real Estate Market Review 64 2012 RESIDENTIAL 2010 2011 10-11 2010 2011 10-11 2010 2011 10-11 65 36%, followed by Newport and Isle of Wight County had the largest by with a 17% increase. Poquoson followed News 36%, number of attached existing homes that closed in 2011. Norfolk had the largest year-over-year gain of year-over-year number of attached existing homes that closed in 2011. Norfolk had the largest Distressed homes, those that are bank owned or short increased both their presence and effects Distressed homes, sales, end of the spectrum, Portsmouth price for existing homes at $124,850. median sale had the lowest end of the spectrum, 5% lower at $146,900 for existing homes in 2011, median sale price closed Hampton had the next lowest price of $155,000 in 2010. than the average 11,918 or 79% of all existing home closings and increased Detached existing home closings comprised only Suffolk and Virginia Beach did not expe- Roads region, 5% from 11,315 in 2010. Within the Hampton 1%. Most cities by existing home closings; down year-over-year rience growth in the number of detached instance, For detached existing home sales gains of 10% or larger. year-over-year and counties showed existing home sales in 2010 to 1,764 in 2011. Another area Norfolk increased 15% from 1,539 detached a 16% increase in the number of detached Isle of Wight County; it saw was gains with large year-over-year to 204 in 2010. existing home sales to 237 in 2011 compared cities and counties with- strong gains across as many Attached existing homes market did not experience the region experienced a 3% increase in attached the year, in the Hampton Roads region in 2011. For an increase in the saw existing home closings to 3,099 in 2011 from 2,998 in 2010. A handful of cities Closings By Type and City Type By Closings year-over-year drop-offs, 30% and 25% respectively. The median sale price of attached existing home clos- The median sale price of attached existing 30% and 25% respectively. drop-offs, year-over-year ings in 2011 declined 6% to $155,000 in 2011 from $165,000 in 2010. tressed homes comprised between 22% and 26% of the active existing homes for sale in the region on a tressed homes comprised between on the existing residential real estate market in Hampton Roads during 2011. Throughout the year, dis- the year, on the existing residential real estate market in Hampton Roads during 2011. Throughout monthly basis, peaking in December. Virginia Beach, Chesapeake and Norfolk showed the most activity and Norfolk showed Chesapeake Virginia Beach, peaking in December. monthly basis, Distressed homes in the Hampton Roads region also comprised between 29% and 42% of closed existing Distressed homes in the Hampton Roads region also comprised between home sales during 2011 on a monthly basis. The peak for these sales was in February. The percentage The in February. home sales during 2011 on a monthly basis. The peak for these sales was pertaining existing homes. This is largely due to the population densities within these cities. to distressed then tapered off sharply and became relatively flat for the remainder of the year. From May 2011 until May From then tapered off sharply and became relatively flat for the remainder of the year. YORKTotals 11315 345 11918 355 5.33% 2.90% 2998 114 3099 103 3.37% -9.65% 14313 15017 459 4.92% 458 -0.22% SUFFSURCVBCHWMBG 697 24 3028 690 32 3003 29 -1.00% 37 -0.83% 20.83% 83 15.63% 1640 1643 0 87 23 0 0.18% 4.82% 22 4668 0.00% 780 -4.35% 4646 777 24 55 -0.47% -0.38% 29 59 20.83% 7.27% NORFPOQPORT 1539 1764 71 839 14.62% 925 85 212 10.25% 19.72% 289 105 10 36.32% 91 7 1751 -13.33% -30.00% 2053 944 17.25% 81 1016 92 7.63% 13.58% JCCMATCNNEW 368 19 1112 407 1173 28 10.60% 5.49% 47.37% 77 234 0 70 273 1 16.67% -9.09% 0.00% 1346 445 1446 477 19 7.43% 7.19% 29 52.63% CURRGLOCHAMPIWC 27 212 958 44 235 204 999 62.96% 10.85% 237 4.28% 16.18% 0 7 122 32 112 0 6 24 -14.29% -8.20% 0.00% -25.00% 1080 219 27 236 1111 241 44 261 2.87% 10.05% 62.96% 10.59% City/CountyCHES Sold Sold DET DET Change Sold Sold 1840 % 1907 Change Total ATT Total ATT Change 3.64% % 339 371 9.44% 2179 2278 % 4.54% 2012 RESIDENTIAL
December 2011, the percentage of closed existing home sales comprised by distressed homes ranged from 29% to 34%, as measured on a monthly basis.
The high percentage of distressed existing home sales when compared to all existing home sales continued to have a negative impact on the overall median sale price of existing homes in the region. The lower median sale price of exist- ing distressed homes of $130,000 for 2011 was $84,000 less than the median sale price for existing non-distressed homes. This contributed downward pressure on the market’s overall median sale price for existing homes. At $214,000, the median sale price of non-distressed homes saw a $6,000 decline from 2010, negating the $5,000 increase seen the year prior.
The average number of days an existing home spent on the market before closing in 2011 was 101 days, an increase of two weeks when compared to the 2010 average of 87 days. Despite the statistic’s susceptibility to manipulation, the average is the highest historically since tracking began and has more than tripled since the lowest average of 26 days on the market in 2004. The average days on market has climbed an average of 10 days per year since 2004.
As 2011 ended and 2012 progresses, there are early signs of growth in the existing homes real estate market of Hampton Roads. The rising trends in closings during the fourth quarter of 2011 and the sharp rise of homes under con- tract in December 2011 show promise in the beginning stages of 2012. The key leading indicator of under contract sales showed a significant jump of 21% in December 2011 when compared to December 2010. In comparison, there was a similar rise, though not as pronounced, at the end of 2010 leading into a strong first quarter in 2011 and, ulti- mately, a strong year. Although it is likely that not all of the contracts written in December 2011 will become closed exist- ing sales, those that do close, should turn into a solid base for growth in the existing residential real estate market of Hampton Roads in 2012.
Closings Concentration 2011
15% 3% 0% 0% 2%
7% VBCH JCC WMBG MATC 2% YORK NNEW 31% 3% CHES NORF 0% CURR POQ GLOC PORT HAMP SUFF 10% IWC SURC
0% 5% 14% 7% 1%
2012 Hampton Roads Real Estate Market Review 66 2012 RESIDENTIAL As for REIN, it is an independent MLS owned by broker stockholder members. But, MLS data does have weaknesses. Most notably is the portion of the dataset But, MLS data does have weaknesses. Most The underlying data the resale home closing statistics are based upon is the col- the resale home closing statistics are based The underlying data proximity to origin and depth. The MLS The strength of the dataset lies within its agents serving the entire Hampton Roads region. Currently, there are approximately 500 real estate firms with over 5,800 real estate Currently, less than ideal accountability for sales in North Carolina, Northern Neck areas of less than ideal accountability for sales in North Carolina, Northern Neck areas ders of the coverage area, due to overlapping MLSes. In such overlap areas, any given ders of the coverage area, due to overlapping by REIN, this translates into the local MSA and the region covered particular area. For area. and the Williamsburg Virginia, due to the sheer number of rich data fields within the database and the information con- due to the sheer number of rich data fields keyed by either the actual listing agent or tained within. The information is also being than many other information reposito- ments allows the MLS data to be more precise ries and vastly timelier. MLS membership wanes around the bor- boundaries. Usually, at the edges of the MLS’s one of the two or more MLSes that cover the real estate broker may choose to join only lection of those closings belonging to Real Estate Information Network, Inc. (REIN) belonging to Real Estate Information lection of those closings was input by hand and therefore may The data for each sales transaction members only. a collection, this data rep- the individual home sale level. But, as contain some errors at Roads region. the deepest of any resale home database (Multiple Listing Service) data is considered firm. The combination of these two key ele- administrative staff of the same real estate ABOUT THE DATA: ABOUT THE resents the timeliest and most accurate dataset of resale homes for the entire Hampton resents the timeliest and most accurate dataset 67 To Franklin and Southampton
RESIDENTIAL SUBMARKETS RESIDENTIAL SUBMARKETS (NEW CONSTRUCTION) (EXISTING HOMES) Southside Peninsula Southside Peninsula Chesapeake Gloucester Chesapeake Gloucester Franklin/Southampton Hampton Currituck Hampton Isle of Wight Co James City County Isle of Wight Co James City County Norfolk Newport News Norfolk Matthews Portsmouth York County Portsmouth Newport News Suffolk Suffolk York County Virginia Beach Surry Virginia Beach HAMPTON ROADS MARKET REVIEW
MULTIFAMILY
Author Charles Dalton
Data Analysis Real Data
Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are funded by donations from CREED IPAC and Council Advisory Boards, organizations and individuals.
Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies
and/or individuals makes any representation or warranty as to its 2012 accuracy. MULTI-FAMILY
69 2012 M U LT I - FA M I LY
General Overview
he Norfolk-Virginia Beach-Newport News Apartment Report, published by Real Data, is a detailed analy- sis of the rental market within conventional apart- T ment communities in the Hampton Roads region. The area has been divided into nine submarkets: Chesapeake, Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach, Williamsburg and York County. Combined, these areas contain a survey base of over 95,000 units within conventional apartment communities of 50 or more units each. The Norfolk-Virginia Beach-Newport News market is divided into two portions by the James River. The Peninsula area is north of the James River and contains Hampton, Newport News, Williamsburg and York County. The Tidewater area is south of the James River and contains Chesapeake, Norfolk, Portsmouth, Suffolk and Virginia Beach; also known as South Hampton Roads. The cities with the high- est concentration of units are Virginia Beach and Newport News, which accounts for nearly one half of the region’s apartment units.
Submarket Percentages The Hampton Roads apartment market has remained stable over the past 18-24 months. Williamsburg York County Occupancy rates for the overall market are 4% 2% Suffolk Chesapeake 94% which is higher than most major metros 1% 11% in the southeast. Looking ahead, apartments should see improving fundamentals due to Virginia Hampton strengthening demand for rentals in lieu of Beach 12% 25% home ownership. Development activity increased over the sec- ond half of 2010 as investors and developers looked to take advantage of a rebounding Portsmouth rental market. As of October 2010, there were 8% Newport News 22% nearly 2,000 units under construction; however, Norfolk this equates to only a 2% growth rate in supply 15% over the next 12-24 months which will help keep occupancies at or above current levels. The average quoted rental rate is $926, with one-bedroom rents averaging $825 per month, two-bedroom units averaging $932 per month, and three-bedroom units reporting an average rental rate of $1,103 per month. Average rental rates from existing inventory increased by $14.60 in the last twelve months. Although rents have risen in each of the last three years, rent growth over the past 18 months has lagged the larger increases record- ed in many other cities.
2012 Hampton Roads Real Estate Market Review 70 HISTORICAL APARTMENT DEVELOPMENT Norfolk-Virginia Beach-Newport News
Development of apartment units in this market peaked during two time periods, the early 1970s and the late 1980s. Although current development activity is being slowed by tighter lending restrictions, there are nearly 2,000 units expected to come on line with- in the next 18 months with less than 4,000 housing units of any type permitted in 2011.
TABLE I Historical Apartment Development
25,000
20,000 2012 15,000
10,000 MULTI-FAMILY Number of Units
5,000
0 Pre-‘64 ‘65-‘69 ‘70-‘74 ‘75-‘79 ‘80-‘84 ‘85-‘89 ‘90-‘94 ‘95-‘99 ‘00-‘04 ‘05- ‘09 ‘10-‘12
Year Built
71 2012 M U LT I - FA M I LY
MULTI-FAMILY PERMIT ACTIVITY Historical Multi-Family Building Permits Norfolk-Virginia Beach-Newport News
Overall housing development in the region was at its peak from 2002-2006 with more than 10,000 permits issued annually for single and multi-family housing. With the slow down in the overall housing market, residential permits issued fell to 5,223 in 2009 which is less than half of the activity at the peak of the market in 2005. Based on single and multifamily permits issued, the slow down in new housing starts is expected to continue with less than 4000 units permitted in 2011.
Multi-family permit activity, which includes rental and for-sale units, was strongest in 2005. However, much of the permit activity up until 2009 had not been rental apartments, but instead for-sale condominiums and townhous- es, especially in recent years when a decline in interest rates made it easier for many people to get into the for- sale arena. Multifamily development and apartments in particular, saw a surge in activity in 2011 with more than 2400 multi-family, including rental and for-sale, units permitted compared to only 761 units in 2010.
TABLE II Annual Multi-Family Permit Activity
3,200 3,000 2,800 3,085 2,600 2,400 2,200
2,000 2,355 2,336 2,292 2,339 1,800 1,600
1,400 1,811 Permits Issued Permits 1,315
1,200 1,519 1,000
800 1,159 600 761 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (thru Nov.)
2012 Hampton Roads Real Estate Market Review 72
2012 MULTI-FAMILY 200
Nov. 2011 67
Oct. Oct. 2011 66
Sep. Sep. 2011
208
Aug. Aug. 2011 419
Jul. Jul. 2011 234
Jun. Jun. 2011 178
May 2011 12
Apr. Apr. 2011 88 Mar. Mar. 2011
Under Construction Proposed 55
Feb. Feb. 2011 223
Jan. Jan. 2011 7
Dec. Dec. 2010 191 Chesapeake Hampton Newport News Norfolk Portsmouth Suffolk Virginia Beach Williamsburg County York Nov. Nov. 2010 0 900 800 700 600 500 400 300 200 100 0
1,100 1,000 100 200 300 400 500
Number of Units of Number Number of Permits of Number 73 As of the 4th quarter of 2011, there were 1,940 apartment there were As of the 4th quarter communities units under construction within twelve of 2011, in the Norfolk-Virginia Beach-Newport market. There are an additional 2,563 apartment News units proposed to Norfolk and Virginia Newport Beach are the most News, Chesapeake, start construction within the next year. in planning. or apartmentactive areas for new either underway communities with twenty-three development TABLE IV Apartment Development Activity (October 2011) Apartment Development IV TABLE TABLE III Multi-Family Permits Issued — Past Year Permits — Past Issued III Multi-Family TABLE APARTMENT DEVELOPMENT ACTIVITY DEVELOPMENT APARTMENT 2012 M U LT I - FA M I LY
DEMAND
Demand for housing can be measured by calculating the number of housing units absorbed within a given time frame. Absorption is defined as the net change in occupied units. Therefore, positive absorption occurs when previously vacant or newly built dwellings become occupied. Based on historical performance, the Norfolk-Virginia Beach-Newport News area is expected to absorb between 600 and 900 units annually. The collapse of the housing markets nationwide and the weakening economy caused a significant drop in demand for all types of housing in 2008. The area experienced a surge in demand for rental units in 2009 and 2010. This was due in part to the depressed for-sale housing market and householder preferences switching from ownership to renting.
The area saw a decrease in demand in 2011 with only 628 units absorbed. This was less than half the rate of absorption occurring in 2009 and 2010. The slowdown in demand may be due in part to the same force (depressed for-sale housing market) that bolstered demand in the prior two years. Only this time, home prices and mortgage rates have dropped to such low levels that ownership is looking more financially appealing than renting in some cases. In addition, some distressed single family and condominium properties are moving into the rental pool and adding a new source of supply to compete with apartments for renters.
Although the outlook for rental demand is expected to remain strong for the next several years, job growth is the ultimate driver for housing demand and a rebounding job market will be needed to sustain demand long term.
TABLE V Absorption
2200 2000 1800 1600 1400 1200 1000 800 600 400 200 Units Absorbed (Demand) 0 -200 -400 -600 -800 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2012 Hampton Roads Real Estate Market Review 74 Table VI Submarket Absorption 2011
700 600 500 400 300 200 100
Absorption (Annual) 0 -100 -200 Chesapeake Hampton Newport News Norfolk Portsmouth Suffolk Virginia Beach Williamsburg York County
VACANCY
The overall vacancy rate for the Norfolk-Virginia Beach-Newport News market as of October 2011 was 6.4%, up from 5.7% in 2010. Vacancy rates are expected to remain in the 6% range through 2013.
TABLE VII Overall Vacancy 2012 7.5 7.0 6.5 MULTI-FAMILY 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 Vacancy Rate (Annual) Vacancy 2.0 1.5 1.0 .5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
75 76 2012 MULTI-FAMILY Peninsula Hampton Newport News County York Williamsburg Chesapeake Norfolk Portsmouth Suffolk Virginia Beach Southside MULTI-FAMILY SUBMARKETS MULTI-FAMILY 77 2012 M U LT I - FA M I LY
Most submarkets experienced a slight rise in vacancies over the past year other than Williamsburg which saw its vacancy rate improve slightly. Although vacancy rates rose modestly in the past year, the area’s vacancy rate remains much lower than most other cities in the southeast. Hampton Roads historically has maintained a relatively healthy vacancy rate even in weak economic cycles due to the strong and consistent demand from the military bases for rental housing in the area.
Table VIII Submarket Vacancy Rates
9% 8% 7% 6% 5% 4% 3% Number of Units 2% 1% 0%
Chesapeake Hampton Newport Norfolk Portsmouth Suffolk Virginia Williamsburg York County Overall News Beach October 2010 October 2011
RENTAL RATES
As of October 2011, the average rental rate in Norfolk-Virginia Beach-Newport News was $926.
Table IX Average Rental Rates (New & Existing Communities)
$1000
$900
$800
$700
$600
$500
$400
$300
Average Rental Rate Average $200
$100
$0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2012 Hampton Roads Real Estate Market Review 78 2012 MULTI-FAMILY Newport News Portsmouth Suffolk Hampton Overall Norfolk Williamsburg County York Virginia Beach Chesapeake $0 $900 $800 $700 $600 $500 $400 $300 $200 $100
$1100 $1000 Average Rent (Lowest to Highest) to (Lowest Rent Average 79 Average overall rents ranged from a low of $821 in Newport rents ranged from a low of $821 in Newport overall of $1,020 in Chesapeake. to a high Average News News, while Norfolk, Suffolk and Hampton all reported rent of $926 per month, Portsmouth, than the average rents lower Virginia all reported rent. Beach and Chesapeake overall than the average rents higher County, York Williamsburg, TABLE X Average Rent by Submarket – October 2011 Submarket Rent by Average X TABLE AVERAGE RENTS AVERAGE 2012 M U LT I - FA M I LY
MANAGEMENT
There were over 470 conventional apartment communities with more than 50 units surveyed in the Hampton Roads region. Of the 92,000+ apartment units surveyed, the top five firms manage one-third of these units. The majority of the management firms oversee one or two apartment communities and have 500 or less units under management.
Table XI Top 10 Management Companies
S.L. Nusbaum Realty Co.
Harbor Group Management Co.
Drucker & Falk Real Estate
Lawson Companies Inc.
Breeden Management Company
Weinstein Properties Real Estate
Kotarides Companies Property Management
Ripley-Heatwole Company, Inc.
Perrel Management Company, Inc.
Bonaventure Group Inc.
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
REGIONAL TRENDS
Richmond Richmond has over 60,000 conventional apartment units within communities of at least 50 units. The area’s apartments hit bottom in the fourth quarter of 2009 and first quarter of 2010 when occupancies fell to 90% and rents declined by (-3.5%) for the year. Since that time Richmond has seen a strong resurgence in rental demand and occupancies reached nearly 93% in 2011. Rents also showed modest growth over the past two years with rents now averaging $855 per month.
Roanoke Roanoke has fewer than 10,000 conventional apartment units among communities of at least 30 units. Roanoke’s apartment market coped better than most markets during the past recession. This was due in large part to the fact that there has been minimal new apartment development in Roanoke over the past several years which has kept the rental supply at a manageable level. Occupancy rates in 2011 were 93.9% with rent averaging $693 per month.
2012 Hampton Roads Real Estate Market Review 80 HAMPTON ROADS MARKET REVIEW
CAPITAL MARKETS & REAL ESTATE FINANCE 2012
Author Victor L. Pickett Senior Vice President, Regional Manager CAPITAL MARKETS & REAL ESTATE FINANCE Grandbridge Real Estate Capital LLC
Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are funded by donations from the CREED IPAC and Council Advisory Boards, individuals and organizations.
Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals makes any representation or warranty as to its accuracy.
81 2012 CAPITAL MARKETS & REAL ESTATE FINANCE
General Overview
ontrary to popular belief, there is pent up demand by commercial real estate lenders to make commercial real estate loans.
For the first time in the history of the Mortgage Bankers Association (MBA), C the Association is forecasting commercial/multifamily origination volume. In 2012, the MBA is forecasting CRE loan origination to be $230 billion.
This production volume forecasted by the MBA, when compared to maturing mortgages on multifamily/commercial real estate in 2012 alone, falls very short of the $400 billion that will be maturing this year.
While interest rates remain at historically low levels, lenders are reluctant to take on addi- tional risk or relax their current underwriting standards to meet this refinance volume.
The pent up demand for quality loans (capital) by the commercial real estate lenders will far exceed the availability of stabilized quality assets. The question then remains, will lenders be forced to take on more risk for more yield, thus filling the capital needs of borrowers to refinance the large number of maturing loans in 2012 and beyond?
Hampton Roads has been a stable market throughout recent history for institutional lenders and banks that make investments in commercial real estate. As the market continues to stabilize and basic fundamentals for all asset classes of commercial real estate trend positive, this capital will seek real estate investments in our region.
COMMERCIAL REAL ESTATE FINANCE
The fundamentals of commercial real estate (CRE) turned more positive in 2011. First mortgage debt placements were higher for life insurance companies than any other time. Agency lenders continue to have success in originating multi- family loans. Commercial real estate trends have rebounded significantly since reaching bottom in 2009. Most all prop- erty types showed economic stability and growth in 2011. Both 2012 and 2013 should be positive transitional years as occupancies increase and rent growth continues to improve. Supply and demand will stay in check, with no new major developments in process, and fundamentals will continue to improve, albeit slowly.
Commercial real estate finance, as it relates to permanent first mortgage debt, had its best year since the bubble of 2006 and 2007. Production or origination volume was up with lender participation having included life insurance com- panies, commercial mortgage-backed securities (CMBS) participants, banking institutions, HUD and the government sponsored entities (GSE) of Fannie Mae and Freddie Mac. With fundamentals improving across all sectors, CRE finance lenders will continue to be very active in 2012 with equal or increased allocations.
2012 Hampton Roads Real Estate Market Review 82 2012 CAPITAL MARKETS & REAL ESTATE FINANCE 2007 2009 2011* 2011 Commercial/Multifamily Originations 2011 Commercial/Multifamily (In Billions) FannieFreddie VolumeTotal HUD Mae & Freddie Mac, Fannie ACLI, Sources: MBA, *Actual through 3rd quarter with 4th quarter estimated $26 $324 $22 $21 $65 $16 $137 $24 $20 LifeCMBSHUD $42 $230 $4 $17 $4 $7 $50 $30 $13 ($millions) % of total 83 2011 Q3 positive for owners as a large number of loans in the This momentum comes at a critical time and investors. CMBS lenders and GSEs are maturing. A significant companies, life insurance portfolio of banking institutions, CRE Mortgage Debt Outstanding CRE Mortgage refinance and financing challenges to both lenders and borrowers in 2012 and beyond. The upturn of new capital moving back into the commercial real estate market in 2011 and 2012 is veryThe upturn capital moving of new Debt originations for commercial and multifamily real estate lendersDebt originations for commercial and multifamily increased to $137 billion in 2011. As you lenderscan see from the origination chart, and capital will continue to flow back into CRE, are more confident assuming fundamentals continue to improve. number of loans and $400 billion in dollar volume will mature in 2012. Loan maturities alone will increase everynumber of loans and $400 billion in dollar coupled single largest year for maturities estimated at $1.5 trillion. This debt maturity, the year through 2017, will create continued markets and paranoid regulation, increased slow economic growth, with global deleveraging, Total 2,371,208 100% Source: Mortgage Bankers Association BankersSource: Mortgage Other 324,650 13.7% CMBS, CDO and other ABS issues CDO and other CMBS, and GSE portfolios MBS and Agency Life Insurance Companies 606,501 337,500 25.6% 14.2% 309,553 13.1% Bank and ThriftBank and 793,004 33.4% 2012 CAPITAL MARKETS & REAL ESTATE FINANCE
Between 2012 and 2017, there will be approximately $2 trillion of CMBS loans maturing according to TREPP. It becomes very apparent that the historical annual production volume of life insurance companies and CMBS lenders will not fill the void of capital necessary to refinance these maturities as noted above.
Based on the most recent TREPP Rollover Summary, borrowers are experiencing difficulties in finding lenders to take out the CMBS loans that are maturing today. In 2011, only 49% of maturing loans in all CMBS maturities were refinanced. This means 51% of the maturing loans in 2011 were amended, extended or restructured by pay down, rate adjustment, fees etc., or foreclosure.
Percentage of Loan Payoff in 2011 by Month
% by Balance at Maturity Date % by Count at Maturity Date Jan 2011 38.7% 49.4% Feb 2011 38.4% 47.2% Mar 2011 55.5% 52.2% Apr 2011 47.5% 53.8% May 2011 34.9% 48.1% Jun 2011 42.4% 56.1% Jul 2011 39.6% 49.4% Aug 2011 39.5% 43.1% Sept 2011 64.4% 55.6% Oct 2011 41.8% 44.2% Nov 2011 47.1% 50.0%
Source: TREPP
As loans mature, the need for loan extensions between the existing lender and the borrower becomes necessary for various reasons. In most cases, these assets are over leveraged but are cash flowing, thus the existing loan is current, but the available loan terms in today’s financing market cannot meet the loan request required. The financing gap can range from loan amounts in excess of the value to loans that may be only 5% to 10% higher in leverage than what is financeable. (Not all cases are leverage, but for the purposes of this discussion, leverage will be the focus.)
Borrowers or service providers are to be proactive on loan maturities. It is very important to start early in discussions with both the existing lender as well as alternative sources for new debt. Seeking professional advice 12 to 24 months in advance is highly recommended. The financing market is always changing and it is critical to stay abreast of current financing terms and conditions as well as trends relative to financing needs. Competition will be fierce for new loans and lenders will be very selective in 2012.
2012 Hampton Roads Real Estate Market Review 84 Outlined below are the basic terms and conditions available in the multifamily and commercial real estate debt market today. It should be noted and understood that every real estate asset is different and each loan situation will vary as to the final terms.
PROPERTY TYPES IN ORDER OF PREFERENCE TO THE LENDER:
Apartments Industrial Grocery Anchored Shopping Centers CBD Office Credit, Single-Tenant Properties on long-term leases Suburban Office Shadow Anchored Retail Self-Storage Medical Office Well flagged limited- or full-service hotels
LOAN-TO-VALUE
A major improvement over the past 24 months between all lenders is their willingness to extend higher loan proceeds relative to value. In 2009, the maximum loan-to-value (LTV) for CRE by the life insurance company lenders was on average around 50% to 60%. CMBS lenders were not in the market during this time. In 2011, CMBS lenders came back in and pushed loan-to-value back to 75% on most property types. Life insurance companies followed in 2011 2012 and the average leverage was 65% loan-to-value and insurance lenders stretched to 70% to 75% LTV for “best in class assets”. In 2012 and going forward, increased competition will exist in the market amongst all capital sources for top quality multifamily, retail and industrial properties. Borrowers will see loan-to-value increase to 75% for these
assets. For less than top tier assets, most insurance companies will continue to limit loans to 65% loan-to-value. CAPITAL MARKETS & REAL ESTATE FINANCE In 2012, look for insurance companies to stay the course at 65% to 70% loan-to-value and CMBS lenders to drop down to 70% LTV. The GSE multifamily lenders can lend up to 80% loan-to-value with caveats.
INTEREST RATES
The initiative by the Federal Reserve to keep base interest rates low has helped drive mortgage rates for commercial real estate to historical lows. Mortgage rates are derived by taking an index, in most cases the 10-year U.S. Treasury rate, and adding a spread or credit adjustment to the base rate for an overall interest rate. During 2009 and most of 2010, lenders charged a high spread due to the perceived risk, and consequently, spreads were at an all time high. During the second half of 2010 and all of 2011, spreads generally contracted and the yield on the 10-year Treasury rate dropped from the mid 3% level to around 2% today.
In 2011, we saw overall interest rates for 10-year term money fall below 4% on “best in class” assets for the first time. First mortgage interest rates are at historically low rates and demand by lenders is very high. At the time of this narrative, the 10-year Treasury rate was 2%. The generally quoted interest rate today for a 65% leveraged asset meeting the underwriting standards for the reported asset classes would be as follows:
Apartments 3.50% – 4.50% Commercial Real Estate 4.00% – 5.00% Hotels 4.75% – 6.00% Self-Storage 4.50% – 5.00% 2012 CAPITAL MARKETS & REAL ESTATE FINANCE
As you can see from the chart, published spreads for the mid-point of a fixed rate 10-year commercial mortgage varies depending on the property type. Apartments tend to always have the lowest spread vs. hotels being the highest among all assets. Mid-Point of Fixed Rate Commercial Mortgage Spreads for 10-Year Commercial Real Estate Mortgages
Property Type 1/8/12 Multifamily – Non-Agency +240 Multifamily – Agency +235 Regional Mall +250 Grocery Anchor +245 Strip and Power Centers +260 Multi-Tenant Industrial +245 CBD Office +250 Suburban Office +265 Full-Service Hotel +300 Limited-Service Hotel +305 10-Year Treasury 2.00%
Source: Cushman & Wakefield Sonnenblick Goldman
Look for interest rate spreads in 2012 to trend slightly lower for quality, low leverage deals. As for most lenders, there is a need Look for interest rate spreads in 2012 to for yield and 2012 will be a transitional year trend slightly lower for quality, low leverage deals. As for most lenders, there is a need for lenders to take on additional risk for for yield and 2012 will be a transitional additional spread. year for lenders to take on additional risk for additional spread.
In conclusion, 2011 was a transitional year for the real estate finance industry. Property fundamentals showed stabilization with growth, albeit slow, in rental rates and occupancy trends moving positive.
Demand by all lenders will be strong in 2012 and competition will be fierce for low leverage quality assets. Look for greater allocations to CRE by most all life insurance company lenders and continued large volume of multifamily loans by the GSEs. The CMBS lenders will be trying to find their market with core lenders staying the course and making this market. Estimates for production volume by CMBS lenders in 2012 will be at 2011 levels or slightly higher.
2012 Hampton Roads Real Estate Market Review 86