Annual Real Estate Report Shows Improvement for Hampton Roads
March 15, 2018
Local business leaders and experts gather at the Ted Constant Convocation Center for the 23th annual Hampton Roads Real Estate Market Review and Forecast, hosted by Old Dominion University's E.V. Williams Center for Real Estate.
By Noell Saunders
Attendees at the 23th annual Hampton Roads Real Estate Market Review and Forecast, hosted by Old Dominion University's E.V. Williams Center for Real Estate, heard an optimistic report about 2017 and the year ahead.
Seven experts offered presentations on the current state and future of real estate while addressing topics such as economic trends and the office, industrial, retail, multifamily, investment and residential sectors on March 13 at the Ted Constant Convocation Center.
Economic Trends
Vinod Agarwal, deputy director of ODU's Dragas Center for Economic Analysis and Policy, said Hampton Roads is still behind the curve as far as job creation since the recession. But he said the region's economy is expected to grow at a 2.2 percent rate in 2018, higher than the 0.8 percent rate in 2017.
"We lost 2,400 jobs in 2017, but revised employment numbers show a gain of 7,300 jobs," he said. "The good news is, these numbers also show that on an annual basis, jobs in 2017 were higher than they have ever been in the history of Hampton Roads."
Agarwal said stagnant defense spending and lack of private-sector development were the reasons for slow economic growth in the region.
"From 2000 to 2012, DoD spending increased by an average of 6 percent a year," he said. "Since 2012, the spending has been stagnant. When the DoD stays stagnant, so does the economy in Hampton Roads."
Agarwal said the region's dependence on the Defense Department can't continue at the same level.
He also noted that although the unemployment rate is going down both nationally and in Hampton Roads, the region still hasn't recovered all of the jobs that were lost during the recent recession.
"We need to have more innovation, entrepreneurship and regional collaboration," he said.
Office
Krista Costa, vice president of corporate services and office leasing at Divaris Real Estate, said the office market in Hampton Roads had strong activity and posted near-record absorption in 2017.
Absorption is measured in square footage and is a technique commercial real estate investors use to gauge tenant demand.
"The total office inventory in Hampton Roads at the end of 2017 was just shy of 51 million square feet," Costa said.
The office vacancy rate ended the year at 9.2 percent, and rents in the region slightly increased.
"The net absorption, which is the square footage leased after deducting the space vacated, was 820,076 square feet," she said. "That figure is greater than the net absorption for the past three years combined."
Industrial
Lang Williams, senior vice president at CBRE Hampton Roads, focused his presentation on the Norfolk industrial and logistics market.
"From a statistical perspective, 2017 was a great year for Norfolk," he said. "We reached an all-time record low of 4.4 percent vacancy, less than half of the peak that we reached back in 2012 during the recession."
Williams said every company's supply chain comes down to solving four key variables: speed, cost, reliability and complexity.
"Virginia and Norfolk serve a critical role as a gateway to the world via the Port of Virginia," he said. "Increased marketing of this asset will help us attract more industrial investment and users to the Norfolk region."
Retail
Michael Zarpas, vice president of retail brokerage and development for S.L. Nusbaum Realty, said 2017 was a productive year for sales in the retail sector.
"There are more signs going up in Hampton Roads than coming down. We had over 700,000 square feet in new retail development projects," he said.
Zarpas said strong tenants have been expanding their presence in the Hampton Roads market in the last year.
"Ikea, Floor and Décor, Publix, Lidl, Wegmans and Bluemercury all signed deals in 2017," he said.
Zarpas said consumer demands will be challenging as the retail landscape continues to evolve over time. Some of those changes are augmented and virtual reality, computer enhanced logistics and artificial intelligence.
"The only constant in retail is change," he said.
Multi-family
Chris McKee, president of operations at The Franklin Johnston Group, said 2017 saw a relatively pronounced demand surplus.
"The multi-family was exceptionally strong in Hampton Roads last year," he said. "Hampton Roads has started to draw significant interest from many large, national and regional investors searching for yield."
McKee mentioned notable transactions including Banyan Grove by Croatan Investments for $46 million and Reflections Virginia Beach by the Breeden Co. for $60.75 million.
He also said Hampton Roads was a solid investment among apartment developers and new projects are being distributed across multiple suburbs.
"The market continues to absorb these new projects quite well," McKee said.
Investment
Jeremy McLendon, president of Continental Capital Partners, said despite several retail closures across the country, he doesn't think there's a "retail apocalypse."
"Retail closures are nothing new," he said. "They create opportunity."
McLendon said the question lies in whether the market cycle trends in Hampton Roads will be long-term or short-term.
"The different viewpoints can have a profound impact on how we view the market and how your investment thesis is formed for your current holdings as well as future acquisitions," McLendon said.
He said investors continue to search for higher yield.
"The old adage of workers moving to where the jobs are, in my opinion, no longer applies. Companies are moving to where the workforce is," McLendon said.
McLendon said the key requirements for tomorrow's workforce include low cost of living and high quality of life with abundant amenities.
Residential
The event wrapped up with Van Rose, president of Rose & Womble Realty Co., delivering the residential portion.
Rose described the outlook for residential real estate as "smooth sailing" with a colorful Olympics-themed presentation.
"The area climbed back to 26,000 units built and sold in 2017," he said. "That number was 23,000 in 2015; in 2005, 30,000 units were bought and sold.
In 2017, the median time a home was on the market was 41 days, but Rose said a large percentage are selling in less than 30 days.
"It's getting back to that time where we're getting multiple offers and houses are moving very rapidly," Rose said.
Rose said one of the future challenges is low inventory. Some sectors are struggling.
"There's going to be a bit of a crisis coming in the months ahead," he said. "But if I was to predict today what I think will happen in 2018, I say we are probably going to walk away with a silver medal."
