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R E A L E S T A T E M A R K E T R E V I E W & F O R E C A S THAMPTON ROADS
2018
David RingExecutive Vice PresidentCommercial BankingGroup Executive
John StallingsBank President
John AsburyChief Executive Officer
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R E A L E S T A T E M A R K E T R E V I E W & F O R E C A S THAMPTON ROADS
CONTENTS
Message From The Center...................5
Executive Committee...........................7
Advisory Board.....................................7
E.V. Williams Center for
Real Estate Members...........................8
Sponsors.............................................10
Economic Trends................................13
Office.................................................. 16
Industrial...........................................20
Retail.................................................24
Multifamily........................................28
Investment.......................................34
Residential........................................38
Sentiment.........................................42
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E.V. Williams Center for Real Estateand Economic Development
We thank you.
elcome to the 2018 Hampton Roads’ Real Estate Market Review & Forecast. For over two decades, the E.V. Williams Center for Real Estate has been working with Hampton Roads’ industry leaders to produce the Market Review. This year’s reports examine eight areas of interest in the Hampton Roads’ real estate markets: economic trends, office, industrial, retail, multifamily, investment properties, residential, and market sentiment. Thank you to this year’s speakers for sharing their industry expertise and contributing their valuable time and leadership to this event and to the Center.
As part of Old Dominion University’s Strome College of Business, the E.V. Williams Center for Real Estate strives to connect the Hampton Roads’ real estate community to the research, curriculum, and students at the University. Through our dedicated membership, comprised of community leaders and industry experts, we educate and empower the next generation of professionals and leaders. We would like to thank our growing membership for supporting the Center, and for assisting in the engagement and education of our students. 2017 was an exciting year for the Center as it announced the new B.S.B.A. in Real Estate and the hiring of new full-time Wendell C. Franklin Lecturer in Property Management, Richard Button. The Center would not be able to achieve its mission without the dedication of its Executive Committee, Advisory Board, and members.
Throughout the year, the E.V. Williams Center works to engage its members, the community and ODU students by hosting networking events and conducting research. To learn about our upcoming events or to become more engaged with the E.V. Williams Center please contact, Director, Andy Hansz, [email protected], or, Assistant Director, Natalie Boehm, [email protected].
Thank you for attending the 2018 Market Review & Forecast and for supporting the E.V. Williams Center for Real Estate. We look forward to seeing you at future events.
J. Andrew Hansz, Ph.D., MAI, CFARobert M. Stanton Chair in Real Estate, Finance Department, Strome College of BusinessDirector, E.V. Williams Center for Real Estate
Lawrence J. Colorito, MAIChair, E.V. Williams Center for Real Estate Executive BoardSenior Managing Director, Valbridge Property Advisors
Natalie M. BoehmAssistant Director, E.V. Williams Center for Real EstateCopy Editor, Hampton Roads Real Estate Market Review & Forecast
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EXECUTIVE COMMITTEE
ADVISORY BOARD
Tom DillonUnion Bank & Trust
Jonathan S. GuionJonathan Commercial Properties
Bradley R. SanfordDominion Realty Advisors, Inc.
Stephanie SankerS.L. Nusbaum Realty Co. Board ChairLawrence J. Colorito, Jr. Valbridge Property Advisors
Ex Officio Natalie M. Boehm*Old Dominion University, E.V. Williams Center for Real Estate
Kyllie BullionOld Dominion University, Strome College of Business
J. Andrew HanszOld Dominion University, E.V. Williams Center for Real Estate
Thomas H. AthertonAtherton Real Estate Development
Richard CrouchVandeventer Black, LLP
Dawna L. EllisHarvey Lindsay Commercial Real Estate
Dewey JonesPond & Company
Evan KalfusKPMG LLP
Teresa PetersStanton Partners, Inc.
John M. ProfiletS.L. Nusbaum Realty Co.
Charles E. Rigney, Sr. Norfolk Department of Development
Jeremy R. StarkeyTowneBank
Deborah Stearns Jones Lang LaSalle
Christopher E. Todd*Colliers International, Norfolk
Jim VallosHarbor Group International, LLC
Erica ViolaBranch Civil, Inc.
*ODU Association of Real Estate Alumni (AREA) Committee
7
To obtain additional copies of this report, please visit our website: www.odu.edu/business/center/creed
Contact: J. Andrew Hansz, Ph.D., CFA, MAIDirector, E.V. Williams Center for Real EstateStrome College of BusinessOld Dominion University2154 Constant Hall, Norfolk, VA [email protected] • 757.683.3505
R E A L E S T A T E M A R K E T R E V I E W & F O R E C A S T
HAMPTON ROADS
2018
E.V. WILLIAMS CENTER f o r r e a l e s t a t e
The views expressed in this report do not represent the official position of Old Dominion University, E.V. Williams, or any generous sponsors or donors.
J. Scott AdamsCBRE Hampton Roads
Jeff AinslieAinslie Group
Christopher AmbrosioVandeventer Black LLP
Stephen ArmbrusterCherry Bekaert LLP
Matthew J. BaumgartenTidewater Community College
Anthony BeckCenterPoint Properties
Ann BolenLove Funding Corp.
Denise BrownBayPort Credit Union
M. Albert CarmichaelHarvey Lindsay Commercial Real Estate
Thomas ClemensWells Fargo Business Banking
Gail Coleman Howard Hanna Real Estate Services
Craig CopeCommonwealth Commercial Partners
Hahns L. Copeland*DARVA Group Construction LLC
Krista CostaDivaris Real Estate, Inc.
Ann K. CrenshawKaufman & Canoles, P.C.
John H. CrouseSaunders + Crouse Architects
Jon R. CrunkletonOld Dominion University
Kim CurtisTidewater Home Funding
Edward DentonDenton Realty Company
Michael B. DivarisDivaris Real Estate, Inc.
Nancy Dove*Valbridge Property Advisors
Helen E. DragasThe Dragas Companies
Pam Ellyson* Farmers Bank
Margaret R. FlibotteFrye Properties, Inc.
William GambrellRight Coast Consulting Corp. Julie GiffordBECO
Brian E. GordineerCity of Hampton, Office of the Real Estate Assessor
Howard E. GordonWilliams Mullen
Dennis Gruelle Appraisal Consultation Group
Janice M. HallRRMM Design Build LLC
Michael HallBelfor Property Restoration
8
MEMBERS
E.V. WILLIAMS CENTER f o r r e a l e s t a t e
Carl L. HardeeThe Lawson Companies
Catherine HarrisHarbor Tax Group
Jeffrey S. HarrisHarris Property Advisors
Warren D. HarrisVirginia Beach Economic Development
Aimee Hower
Kevin Hughes City of Suffolk
Michael A. InmanInman & Strickler P.L.C.
Lynn JernellFulton Financial Corporation
Jerry JonesAll Access Property Management
Robert KerrKerr Environmental Services
Frank KollmanspergerEntry Guard Systems
Larry Lombardi County of Currituck Economic Development
Janet Moore S.L. Nusbaum Realty Co.
Thomas O’GradyClancy & Theys Construction Company
Victor L. PickettGrandbridge Real Estate Capital
F. Craig ReadRead Commercial Properties, Inc.
Brenda Reid Howard Hanna Real Estate Services
Mark RichardsonThe Timmons Group, Inc.
J. Randy RoyalKimley-Horn and Associates, Inc.
Tara SaundersOld Dominion University Real Estate Foundation
John SosciaSoscia & Company, Inc.
Jeff StoneBECO
Robert M. StantonStanton Partners, Inc.
G. Stewart TylerRight of Way Acquisitions & Appraisals, Inc.
Samuel A. Walker, Jr. Pembroke Commercial Realty
Ed Ware, IIINorfolk Redevelopment & Housing Authority
Robert T. WilliamsTri-City Developers LLC
Eddie Winters CRE Appraiser
Steven WrightChesapeake Department of Economic Development
Michael P. ZarpasS.L. Nusbaum Realty Co
9
MEMBERS
E.V. WILLIAMS CENTER f o r r e a l e s t a t e
10
THANK YOU2 0 1 8 s p o n s o r s
STAGING MEDIA
11
THANK YOU2 0 1 8 s p o n s o r s
Provided by, Hampton Roads Planning District Commission.
ECONOMIC TRENDS
VINOD AGARWAL, PH.D.
Deputy Director, Dragas Center for Economic Analysis and PolicyStrome College of Business, Old Dominion University
ECONOMICTRENDS
13
The Hampton Roads economy is expected to grow at a much higher rate in 2018 (2.2%) than in 2017 (0.8%). But, regional growth in 2018 will, once again, be slower than the historical annual average of 2.4%, seen over the last thirty years, and slower than that of the nation. Whereas real (inflation-adjusted) U.S. Gross Domestic Product (GDP) grew annually at a compounded rate of 2.1% from 2009 to 2016, Hampton Roads real GDP actually fell by 0.2% over the same period.
The twin blows of the Great Recession (2008-2010) and stagnation in Department of Defense (DoD) spending since 2012 significantly contributed to the region’s lackluster economic performance. DoD spending in the region increased at a 5.9% annual rate from 2002 to 2012 and has not grown since 2012. Coupled with anemic private sector job growth, the Hampton Roads economy has simply limped along while the U.S. accelerated ahead.
ANNUAL GROWTH RATE IN REAL GDP: HAMPTON ROADS AND THE UNITED STATES, 2001 TO 2017
-2%
-1%
0%
1%
2%
3%
2001 to 2009 2009 to 2015 2015 to 2016 2016 to 2017e
United States Hampton Roads
Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Data on GDP incorporates latest BEA revisions in September 2017. For 2017, US GDP is advance BEA estimate, while Hampton Roads GDP is ODU estimate.
3%
2%
1%
0%
-1%
-2%2009 to 20152001 to 2009 2015 to 2016 2016 to 2017e
1.62%2.17%
1.49%
2.25%2.12%
-0.04% -1.09%
0.80%
n United States n Hampton Roads
ESTIMATED DIRECT DOD SPENDING HAMPTON ROADS, 2000 TO 2017
0.0
5.0
10.0
15.0
20.0
25.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Billi
ons o
f Dol
lars
Source: U.S. Department of Defense and the Old Dominion University Economic Forecasting Project. *Includes Federal Civilian and Military Personnel and Procurement. Data for 2016 are estimates and data for 2017 are forecasts.
25.0
20.0
15.0
10.0
5.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
10.0
19.919.7 19.3
Billi
ons
of D
olla
rs
14
ECONOMIC TRENDSCongress has yet to pass appropriations bills for Fiscal Year (FY) 2018, however, the most recent Continuing Resolution (CR) that expires on March 23, 2018 contains good news. The CR suspended the debt ceiling until March 2019, removing this potential stumbling block from Congressional negotiations. More importantly, the CR raised the discretionary spending caps introduced by the Budget Control Act of 2011 by $296 billion over the next two fiscal years. This is not a trivial amount as the national defense caps rose by $165 billion and the non-defense caps by $131 billion. With a large federal presence in Hampton Roads, to include over 80,000 active duty personnel and 40,000 federal employees, the rise in spending will lift economic activity in the second half of 2018 and into 2019. Depending on the final composition of the appropriations bills, real GDP growth may rise from an initial forecast of 1.2% to 2.2% (or more).
The Great Recession impacted job markets throughout the United States. Compared to peak employment prior to the recession, the U.S. and the Commonwealth lost 6.3% and 5.1% of jobs through February 2010. Since the trough in 2010, the U.S. and Virginia have steadily added jobs. In January 2018, the U.S. had 6.8% more jobs than prior to the Great Recession, Virginia 4.7%. Hampton Roads, on the other hand, lost 6.1% of jobs during the Great Recession and has not yet recovered all the lost jobs. At the end of December 2017, Hampton Roads was still 2.4% (17,600) jobs below peak employment observed in 2007.
Unlike the drawdown in defense spending in the 1990s, the private sector has yet to fill in the gap in Hampton Roads. The Quarterly Census of Employment and Wage reports that during First Quarter of 2017, total private sector jobs in Hampton Roads were about 13,500 below peak employment observed in first quarter of 2007. Efforts to spur private sector growth through innovation and entre-preneurship are crucial to building a robust, growing private sector in the region.
CAPS ON DEFENSE DISCRETIONARY SPENDING, FY 2012 TO 2021
Source: Budget Control Act of 2011, OMB Sequestration Reports (various years), Further Extension of Continuing Appropriations Act, 2018 (HR 1892), and the Old Dominion University Economic Forecasting Project.
450
500
550
600
650
700
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Bill
ions
of d
olla
rs
Sequestration ATRA2012 BBA 2013 BA 2015 forecast
Caps on Defense Discretionary Spending, FY 2012 to FY 2021
Source: BCA2011,Budget Requests for FY14, CBO Sequestration Update Report and the Old Dominion University Economic Forecasting Project.
700
650
600
550
500
450FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Billi
ons
of D
olla
rs
Sequestration ATRA2012 BBA 2013 BA 2015 forecast
RECOVERY FROM THE GREAT RECESSION: MEASURED IN TOTAL JOBS RESTORED UNITED STATES, VIRGINIA, AND HAMPTON ROADS SINCE 2007-2017
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101
106
111
116
121
126
United States Virginia Hampton Roads
Source: Bureau of Labor Statistics seasonally adjusted data and Old Dominion University Economic Forecasting Project. Peak Pre-Recession Dates are July 2007 (Hampton Roads), January 2008 (United States), and April 2008 (Virginia).
Data are through December 2017 for VA and HR, and January 2018 for U.S.
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8% 1 6 11 16 21 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101
106
1111 116
121
12626
Pre-Recession Peak Dates:U.S.: January, 2008Virginia: April, 2008
Hampton Roads: July, 2007
-2.44%
4.69%
6.78%
United States Virginia Hampton Roads
CHANGE IN PRIVATE SECTOR EMPLOYMENT: SELECTED INDUSTRIES IN HAMPTON ROADS, 2007 Q1 TO 2017 Q1 (IN THOUSANDS)
-15 -10 -5 0 5 10 15 20 25
ConstructionManufacturing
Retail TradeWholesale Trade
InformationReal Estate
Admin and SupportFinance and Insurance
UtilitiesManagement of Companies
Professional and ScientificTransportation and Warehousing
Accomodation and FoodHealth Care and Social Assistance
Change in Private Sector EmploymentSelected Industries in Hampton Roads, 2007 Q1 to 2017 Q1
Source: Virginia Employment Commission: Covered Employment and Wages by Private Ownership and the Old Dominion University Economic Forecasting Project.
-15 -10 -5 0 5 10 15 20 25
Health Care and Social Assistance
Accommodation and Food
Transportation and Warehousing
Professional and Scientific
Management of Companies
Utilities
Finance and Insurance
Admin and Support
Real Estate
Information
Wholesale Trade
Retail Trade
Manufacturing
Construction -11-7
194
111
-1-2-3
-4-5-5
-6
15
Even though the job situation in Hampton Road has been quite grim for the last ten years, an examination of data from Local Area Unemployment Statistics (LAUS) provides a slightly different (and rosier) picture of the labor force and number of individuals employed. About 10,000 more individuals are in the regional labor force today than in 2008. The number of individuals stating that they are actively employed has also risen by about 10,000 over the same period. The divergence between these two sets of information on the labor market could be explained partly by a possible reduction in the number of part time jobs and due to the emergence of the gig economy where more and more individuals simply prefer to be self-employed.
NUMBER OF INDIVIDUALS EMPLOYED HAMPTON ROADS, 1999 TO 2017
660
680
700
720
740
760
780
800
820
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Thou
sand
s of I
ndiv
idua
ls
Number of Individuals EmployedHampton Roads, 1999 to 2017
Source: U.S. Department of Labor LAUS data and the Old Dominion University Economic Forecasting Project. Not seasonally adjusted. Data will be revised in March/April 2018.
820
800
780
760
740
720
700
680
660
Thou
sand
s of
Indi
vidu
als
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
e
721
792797 802796
Unemployment rates at the national, state, and local level all rose in response to the Great Recession. Since the end of the recession, however, we have seen marked declines in unemployment rates. The U.S. economy is near full employment and we are seeing the beginnings of wage increases because of labor shortages. The anemic performance of the Hampton Roads economy can also be seen in the unemployment rate. Prior to the Great Recession, Hampton Roads unemployment was below that of Virginia. Recently, at the end of 2017, the Hampton Roads unemployment rate was the same as the U.S. and higher than Virginia.
UNEMPLOYMENT RATES IN THE UNITED STATES, VIRGINIA, AND HAMPTON ROADS, 2007 - 2017
0
2
4
6
8
10
12
Jan- Jul-0
7Ja
n-08
Jul-0
8Ja
n-09
Jul-0
9Ja
n-10
Jul-1
0Ja
n-11
Jul- 1
1Ja
n-12
Jul-1
2Ja
n-13
Jul-1
3Ja
n-14
Jul-1
4Ja
n-15
Jul-1
5Ja
n-16
Jul-1
6Ja
n-17
Jul-1
7
Unem
ploy
men
t Rat
e (%
)
Recession United States Virginia Hampton Roads
Source: Bureau of Labor Statistics seasonally adjusted data and the Old Dominion University Economic Forecasting Project. Data are through December 2017.
12
10
8
6
4
2
0
Unem
ploy
men
t Rat
e (%
)
Jan-
07
Jul-0
7Ja
n-08
Jul-0
8Ja
n-09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2Ja
n-13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15Ju
l-15
Jan-
16
Jul-1
6
Jan-
17Ju
l-17
Recession United States Virginia Hampton Roads
10.0%
7.9%
7.3% 4.1
4.1
3.7
KRISTA COSTA
Vice President, Divaris Real Estate, Inc.
16
OFFIcE
VACANCY LEVELS
KEY HAMPTON ROADS’ MARKET
STATISTICS
The Hampton Roads’ 2017 office market experienced leasing activity similar to the previous two years, with a vacancy rate of 9.2% at the end of the fourth quarter. This vacancy rate was down from 10.8% at the beginning of the year. Overall asking rents increased in the past 12 months by 1.7% in the region
– which remain 7% below their pre-recession peak. The year ended with positive absorption totaling 820,076 square feet in 2017. There is minimal new office construction on the horizon. Space available for sublease is just under 100,000 square feet, a little more than 2% of the total available space in the market. Sublease space available is down from 153,000 square feet at the beginning of the year.
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total A B
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
Vacancy
Total A B
Source: CoStar Group
17
KEY HAMPTON ROADS’ TRANSACTIONS
There were several significant lease transactions in 2017 that went under the radar as most were renewals. New to the market, Wisconsin
Physicians Service Insurance Corporation removed a big block of sublease space at the beginning of 2017 and further committed to Hampton Roads by signing a direct lease.
Tenant Building Square Footage Lease TypeDate
US Coast Guard
WPS MVH
US Air Force
Amerigroup
Optima Health
Main Street Tower 300 E Main Street, Norfolk, VA
400 Butler Farm Road Hampton, VA
Research Quad III300 Exploration Way, Hampton, VA
Corporate Center V4425 Corporation Lane, Virginia Beach, VA
Military Circle824 N Military Highway, Norfolk, VA
4th Qtr
1st Qtr
4th Qtr
2nd Qtr
1st Qtr
129,968
100,632
97,490
70,760
45,000
Expansion/renewal
New to market, sublease/direct lease
Renewal
Renewal
New lease
2017 TOP LEASES
Building Square Footage Price Per Square FootSales Price
The ADP Building 2 Commercial Place, Norfolk, VA
Concourse at Northampton 5800 Northampton Blvd, Norfolk, VA
225 Clearfield Avenue229 Clearfield Avenue, Virginia Beach, VA
Smithfield Building6160 Kempsville Circle, Norfolk, VA
$57,000,000
Part of $1,300,000,000 Portfolio Sale
$18,352,000$20,048,000
$15,900,000
288,662
302,186
42,000 44,377
129,183
$197.46
$174.74 - Portfolio Price
$437.00 $452.00
$123.08
2017 TOP SALES TRANSACTIONS
Hampton Roads offered many office investment opportunities in 2017. With sales prices so high in primary and secondary markets, Hampton Roads has proved acceptable to national investors. Total office building sales activity was up 38% compared to 2016. The price per square foot
averaged $211.13. Capitalization rates were lower in 2017 thus making properties more expensive, averaging 7.48% compared to the same period in 2016 when they averaged 8.28%. The largest transaction that occurred was the acquisition of The ADP Building in Norfolk at a 7% cap rate.
HAMPTON ROADS’ MARKET OVERVIEW
The absorption of office space in suburban submarkets outpaced the central business districts. As vacancy tightened, rents in the suburban markets increased by an average of $0.50 per rentable square foot. Modest to limited new construction and strong absorption, led to very few large blocks of space available. As rents rise only slightly,
there is a lack of support for the cost to occupy new construction.
We entered 2018 with five projects, totaling 392,480 square feet, under construction. The largest of the five is the 256,000-square-foot Dollar Tree Office Tower on the company’s 60 acre campus on Volvo Parkway in Chesapeake. It will be 100% occupied by Dollar Tree. Building One @ Tech Center is an 80,000-square-foot speculative office building under construction in the Oyster Point submarket of Newport News.
As unemployment rates remain low, scarcity of qualified workers is taking its toll on the area’s growth. Hampton Roads businesses are now competing for workers who are being lured by big cities companies. Firms are indicating that office locations with the ideal “Live, Work, and Play” environments are critical in the recruitment and retention of employees.
Urban Land Institute reported that at 16.4%, Hampton Roads had the highest growth in millennial residents since 2010 compared to more than 50 urban areas (Time magazine, June 2017). The growth was attributed in significant part to the military, but no doubt can be credited to the lifestyle benefits of the region’s climate and proximity to beaches and major cities.
NATIONAL MARKET OVERVIEW
The nation’s office market continues to hover near business-cycle highs for occupied space. Nationally, rents grew at about 1.8% and were almost $3 per square foot higher than pre-recession peaks. 2017 office vacancy ended at 10.3% across the country. Overall job growth slowed in most markets. The unemployment rate fell to 4.1% in October, a rate not seen since December 2000.
Sales of office buildings were also down from a year earlier, although volume was still well above the historical average.
MARKET TRENDS TO WATCH
Older Class A buildings will renovate as there is a lack of new office inventory in the market and costs of new construction far
outweigh the costs of renovations. A prime example is 500 East Main Street in Downtown Norfolk. Office buildings will attack the concept of placemaking, adding seating areas to once sparse office lobbies to create more alternative shared workspaces.
Demand for medical office buildings remains high. The historical stability makes medical office buildings attractive to investors. Healthcare services will also move into nontraditional locations, including struggling retail centers, to reduce costs and make these services more readily accessible to patients.
Locally, executive suites are at capacity, and we could see other national shared office space companies and co-working facilities enter the Hampton Roads market.
2018 OUTLOOK
The pace of office leasing in Hampton Roads will slow in 2018 due to lack of available space. Expansion and relocation of professional services, healthcare, and defense/government contracting sectors should drive demand.
Office relocations are most likely to be fueled by lease expirations. Companies looking to capture and retain employees will expect to upgrade office premises. Amenities such as co-working spaces, nearby apartments, restaurants and shops within walking distance will be critical to tenants.
The effect of the transoceanic cables, transforming the region into a high-speed data hub, is beginning to show momentum. Data centers and other high-speed internet consumers will enter the market in 2018.
Aside from a few build-to-suits, new office construction will be limited, allowing fundamentals to continue to recover in the near term. The limited supply of new properties will favor landlords and lead to the renewal of current leases. With continued modest absorption, vacancy rates are expected to decline further. Average rents should increase slightly in 2018, but that does not mean it is a landlord’s market. Projected rent growth is approximately 1%. As we approach equilibrium, landlords will continue to offer free rent, hefty tenant improvement packages and other incentives to retain and attract tenants while trying to maintain face rate rentals. We welcome the new normal.
18
OFFICE
HISTORICAL DELIVERIES
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mill
ion
s o
f SF
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
02005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mill
ions
of S
F
Source: CoStar Group
WHAT WILL YOUR LEGACY BE?
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BUILDING LEGACIES FOR A THRIVING FUTURE.
Industrial market fundamentals improved across the board for Hampton Roads in 2017, as expanding businesses absorbed over 2.1 million square feet of industrial space. Since 2012, the vacancy rate has plummeted from 9.5% to 4.4%, the lowest industrial vacancy on record. During the last five years, net absorption totaled over 5.4 million square feet, averaging nearly 1.1 million square feet annually.
LANG WILLIAMS, SIOR
Senior Vice President, CBRE | Hampton Roads
INDUSTRIAL
20
2017 CONTINUES STRONG MARKET FUNDAMENTALS
Source: CBRE | Hampton Roads Research
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0
220,000
440,000
660,000
880,000
1,100,000
1,320,000
1,540,000
1,760,000
1,980,000
2,200,000
2013 2014 2015 2016 2017
Net Absorption Square Footage (Left Axis)
Industrial Vacancy Rate- (Right Axis)
2,200,000
1,980,000
1,760,000
1,540,000
1,320,000
1,100,000
880,000
660,000
440,000
220,000
0
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%2013 2014 2015 2016 2017
Net Absorption Square Footage(Left Axis)
Industrial Vacancy Rate-(Right Axis)
VACANCY AND ABSORPTION
Source: CoStar & CBRE | Hampton Roads Research
# of Buildings >20,000 Square Feet
Total Square Footage (SF)
2017 Net Absorption (SF)
Vacancy Rate
Average Asking NNN Lease Rate
Completed New Construction (2017 SF)
HAMPTON ROADS 2017 INDUSTRIAL MARKET SNAPSHOT
Southside Industrial 717 56,277,297 1,654,915 4.9% $4.38 1,142,290
Peninsula Industrial 193 23,603,795 449,333 3.2% $5.92 150,000
Hampton Roads Total 910 79,881,092 2,104,248 4.4% $4.68 1,292,290
2017 LEASE & SALE TRANSACTION HIGHLIGHTS
Of Hampton Roads’ major transactions in 2017, several were expansions by current warehouse users, including CenterPoint Properties’ expansion of the Ace Hardware Import Redistribution Center by 138,060 square feet in Suffolk, and LifeNet Health’s 100,000 square foot lease of a portion of the two building 1440 London Bridge complex in Virginia Beach.
The 284,580 square foot Virginia Regional Commerce Park-B was the first pure speculative development in Hampton Roads in over 10 years, and landed a 200,880 square foot lease with India-based Welspun USA. Another foreign company, China-based U-Play Corporation, leased 200,000 square feet, also at 1440 London Bridge.
Overall, seven projects totaling 1.3 million square feet delivered in 2017, the most square footage completed since 1.7 million square feet opened in 2008.
Virginia Regional Commerce Park-B Developed by Panattoni Development Company
Sales activity in 2017 included value-add investors acquiring long-vacant buildings with plans to renovate and improve the assets, as well as numerous owner-users seeking to own and improve property in support of their operations. The table below highlights several investor and owner-user sales.
21
Company Name Location SF Comments
LEASES
Ace Hardware CenterPoint Intermodal Center - Suffolk 475,020 138,060 SF Expansion of Class A Single-Tenant Building
Welspun USA Virginia Regional Commerce Park-B - Suffolk 200,880 Indian company, new to market
U-Play Corporation 1440 London Bridge Rd. - Virginia Beach 200,000 Chinese company, new to market
Georgia Partners Commonwealth Commerce Center - Suffolk 120,800
Cold storage industry veteranCold Storage LLC new venture
LifeNet Health 1440 London Bridge Rd. - Virginia Beach 100,000 Expansion by Virginia Beach
based company
2017 NEW INDUSTRIAL CONSTRUCTION ACTIVITY
Nearly 1.3 million square feet of new industrial buildings were completed in 2017, the largest being CenterPoint Properties’ 401,066 square foot Class A distribution warehouse for Emser Tile, followed by Panattoni’s Virginia Regional Commerce Park-B (284,580 square feet), InterChange’s Portsmouth Logistics Center (199,584 square feet), Printpack’s 150,000 square foot expansion in Oakland Industrial Park in Newport News, the 138,060 square foot expansion of Ace Hardware by CenterPoint Properties, and the owner-occupied build-to-suit for INIT in Chesapeake (70,000 square feet).
Consistent with the long-term trend for industrial & logistics development in Hampton Roads, five of the seven 2017 completed projects were build-to-suit for a single user. The lion’s share of build-to-development over the last 10 years, 1.6 million square feet, was developed by CenterPoint Properties at the 900-acre Class A industrial park, CenterPoint Intermodal Center-Suffolk. Other than Panattoni Development, InterChange Group is the only developer to build a speculative building during the last ten years, delivering the 199,584 square foot InterChange Portsmouth Logistics Center in 2017. InterChange hedged development risk by leasing 25% of the building to a developer owned 3PL business.
2018 OUTLOOK
In December 2017, Global Technical Systems (GTS), a Virginia Beach-based advanced engineering solutions company, announced a planned $54.7 million investment for a new, 500,000 square foot manufacturing facility off Bird Neck Road in Virginia Beach. According to plans announced by GTS, the new plant, which will produce advanced batteries to power machinery, data centers, and other uses, is scheduled to open in March 2019 and will eventually employ 1,100 people.
22
INDUSTRIAL
ANNUAL INDUSTRIAL NEW CONSTRUCTION (BUILDING SQUARE FOOTAGE COMPLETED)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
02008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year BuiltProperty Bldg SF Sale Price S/SF Buyer Type
ORF BUILDING SALES
1440 London Bridge Rd. - 1996 400,000 $8,500,000 $21.25 InvestorVirginia Beach
300 & 400 Port Centre Parkway - 1997 76,781 $6,850,000 $89.21 InvestorPortsmouth
1569 Diamond Springs Rd. - 1980 100,000 $6,100,000 $61.00 InvestorVirginia Beach
1715 Merrimac Trl - 1978 146,710 $4,820,000 $32.85 User BuyerWilliamsburg
3801-03 E. Princess Anne Rd - 1971 83,275 $1,800,000 $21.62 User BuyerNorfolk
With only 4.4% of all industrial properties vacant, new and expanding businesses will have to invest in building new warehouse and manufacturing facilities, or on renovations and upgrades to their existing buildings. In order for 2017’s 2.1 million square feet of net absorption to be generated in 2018, the region’s leading developers, brokers, and stakeholders must partner with state, local, and Port of Virginia economic development teams to win more major new warehouse and manufacturing investments across Hampton Roads.
90 Miles of Shoreline. 360 Degrees of Opportunity.For a climate that promises success in every direction, Access the New Portsmouth to grow your business. Call today to discuss your needs and learn about our vast opportunities. All 360 degrees of them.
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Source: The Port of Virginia, CBRE | Hampton Roads Research
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0
150,000
300,000
450,000
600,000
750,000
900,000
1,050,000
1,200,000
1,350,000
2013 2014 2015 2016 2017
Port of Virginia Loaded Import TEUs
Industrial Vacancy Rate (Right Axis)
1,350,000
1,200,000
1,050,000
900,000
750,000
600,000
450,000
300,000
150,000
0
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2013 2014 2015 2016 2017
Port of VirginiaLoaded ImportTEUs
Industrial Vacancy Rate (Right Axis)
24
MICHAEL P. ZARPAS
Vice President, S.L. Nusbaum Realty Co.
KEY HAMPTON ROADS MARKET
STATISTICS
The Hampton Roads retail market has continued to show positive trends during 2017. The end of year overall retail vacancy rate in the region was 4.8%. Shopping centers had a vacancy rate of 7.4%. Power centers had a vacancy rate of 4.4%. Specialty centers had a vacancy rate of 3.1%. Malls, contrary to popular belief, had a vacancy rate of 2.8%. General retail had the lowest vacancy rate at only 2.7%.
There is a total of 8,057 retail buildings and 923 centers with a total of 105,736,163 square feet in the Hampton Roads region. Of that total, there are 889 shopping centers containing 44,080,706 square feet with an average asking rate of $13.25
per square foot. The power center category is comprised of 17 centers containing 8,027,852 square feet with an asking rate of $18.02 per square foot. The specialty center category doubled to four centers with a total of 1,188,657 square feet of space. The mall category is comprised of 13 regional malls, super-regional malls, and lifestyle centers with an asking rate of $27.47 per square foot. General retail properties house 5,858 buildings totaling 43,891,212 square feet with an asking rate of $13.59 per square foot.
732,815 square feet of new retail product came online in 2017. The grocery sector has continued to develop at a rapid pace. Lidl, Aldi, Kroger, Wegmans, and Publix announced new stores in the region last year.
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Abso
rptio
n &
Del
iver
ies
in M
illio
ns S
FVacancy
NET ABSORPTION, NET DELIVERIES & VACANCY
n Net Absorption n Net Deliveries n Vacancy n United States Vacancy
Forecast
retail
The Hampton Roads retail market peaked in 2017. There is significant discussion, both inside and outside of the market, that retail is a dying breed. This is anything but true. Retail investment sales activity fully blossomed in 2017. Capitalization rates, however, were inching up locally in 2017, averaging 7.48%. This rate rise was partly due to higher interest rates and partly due to category shifts in purchases made. Hampton Roads, as a tertiary market, became more desirable due to the lack of product and historically low cap rates in major markets.
25
KEY HAMPTON ROADS TRANSACTIONS
Top5RetailLeasesin2017 1) 130,000 square feet - Wegmans, Virginia Beach
2) 121,273 square feet - Walmart Hilltop Square, Virginia Beach
3) 80,000 square feet - One Life Fitness Dam Neck Crossing, Virginia Beach
4) 75,783 square feet - LeMans Karting Victory West, Portsmouth
5) 74,000 square feet - Floor & Décor Peninsula Town Center, Hampton
Top5RetailSales 1) $38,700,000 - Greenbrier Square, 267,102 square feet, Chesapeake
2) $35,500,000 - Harbour View Marketplace, 184,832 square feet, Suffolk
3) $30,480,000 - Kramer Tire Portfolio, 131,960 square feet, Hampton Roads
4) $24,200,000 - Mercury Plaza, 139,750 square feet, Hampton
5) $23,625,000 - Tidewater 7-11 Portfolio, 20,741 square feet, Hampton Roads
Top5RetailDevelopments 1) 350,000 square feet - Norfolk Premium Outlets Phase I, Norfolk
2) 130,000 square feet - Waterside District, Norfolk
3) 62,500 square feet - Fox Mill Centre Phase II, Gloucester
4) 35,000 square feet - Lidl, Hampton Roads multiple locations
5) 22,100 square feet - Shops at Centerbrooke Village, Suffolk
HAMPTON ROADS MARKET OVERVIEW
Store closings are nothing new in the retail arena. This trend continued in Hampton Roads last year. Mattress Firm, Farm Fresh, Toys R Us, HH Gregg, KMart, Joe’s Crab Shack, Family Christian Bookstores, Wet Seal, Radio Shack, Bebe, American Apparel, and Payless Shoe Source among others all announced store closings in the region.
New store opening announcements were made by IKEA, One Life Fitness, Big Lots, Floor & Décor, 5 Below, Tuesday Morning, Home Goods, Lidl, Aldi, Publix, and Wegmans among others. New stores outweighed closings in 2017, with a positive net absorption of 1,100,000 square feet.
NATIONAL MARKET OVERVIEW
According to Jack Kleinhenz, Chief Economist for the National Retail Federation, “the economy was in great shape going into the holiday season, and retailers had the right mix of inventory, pricing, and staffing to help them connect with shoppers very efficiently.” The stock market saw record highs. American consumer confidence hit a 17-year high in 2017. The unemployment rate was lowered to 4.1% at year-end, the lowest level since 2000. New tax cuts were announced and signed off on before year end. All are great attributes for the U.S. consumer and the retail real estate market as a whole.
MARKET TRENDS TO WATCH
Amazon’s purchase of Whole Foods last year was one of the most talked about financial news stories of 2017. Amazon joins the likes of Apple, Warby Parker, Bonobos (acquired by Walmart last year), Nasty Gal, Everlane and Birchbox, who have all found that physical retail stores are a must for continued success. Other online retailers will adopt this strategy. Many key Hampton Roads retailers have found that e-commerce is the perfect complement to their full line stores. Walmart, Staples, Macy’s, The Home Depot, Best Buy and Nordstrom are all among the top ten e-commerce retailers in the U.S.
Click and collect is a new driving force for retail sales. The addition of entertainment elements in retail settings is another trend that continues to gain momentum. Mobile platforms, artificial intelligence (AI), augmented reality (AR), and virtual reality (VR) are all elements that are showing up in retail settings as well. As technology continues to improve, retail sales will continue to rise. Retail landlords and tenants are nimble and can change to meet the ever-changing demands of the retail consumer.
RETAIL
26
2018 OUTLOOK
Retail apocalypse? I think not. However, we have entered the dawn of a new era in retail real estate due to unprecedented technological advancements. The use of AI, AR, VR, and computer-enhanced logistics is changing the face of retail in magnificent ways. Omni-channel retailers will be the clear leaders in 2018 and beyond. Customer service and engagement will return on a much larger scale.
The investment sales sector will see strong activity again this year with activity tapering off at the end of 2018 and into 2019. This expectation is due to rising interest rates, bank temperament, and lack of available product.
The traditional shopping center will continue to lag other retail segments. Medical, office, and entertainment tenants will be suited on a larger scale this year. Power centers will face the challenge of reduced box sizes. Specialty centers will continue to be a preference for many consumers. Bargain shopping has become much more than a cult phenomenon at this juncture. General retail will continue to expand as tenants seek freestanding buildings to meet the needs of today’s consumers quickly. The cap rates on these properties will continue to be market leaders. 2018 will see a continued evolution in retail environments to suit the needs of the ever-changing consumer.
27
28
CHRIS MCKEE
President of Operations, The Franklin Johnston Group
NATIONAL APARTMENT
FUNDAMENTALS REVERTING
TO LONG-TERM MEAN
Moderation was a recurring theme in nearly every national multifamily outlook for 2017. After a sustained period of historically strong apartment fundamentals, driven by a favorable supply/demand imbalance following the recession, construction activity ramped up and new deliveries began to outpace absorption beginning in 2015. The accretive effect of surplus demand became increasingly muted over several consecutive
years as the level of new deliveries substantially exceeded the long-term average and slightly outpaced the rate of absorption. Consequently, occupancy levels and effective rent growth are currently trending towards their respective historical averages. The favorable, but tempered, expectations of 2017 were largely realized, and 2018 promises more of the same. The sector as a whole should continue to see steady, albeit modest, growth while specific asset classes and locations have an opportunity to outperform due to strong demand from underserved, lower and middle-income renters.
MULTI-FAMILY
SUPPLY & DEMAND TRENDS - UNITED STATES
Source: CoStar Group - December 2017
(25,000)
25,000
75,000
125,000
175,000
225,000
275,000
325,000
375,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Un
its
Supply & Demand Trends - United States
Deliveries Net Absorption Hist Avg. Deliveries Hist. Avg. Net AbsorptionSource: CosStar Group - December 2017
375,000
325,000
275,000
225,000
175,000
125,000
75,000
25,000
(25,000)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Deliveries Net Absorption Hist Avg. Deliveries Hist. Avg. Net Absorption
Units
Forecast
HAMPTON ROADS’ MULTIFAMILY
PERFORMANCE IMPROVED IN 2017
DESPITE LINGERING CHALLENGES.
While flat occupancy and decelerating rent growth characterized the national market, Hampton Roads ticked up slightly in both categories between 2016 and 2017. Historically speaking, Hampton Roads has enjoyed very low volatility regarding apartment fundamentals. The region does not experience the double-digit rent growth occasionally seen in specific supply constrained core markets but it also rarely endures negative rent growth. The reality is that Hampton Roads often
underperforms when the national multifamily market is in an early to mid-expansion period, falls in line during late-expansion and outperforms through the recession and early-recovery phases. As the national market entered the later stages of the most recent expansion, it is not surprising to see apartment fundamentals in Hampton Roads begin to converge with the broader market. As we look towards 2018, the broader national market is experiencing mean reversion, which has traditionally set the stage for Hampton Roads to outperform. There is absolutely an opportunity to realize this scenario, but there are some genuine challenges to overcome.
NEW SUPPLY – DELIVERIES
AND CONSTRUCTION
The total inventory of apartments in Hampton Roads increased by approximately 10% since 2013. That is a significant increase but is substantially in line with growth at the national level over the same period. New deliveries each year from 2013 to 2016 surged to levels well in excess of the market’s historical average. Development activity decreased significantly in 2017, which contributed to improved fundamentals last year. However, new deliveries are expected to ramp up again in 2018 before a more protracted taper from 2019 to 2022.
29
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
91.0%
91.5%
92.0%
92.5%
93.0%
93.5%
94.0%
94.5%
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1
Effe
ctive
Re
nt
Gro
wth
Occ
up
ancy
Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth
Source: CoStar Group - December 31, 2017
94.5%
94.0%
93.5%
93.0%
92.5%
92.0%
91.5%
91.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1
Occu
panc
y
Effe
ctiv
e Re
nt G
row
th
Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth
Forecast
MULTIFAMILY FUNDAMENTALS - TREND BY QUARTER - U.S.
Source: CoStar Group - December 31, 2017
Source: CoStar Group - December 2017
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Un
its
Delivery Trend - Hampton Roads
Deliveries Hist Avg. DeliveriesSource: CosStar Group - December 2017
3,500
3,000
2,500
2,000
1,500
1,000
500
Deliveries Hist Avg. Deliveries
Units
Forecast
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
DELIVERY TREND - HAMPTON ROADS
ECONOMIC AND DEMOGRAPHIC
DEMAND DRIVERS
There is perhaps no variable more directly correlated to multifamily performance than job growth. Consequently, it is significant that Moody’s Analytics currently estimates that Hampton Roads lost 1,500 jobs in 2017 – a 0.2% reduction versus the prior year. Since 2011, total employment in Hampton Roads grew at an average rate of 0.6% annually while the broader U.S. market gained 1.7% per year. For better or worse, the Hampton Roads economy is still highly sensitive to expansion and contraction in the size of the U.S. military and closely related levels of defense spending. Despite gradual diversification represented by gains in the areas of trade, professional and business services, education and health services and leisure and hospitality services, the area’s short-term employment outlook continues to be weak.
Before giving too much or too little import to the anticipated spike in 2018 deliveries, it is essential to bear in mind that the dilutive impact of new supply is experienced more at the micro, neighborhood level than it is at the macro submarket or market level. Multiple projects leasing up in relatively close proximity will invariably have an adverse effect on the communities in that immediate area and on similar product in adjoining neighborhoods. However, new supply, in and of itself, does not necessarily represent a deterioration of fundamentals at the market or submarket level. In addition to surplus demand, the appropriate distribution of new projects, both geographically within a market and by product type, can and will insulate the broader market/submarket against the deleterious effects of a hyper-supply environment.
Virginia Beach and Norfolk are prime examples of this. They were number one and two respectively in terms of gross units added over the last five years, but the relative change to each of their respective inventories was roughly in-line with the market average. The new supply was generally well-distributed across multiple submarkets with relatively strong demand. While there assuredly are pockets within those submarkets that have seen some short-term dilution as a result of the new supply, both submarkets currently have higher occupancy rates than the Hampton Roads average.
30
- 5,000 10,000 15,000 20,000 25,000 30,000
Gloucester Poquoson City
Isle of Wight Williamsburg
Suffolk York
James City Portsmouth Chesapeake
Hampton City Norfolk City
Newport NewsVirginia Beach
Inventory Growth 2013 to 2017
EOY 2012 Inventory Units Added 2013 to 2017Source: CoStar Group - December 2017
Virginia Beach
Newport News
Norfolk City
Hampton City
Chesapeake
Portsmouth
James City
York
Suffolk
Williamsburg
Isle of Wight
Poquoson City
Gloucester
5,000- 10,000 15,000 20,000 25,000 30,000
EOY 2012 Inventory Units Added 2013 to 2017
Source: CoStar Group - December 2017
INVENTORY GROWTH 2013 TO 2017
Source: Moody’s Analytics/ Precis Metro/ December 2017
MULTIFAMILY
MULTIFAMILY
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Annual Job Growth
Hampton Roads United StatesSource: Moody's Analytics/ Precis Metro / December 2017
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Forecast
Hampton Roads United States
ANNUAL JOB GROWTH
While the impact on multifamily is not quite as pronounced as employment growth, increases and decreases in population, household formation rate, and personal income will also have an impact on the multifamily demand. All else equal, more people seeking housing with more money to spend reduces vacancy and allows for rent growth. Hampton Roads has generated positive figures for each of these variables, but still, the rate of growth has materially lagged the United States average over the past six years.
It is important to note that the apparent convergence between the United States and Hampton Roads averages during the forecast period is a product of the metrics deteriorating at a national level rather than any marked improvement in Hampton Roads economic fundamentals. Some degree of uncertainty in regards to the effectiveness of current U.S. policy-making decisions is leading to muted expectations on growth. Bearing all of this in mind, Moody’s Analytics concludes that Hampton Roads’ “gap with the U.S. will shrink in 2018 and growth could surprise on the upside if Congress lifts the cap on defense spending. Consumer services will recover, and trade will be a pillar of strength. ...[However,] longer term, [Hampton Roads] will slightly lag the U.S. due to an overreliance on federal spending.”
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EFFECTIVE SOLUTIONSFOR YOUR
COMMERCIAL REAL ESTATE
TRANSACTIONS
Source: Moody’s Analytics/ Precis Metro/ December 2017
Hampton Roads United States
0.0%0.1%0.2%0.3%0.4%0.5%0.6%0.7%0.8%0.9%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Annual Population Growth
Hampton Roads United StatesSource: Moody's Analytics / Precis Metro / December 2017
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Forecast
ANNUAL POPULATION GROWTH
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Annual Personal Income Growth
Hampton Roads United StatesSource: Moody's Analytics / Precis Metro / December 2017
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Forecast
Hampton Roads United States
ANNUAL PERSONAL INCOME GROWTH
Source: Moody’s Analytics/ Precis Metro/ December 2017
TRANSACTIONAL
As cap rates continue to tighten to historically low levels in the core national and regional multifamily markets, secondary regional markets like Hampton Roads have become an attractive alternative for many investors searching for yield. While the vast majority of transactions as recently as five years ago included mostly local and regional players, some large institutional groups have entered the market and are actively looking to acquire and expand. The increased demand over the last couple years has spurred higher deal volume and driven the average cap rate back under 5.5%.
32
MULTIFAMILY
NOTABLE 2017 TRANSACTIONS
Property Name # Units Built Location Price $/Unit Sale Date Buyer
Reflections at Virginia Beach 480 1987 Virginia Beach $60,750,000 $126,563 Dec-17 The Breeden Company
Banyan Grove 288 2003 Virginia Beach $46,000,000 $159,722 Aug-17 Bentall Kennedy/Croatan
Sterling Manor 207 2008 Williamsburg $33,600,000 $162,319 Aug-17 Chaucer Creek Capital
Steeplechase Apartments 220 1986 James City County $30,000,000 $136,364 Aug-17 Somerset Apartment Mgmt.
Cove Point at the Landings 122 2015 Norfolk $24,350,000 $199,590 Aug-17 Bonaventure Realty Group
The Reserves at Arboretum 143 2009 Newport News $21,900,000 $153,147 Sep-17 Lakeside Capital Advisors
Heather Lake 252 1971 Hampton $21,400,000 $84,921 Dec-17 Artcraft Management
The Courts at Yorkshire Downs 202 1987 York County $19,655,200 $97,303 Nov-17 Harbor Group International
Legacy Farms at Tech Center 156 1969 Newport News $19,200,000 $123,077 Oct-17 K2 Real Estate Partners
Luna Pointe Apartments 210 1986 Hampton $18,000,000 $85,714 Jul-17 Croatan Investments
Source: CoStar Group - December 2017
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000
2005200620072008200920102011201220132014201520162017
Sale
s V
olum
e (0
00s)
Sales Volume and Cap Rate Trend -Hampton Roads
Volume Hist. Avg Volume Cap RatesSource: CoStar Group - December 2017
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Volume Hist Avg. Volume Cap Rates
(Sal
es V
olum
e (0
00s)
SALES VOLUME AND CAP RATE TREND - HAMPTON ROADS
Despite underperforming the national average relative to several key economic and demographic indicators, the Hampton Roads multifamily market as a whole was still able to increase occupancy and effective rental rates in a year when it was expected to be flat to slightly down. The keys to the short-term success included a brief lull in new supply and a disproportionately large renter population – evidenced by a higher than average percentage of the Hampton Roads population being in the vital renter cohort of 20 to 34-year-olds. The latter is a positive byproduct of the heavy military presence in the area. Nonetheless, average occupancy levels in Hampton Roads continue to lag both the U.S. average and the long-term average for the market while the effective rental rate growth is in line with the national average but still below the historical average.
2018 is shaping up to be a remarkably average year for multifamily in Hampton Roads. Much like 2017, despite job, population, and income growth figures that lag U.S. averages, the market’s broad, existing renter pool should enable it to absorb the uptick in new supply while simultaneously generating effective rent growth that is roughly in line with the historical average for the market.
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PERFORMANCE FUNDAMENTALS
Source: CoStar Group - December 31, 2017
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
89.50%
90.00%
90.50%
91.00%
91.50%
92.00%
92.50%
93.00%
93.50%
94.00%
94.50%
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2016
Q1
2016
Q3
2017
Q1
2017
Q3
Multifamily Fundamentals - Trend by Quarter - Norfolk
Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth
Source: CoStar Group - December 31, 2017
94.50%
94.00%
93.50%
93.00%
92.50%
92.00%
91.50%
91.00%
90.50%
90.00%
89.5%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2016
Q1
2016
Q3
2017
Q1
2017
Q3
Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth
MULTIFAMILY FUNDAMENTALS - TREND BY QUARTER - NORFOLK
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%1975-198059 months
1980-198113 months
1982-199093 months
1991-2001121 months
2001-200774 months
2009-September 2017101 months
4.5%
3.5%
4.0%4.3%
0.7%
3.6%
2.7%
0.7%
2.2%
0.7%
Annual real GDP growth
Annual total employment growth
2.4%
1.9%
34
JEREMY MCLENDON
President and Managing Partner CCP Commercial Real Estate
THE METAPHOR “WHAT INNING ARE
WE IN” NO LONGER APPLIES
2018 begins the eighth year of the current real estate cycle with many potential impacts on commercial real estate on the horizon. The passage of the new tax law, potential infrastructure legislation, capital spending, and a tight job market could all have profound impacts. According to the 2018 Emerging Trends in Real Estate Report published by PwC and the Urban Land Institute, most investors are not ready to proclaim that cyclical risk is no longer applicable, but most have
a sense that no particular timetable clearly defines the current market cycle. There is a growing belief that we are experiencing more of a secular cycle style pattern versus the boom and bust cycles we have become accustomed to with the S&L crises, the dot-com bust, and the Great Recession of 2008. The slow pace of GDP growth, wage stagnation, low worker productivity, market discipline with equity and debt, and supply and demand remaining in balance all continue to strengthen this outlook. However, a low unemployment rate, a policy shift toward Fed tightening, high asset prices in real estate, and stock market highs work to counterbalance the “soft landing” viewpoint.
investment
ANNUAL REAL GDP AND EMPLOYMENT GROWTH, CURRENT AND FIVE BUSINESS CYCLES
Source: U.S. Bureau of Economic Analysis.Note: Months = months of growth per cycle, through to peak, as identified by the National Bureau of Economic Research.
n For CRE businesses set up as pass-through entities, the 20% deduction will boost after tax-income.n The like-kind 1031 exchange remains in place.n For CRE private equity firms, the holding period of investments for carried interest is extended from one year to three years. n The Bill caps the business deduction for debt interest payments at 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA). n Most forecasts show a 50 -75 basis point increase in economic growth in 2018.
SNAPSHOT OF NEW TAX LAW IMPACTS ON CRE:
CAPITAL MARKETS
TheamountofavailablecapitalforU.S.realestateinvestmentremainsrobust,butfavorsamoreconservativedistributionofriskamongbothequityanddebtinvestors.Withtheriseinrealestateassetvaluationsoverthelastseveralyears,capitalizationrates are expected to remain flat for the foreseeable future.Investorswill continue to focusmore on property cash flows
to drive returnswith less emphasis on speculative returns ofcapitalthroughcapitalizationratecompression.Equityinvestorsareshowingmoreselectivityasrentrecoverieshavematuredinmanymarketsandpropertyvaluationshaverisenpastpreviouspeaklevels.Notethedecreaseinsalesvelocitysince2015.
US SALES OF LARGE COMMERCIAL PROPERTIES
Lenders remain reluctant to lendon speculativedevelopmentandLoan-to-Valueratiosarestillaveragingbetween55%-65%for most transactions. This phenomenon holds true even instrongsectors,suchasmultifamily,orfavoredregionsinsections,suchas the SoutheasternU.S.Withborrowers still seeking to
maximizeloanproceeds,thereisanincreasedopportunityinthemiddleofthecapitalstackformezzaninelendersandpreferredequity.Lowleverage,moderateassumption,andaccurateriskpricingwillcontinuetoshapecapitalmarketsforyearstocome.
35
$600
$500
$400
$300
$200
$100
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US$
billi
on
1H
Entity
Portfolio
Individual
Source: Real Capital Analytics.Note: Months = Based on independent reports of properties and portfolios $2.5 million and higher. Before 2005. RCA primarily captured sales valued at $5 million and above.
MARKETS TO WATCH
The search for yield is driving investors to seek better returns outside of primary markets where there is an adequate risk/return profile. For many investors, this means the continued trend of investing in the “18-hour” cities and robust secondary markets. Access to a talented labor pool is becoming more critical for companies when choosing their locations. MSA’s that offer a low-cost living, high quality of life, and amenities will
continually attract the educated work force that firms are looking for as demographics continue to shift and the overall labor pool tightens. Results of the 2017 Best-Performing Cities report by the Milken Institute, ranked the top 25 cities according to a fact-based set of metrics such as job creation, wage gains, and technology developments to evaluate relative growth of metropolitan areas. Virginia Beach/Norfolk was ranked 180 out of 200.
U.S. MARKETS TO WATCH: OVERALL REAL ESTATE PROSPECTS
36
Source: Milken Institute
TOP 25 BEST-PERFORMING LARGE CITIES RANK ACCORDING TO 2017 INDEXMetropolitan Statistical Area (MSA)/Metropolitan Division (MD) 2017 Rank 2016 Rank Change
Provo-Orem, UT (MSA) 1 2 +1
Raleigh, NC (MSA) 2 6 +4
Dallas-Plano-Irving, TX (MD) 3 5 +2
San Francisco-Redwood City-South San Francisco, CA (MD) 4 4 Steady
Fort Collins, CO (MSA) 5 8 +3
North Port-Sarasota-Bradenton, FL (MSA) 6 26 +20
Orlando-Kissimmee-Sanford, FL (MSA) 7 9 +2
Nashville-Davidson-Murfreesboro-Franklin, TN (MSA) 8 7 +1
Austin-Round Rock, TX (MSA) 9 3 -6
Salt Lake City, UT (MSA) 10 11 +1
San Jose-Sunnyvale-Santa Clara, CA (MSA) 11 1 -10
West Palm Beach-Boca Raton-Delray Beach, FL (MD) 12 36 +24
Charlotte-Concord-Gastonia, NC-SC (MSA) 13 12 -1
Atlanta-Sandy Springs-Roswell, GA (MSA) 14 21 +7
Tampa-St. Petersburg-Clearwater, FL (MSA) 15 33 +18
Oakland-Hayward-Berkeley, CA (MD) 16 18 +2
Seattle-Bellevue-Everett, WA (MD) 17 10 -7
Naples-Immokalee-Marco Island, FL (MSA) 18 17 -1
San Antonio-New Braunfels, TX (MSA) 19 24 +5
Riverside-San Bernardino-Ontario, CA (MSA) 20 44 +24
Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (MD) 21 28 +7
Charleston-North Charleston, SC (MSA) 22 16 -6
Denver-Aurora-Lakewood, CO (MSA) 23 13 -10
Portland-Vancouver-Hillsboro, OR-WA (MSA) 24 14 -10
Fayetteville-Springdale-Rogers, AR-MO (MSA) 25 30 +5
FOCUS ON HAMPTON ROADS
NORFOLK’S MOMENTUM CONTINUES IN 2018
TRANSPORTATION
RETAIL
MANUFACTURING
OFFICE
MULTIFAMILY
RESIDENTIAL
INDUSTRIAL
INVESTMENT
All this and more.
Contact: 999 Waterside Drive, Suite 2430Norfolk, VA 23510 • 757-664-4338 NorfolkDevelopment.com
NorDev IB Market Review 1/2pg ad.indd 1 1/24/18 12:41 PM
OFFICE: n TheADPBuildinginNorfolk(288,662SF)soldfor $57,000,000,or$197.46persquarefoot.
RETAIL: n GreenbrierSquareinChesapeake(267,102SF)sold for$38,700,000,or$144.89persquarefoot. n JANAFShoppingCenteranditsoutparcels(totaling 880,250SF)soldfor$85.65milliontoWheelerREIT.
MULTIFAMILY: n LatitudesApartmentsinVirginiaBeachsoldfor $55,880,000,or$124,730perunit.
INDUSTRIAL: n CavalierDistributionCenterinChesapeake(125,906 SF)soldfor$7,550,000,or$59.97persquarefoot. n Care-A-Lotpurchasedamanufacturingbuilding, adistributionbuilding,andtendevelopable acresonLondonBridgeRoadinVirginiaBeach. Thesalepricewas$8,500,000.
HOSPITALITY: n WatersideMarriottinNorfolksoldtoLingerfelt Commonwealthforanestimated$35million, or$86,420perkey.
Hampton Roads continued to experience positive momentum in investment sales across all property types in 2017. Key transactions included:
HamptonRoadssawsustainedeconomicgrowthin2017andcurrenttrendsinthemarketsupportanothergoodyearasrealestatefundamentalscontinuetoimproveacrosstheboard.Thereisapossibilityofbetterthanexpectedresultsifincreasesindefensespendingandinfrastructurespendingmaterializein2018.
37
THE YEAR IN REVIEW – 2017
ANOTHER GOOD YEAR FOR RESIDENTIAL...
It was another good year for residential for-sale real estate in 2017, marking the third straight year of gains. In Hampton Roads, overall closings were up 3.87%, following substantial increases in 2015 and 2016. Consumer confidence continued to grow thanks to low unemployment, rising wages, low interest rates and significant equity gains since the housing trough in 2008. This confidence helped feed the move-up market in new construction, while resale continued to fill the gap for many first-time buyers. Pricing power remained good, but at a slightly declining rate of growth with YoY gains in the median pricing of 2.4%. With little anticipation of significant shifts in the macro environment, and fueled by demographic changes, we foresee robust growth, but at a diminishing rate, into 2018. Last year we suggested that in response to rising prices, especially with new construction detached pricing hitting some high marks in Chesapeake and Virginia Beach, buyers would continue to migrate south to the greater Moyock market in search of affordability. That seems to have occurred and the shift was exacerbated by Ryan Homes entry into that submarket. While closings for Northeast North Carolina were only up 1.92% YoY, that number will significantly grow when Ryan starts to close their 2017 sales. Average closed sales prices rose a phenomenal 8.1% YoY but remained well over $100,000 below average closed sales prices in Chesapeake and Virginia Beach.
…BUT HEADWINDS ARE ALWAYS
BLOWING
While the picture is bright for housing, there are always potential limiters on the horizon. In 2017 continued declines in inventory put some real constraints on demand. Single-family housing inventory at the start of 2018 was the lowest it had been in ten years. Months to absorb inventory hit a low of 3.9 months at the end of December. New construction will bear much of the burden of solving this imbalance. However, land is scarce and expensive, keeping upward pressure on pricing and limiting builder’s abilities to serve the first-time buyer market. Rising median prices have already caused some shifts in buying habits as attached new construction closings were up 12.2% YoY while detached closings fell by 3.5%. Interest rates saw some gains, but stayed well below the 5.0% range that most economists had predicted we would see by the end of 2017. There seems to be the general consensus for rates to stabilize in 2018 in the 4.25% range. These rates should not have a significant impact on affordability and, when combined with an ongoing easing of underwriting standards, will continue to help many first time buyers jump onto the housing ladder.
VAN ROSE
Chief Operations Officer, Rose & Womble Realty
38
residential
Source: REIN MLS
4.20%
4.7%
5.1%
Avg. 30 Year Fixed Rate Mortgage 4.19%
4.5%
4.9%
4.10%
4.2%
4.6%
4.10%
4.0%
4.1%
4.02%
4.2%
4.1%
3.94%
4.4%
4.5%
3.96%
4.3%
4.6%
3.93%
4.3%
4.5%
3.78%
4.1%
4.1%
3.85%
4.0%
3.9%
3.94%
4.1%
3.9%
Local Unemployment Rate (Hpt Rds MSA)
National Unemployment Rate
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
3.94%
n/a
3.9%
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
5.5
5
4.5
4
Jan Feb Mar Apr May Jun Jul Aug Jan Oct Noc Dec
Inventory Mos. SupplyX
Mos
. Sup
ply
# Ho
mes
on
the
Mar
ket
MONTHS SUPPLY OF INVENTORY
4
4.5
5
5.5
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mo
s. S
up
ply
# H
om
es
on
th
e M
arke
t
Months Supply of Inventory
Inventory Mos. Supply Source REIN MLS
THE RESALE MARKET
Gains continued into 2017 in the resale market in Hampton Roads with closings, revenue, and median closed sales prices all rising YoY. Residential resale closings increased by 4.5% over 2016 to 22,924 closings. Revenues grew by 5.5% to $5,420,942,331 with overall median prices up by 2.4%. Detached homes carried 78.2% of all closings, with resale homes finding much traction with first-time buyers. Resale detached
home sales under $300,000 grabbed a 69.94% share on the Southside, contrasted by new construction which only carried a 37.04% share in that same price band. On the Peninsula, the numbers were 72.58% and 26.64% respectively. Rising prices seemed to be the catalyst for a slight shift to both resale (which grabbed 88.0% of the market for sales in 2017) and to attached product (which saw a 2.3% gain in market share YoY), trends that may well continue if inventory remains at such low levels and prices continue to trend up in new construction.
2017 VERSUS 2016 RESIDENTIAL RESALE
HIGHLIGHTS
Closings up 4.5% with 996 more closings totaling 22,924
Median Sales Price up 2.4%, a $2,075 increase to $197,075
Total Revenue up 5.5%, a $284.9 million increase to $5.42 billion
THE NEW CONSTRUCTION MARKET
Builders enjoyed upward movement across almost all metrics in 2017, albeit at a slightly moderated pace from 2016. There were gains in the number of closings, average sales price and revenue. As before, the Southside market accounted for just over 75%
of all closings in Hampton Roads. New construction’s share of all residential closings lost some ground in 2017, ending with a 12.0% share. Overall median closed home pricing took a slight dip of -1.9% YoY, but this was driven primarily by the shift from detached to attached sales as attached sales were up 12.2% YoY.
39
RESIDENTIAL
2017 VERSUS 2016 RESIDENTIAL NEW CONSTRUCTION HIGHLIGHTS
Closings were up 1.0% with 33 more closings totaling 3,247Median Sales Price was down 1.9% to $310,831, marking a shift to attached product
Total Revenue was up 1.06%, an increase of $11.7M to $1.114B
Source: REIN MLS
0
2000
4000
6000
8000
10000
12000
14000
SS Det SS Att Pen Det Pen ATT
Resale Sales by Year and Sector
2015 2016 2017
14000
12000
10000
8000
6000
4000
2000
0
2015 2016 2017
SS Det SS Att Pen Det Pen ATT
11046
12680
12003
32033337
3527
4394
5463
6149
880
1113
1191
RESALE SALES BY YEAR AND SECTOR
3,318
$483,874
$1,605
2,775
$432,232
$1,199
2,421
$368,752
$893
2,354
$329,035
$775
2,714
$268,269
$728
2,911
$320,767
$934
2,360
$333,402
$787
3,072
$333,262
$1,023
3,214
$342,983
$1,102
3,247
$343,105
$1,114
New Construction
Avg Sales Price
Total Revenue (millions)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
HAMPTON ROADS TOP SUBDIVISIONS
-- 2017
Again in 2017, the #1 position by closings was held by Spence Crossing in Virginia Beach, a Dragas Cos. community, with 160 closings (a gain of almost 26% YoY!). Spence Crossing is comprised of four active neighborhoods offering both attached and detached product. Dragas has a solid
foothold in the first time buyer market, with closed prices in the Fernhill neighborhood averaging $212,447 in 2017. Rounding out the Top 5 subdivisions were Culpepper Landing (Chesapeake), newcomer White Hall (James City County), Benn’s Grant (IOW Cty.) and Kings Pointe (Chesapeake). Ranking by revenues tracked pretty closely with closings, but Dominion Meadows (Chesapeake) grabbed the #5 spot thanks to their average closed sales price of $402,525.
40
1 SPENCECROSSING,V 160 $275,948 12 CULPEPPERLANDING,C 74 $374,296 33 WHITEHALL,J 68 $314,836 14 BENN’SGRANT,IOW 66 $331,939 15 KINGSPOINTEATWESTERNBRANCH,C 63 $194,213 16 REUNION,C 53 $228,463 17 THEVILLAGEATCANDLESTATION,J 52 $312,024 18 DOMINIONMEADOWS,C 51 $402,525 19 NEWPORT,P 50 $232,505 110 OCEANVIEW,N 49 $304,946 1111 EAGLEPOINTE,C 49 $345,103 112 OLAH’SLANDING,C 42 $470,319 213 NEWTOWN,J 41 $344,738 214 THERESERVEATWILLIAMSBURG,J 38 $281,452 115 NORFOLKHIGHLANDS,C 36 $270,705 9
1 SPENCECROSSING,V $44,151,670 12 CULPEPPERLANDING,C $27,697,897 33 BENN’SGRANT,IOW $21,907,968 14 WHITEHALL,J $21,408,860 15 DOMINIONMEADOWS,C $20,528,788 16 OLAH’SLANDING,C $19,753,383 27 NORTHEND,V $17,228,868 108 EAGLEPOINTE,C $16,910,056 19 THEVILLAGEATCANDLESTATION,J $16,225,239 110 LIBERTYRIDGE,J $15,561,342 111 OCEANVIEW,N $14,942,335 1112 FIELDSTONE,C $14,541,539 413 NEWTOWN,J $14,134,266 214 HANBURYWOODS,C $13,811,045 415 RIVERVIEWATTHEPRESERVE,C $12,800,384 1
TOP SUBDIVISIONS -- HAMPTON ROADSSubdivision ClosingsRecorded AveragePrice #Bldrs Subdivision TotalRevenue#Bldrs
HAMPTON ROADS - BY CITY
City/CountyClosings thru Q4 Median Sales Price thru Q4 Avg Sales Price thru Q4 Revenue thru Q4
2016 2017 2016 2017 2016 2017 2016 2017% Change % Change
994
114
279
107
286
644
2424
97
144
323
107
37
82
790
3214
978
104
303
151
399
504
2439
104
148
331
64
31
130
808
3247
-1.6%
-8.8%
8.6
41.1%
39.5%
-21.7%
0.6%
7.2%
2.8%
2.5%
-40.2%
-16.2%
58.5%
2.3%
1.0%
355,000
362,468
256,100
217,900
294,583
344,847
310,000
299,830
269,200
360,503
332,381
286,167
358,776
326,682
317,001
3.7%
-1.4%
5.0%
3.3%
1.8%
3.2%
0.9%
-7.6%
2.2%
-8.6%
-1.9%
-1.5%
-10.9%
-5.6%
-1.9%
368,051
357,566
268,900
225,000
300,024
356,000
312,900
276,957
275,000
329,555
326,155
281,990
319,650
308,388
310,831
344,730
364,128
303,672
216,401
312,988
389,506
343,403
294,806
276,751
380,093
335,740
296,182
388,281
341,697
342,983
358,363
350,418
296,953
224,172
306,315
413,267
344,918
282,544
293,451
373,382
329,499
300,990
353,705
337,630
343,105
342,661,440
41,510,638
84,724,478
23,154,921
89,514,503
250,841,991
832,407,971
28,596,185
39,852,136
122,770,120
35,924,145
10,958,716
31,839,061
269,940,363
1,102,348.334
CHES
I of W
NORF
PORT
SUFF
VBCH
Total Southside
GLOU
HAMP
JCC
NNEWS
WMSBG
YORK/POQ
Total Peninsula
Hampton Roads
350,479,023
36,443,471
89,976,816
33,849,963
122,219,717
208,286,369
841,255,359
29,384,595
43,430,793
132,589,278
21,087,964
9,330,680
45,981,685
272,804,995
1,114,060,354
4.0%
-3.8%
-2.2%
3.6%
-2.1%
6.1%
0.4%
-4.2%
6.0%
-1.8%
-1.9%
1.6%
-8.9%
-1.2%
0.0
2.3%
-12.2%
6.2%
46.2%
36.5%
-17.0%
1.1%
2.8%
9.0%
0.7%
-41.3%
-14.9%
44.4%
1.1%
1.1%
% Change % Change
HAMPTON ROADS TOP BUILDERS --
2017
Ryan Homes continued their dominance of the Hampton Roads market, booking 610 closings with $218,432,164 in revenues, 138% more than #2 Chesapeake Homes by unit count and 188% more by revenue. Ryan Homes is a portfolio builder who counted closings from thirty-seven active communities. Moreover, these numbers do not include their entree into the NE North Carolina market (whose closings were not tracked in 2017).
Chesapeake Homes jumped into the #2 spot. Like Ryan Homes, they have some nice regional balance, with 23.% of their closings coming from the Peninsula. Moreover, they showed some great strength at their Portsmouth community, New Port, with fifty closings there.
Dragas Companies was the #3 builder by closings and revenue. Moreover, what is even more impressive is that the Dragas Cos. operates only on the Southside. These closings came from their closeout of Hadley Park as well as from Kings Point and Spence Crossing.
Rounding out the Top Five builders were HH Hunt Homes and Eagle Construction. The Top 5 builders accounted for 40.6% of all closings in Hampton Roads. It is significant to note that the infill/spot lot builders continue to have a considerable market share in aggregate. After you leave the top twenty builders,
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387 builders contributed another 1,204 closings for an average of 3.1 closings/builder and a 37.1% share of the market. Notable among this group are EDC Homes, Wetherington Homes and DSF Development.
The market continues to grow, albeit at a somewhat slower pace. However, the outlook is positive for at least two more years of solid new construction performance!
41
1 RYANHOMES 610 $358,086 372 CHESAPEAKEHOMES 256 $295,787 103 DRAGASCOS 227 $252,428 34 HHHUNTHOMES 142 $323,802 85 EAGLECONSTRUCTION 84 $386,365 46 EDCHOMES 78 $310,452 347 HEARNDONCONST 77 $372,898 38 NAPOLITANOHOMES 76 $419,199 69 TERRYPETERSONRES 75 $289,696 410 WETHERINGTONHOMES 73 $269,529 2511 CORINTHRES 47 $256,495 212 BISHARDHOMES 46 $480,573 1513 DSFDEVELOPMENT 35 $303,297 914 PLATINUMHOMES 34 $526,483 615 HAVINC 34 $419,338 3
1 RYANHOMES $218,432,164 372 CHESAPEAKEHOMES $75,721,538 103 DRAGASCOS $57,301,169 34 HHHUNTHOMES $45,979,916 85 EAGLECONSTRUCTION $32,454,681 46 NAPOLITANOHOMES $31,859,144 67 HEARNDONCONST $28,713,167 38 EDCHOMES $24,215,222 349 BISHARDHOMES $22,106,369 1510 TERRYPETERSONRES $21,727,237 411 WETHERINGTONHOMES $19,675,625 2512 PLATINUMHOMES $17,900,418 613 STEPHENALEXANDERHOMES $16,636,576 914 HAVINC $14,257,497 315 ASHDONBUILDERS $13,039,687 6
TOP BUILDERS -- HAMPTON ROADSBuilder ClosingsRecorded AveragePrice #Sites Builder TotalRevenue#Sites
42
NATALIE M. BOEHM, Assistant Director, J. ANDREW HANSZ, Director,
E.V. Williams Center for Real Estate, Strome College of Business
The E.V. Williams Center for Real Estate created the Hampton Roads Real Estate Markets Sentiment Survey in fall 2015. This survey, conducted annually via email, intends to gather a greater understanding of the Hampton Roads real estate community’s attitude towards the current and the future real estate market sectors. The 2018 Sentiment Survey, collected in January, had 117 respondents. Survey questions 1 and 3 requested information on respondents and their Hampton Roads real estate market activities.
SENTIMENT
Q.1.
Please identify your primary Hampton Roads real estate
activity(select one).
Q.3.
Please identify your primary real estate market affiliation
(select one).
PRIMARY HAMPTON ROADS REAL ESTATE ACTIVITY: 2018 n = 117
PRIMARY MARKET AFFILIATION: 2018 n = 117
Professional - property management Professional - lawProfessional - consultantProfessional - civil engineerProfessional - broker/salesProfessional - architectProfessional - appraiserProfessional - accountantLendingInvestingGoverningEntrepreneurial (Developing)Consumer - homeowner or renterConsumer - commercial propertyNone of the above. Please explain below.
0% 5% 10% 15% 20% 25% 30%
None of the above. Please explain below.Consumer - commercial propertyConsumer - homeowner or renter
Entrepreneurial (Developing)Governing
InvestingLending
Professional - accountantProfessional - appraiserProfessional - architect
Professional - broker/salesProfessional - civil engineer
Professional - consultantProfessional - law
Professional - property management
Percentage or Participants
Rea
l Est
ate
Act
ivity
Primary Hampton Roads Real Estate Activity: Spring 2018n = 117
0% 5% 10% 15% 20% 25% 30%
Real
Est
ate
Activ
ity
Percentage of Participants
Office
Industrial
Retail
Multi-family residential
Single-family residential
Land
0% 5% 10% 15% 20% 25% 30%
Land
Single-family residential
Multi-family residential
Retail
Industrial
Office
Percentage of Participants
Ha
mp
ton
Roa
ds R
eal E
sta
te M
ark
ets
Primary Market Affiliation: Spring 2018 n= 117
0% 5% 10% 15% 20% 25% 30%
Ham
pton
Roa
ds R
eal E
stat
e M
arke
ts
Percentage of Participants
Questions 4 and 5 show high levels of sentiment (all sectors above ‘neutral’ and three of seven sectors above ‘mild positive’) for all Hampton Roads real estate market segments. Respondents show the most positivity for the industrial real estate market segment followed by the residential sectors. Six-month projections show a decrease in multi-family residential sentiment and sentiment increases to industrial, office, and retail. Respondents may be indicating a rotation from high levels of sentiment in multi-family residential to these other sectors. Retail had the lowest sentiment level but is expected to increase over the next six months.
Respondents suggested that the industrial real estate sector has the best investment potential looking forward. Interestingly, results show a significant decrease in the perceived investment potential of the Hampton Roads’ multi-family residential sector – even though responses in 2016 and 2017 showed that this sector had the best investment potential. Single-family residential also had a significant decrease from recent prior years.
43
Q.4 & 5.
Please rate current and anticipated
6 month sentiment levels for the follow-ing Hampton Roads real estate market
segments.
Sentiment Level
AVERAGE SENTIMENT - PRESENT AND 6 MONTH PROJECTION: 2018
Office
Industrial
Retail
Multi-family residential
Single-family residential
Land
1 2 3 4 5
Land
Single-family residential
Multi-family residential
Retail
Industrial
Office
Sentiment Level
Ha
mp
ton
Roa
ds R
eal E
sta
te M
ark
ets
Average Sentiment - Present and 6 Month Projection: Spring 2018 n = 117
Current Sentiment6 Month Sentiment
1 Negative
2 Mild-Negative
3 Neutral
4 Mild-Positive
5 Positive
Ham
pton
Roa
ds R
eal E
stat
e M
arke
ts
n 6 Month Sentiment
n Current Sentiment
Q.6.
Over the next 6 months, which
Hampton Roads real estate property sector has the best
investment potential?(select one)
BEST HAMPTON ROADS INVESTMENT POTENTIAL - NEXT 6 MONTHS: 2018, 2017, 2016
Ham
pton
Roa
ds M
arke
t Seg
men
ts
Percentage of Participants
Office
Industrial
Retail
Multi-family residential
Single-family residential
Land
No Opinion
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
No Opinion
Land
Single-family residential
Multi-family residential
Retail
Industrial
Office
Percentage of Participants
Rea
l Est
ate
Ma
rket
Seg
men
ts
Best Hampton Roads Investment Potential - Next 6 Months: Spring 2018, Spring 2017, Spring 2016
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
n 2018
n 2017
n 2016
Positive news is reflected in responses to Question 7, as more people intend to expand their real estate space usages rather than contract or reduce their space usage. However, retail is the one exception to this general finding.
Q.7.
We would like to understand your anticipated real
estate usage over the next 6 months.
Please indicate if you plan to expand or
contract your use or ownership of space
(please answer each row).
Q.8.
Over the next 6 months, what is your expectation for the change in general mortgage interest
rates?(select one).
44
SENTIMENT
EXPECTED CHANGES IN MORTGAGE INTEREST RATES - NEXT 6 MONTHS: 2018, 2017, 2016
Increasing
No Change
Decreasing
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Decreasing
No Change
Increasing
Percentage of Participants
Exp
ecte
d C
hang
e
Expected Changes in Mortgage Interest Rates - Next 6 Month: Spring 2018, Spring 2017, Spring 2016
n = 117
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Expe
cted
Cha
nge
Percentage of Participants
n 2018
n 2017
n 2016
ANTICIPATED REAL ESTATE USAGE CHANGES - NEXT 6 MONTHS: 2018
Ham
pton
Roa
ds R
eal E
stat
e M
arke
ts
Office
Industrial
Retail
Multi-family residential
Single-family residential
Land
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Percentage of Participants
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Percentage of Participants
Land
Single-family residential
Multi-family residential
Retail
Industrial
Office
Ha
mp
ton
Roa
ds R
eal E
sta
te M
ark
ets
Anticipated Real Estate Usage Changes - 6 Months: Spring 2018 n= 117
n No Change
n Contract
n Expand
Although Hampton Roads’ communities have begun planning for the impending effects of sea-level rise, most survey respondents indicate that sea-level rise currently has generally ‘moderate’ to ‘no impact’ on their Hampton Roads real estate interests.
Q.9.
Please choose the statement below
that best reflects the impact of sea-level
rise on your Hampton Roads real estate
interests (select one).
IMPACT OF SEA-LEVEL RISE ON PERSONAL REAL ESTATE INTEREST: 2018, 2017, 2016
Severe Impact
Moderate Impact
Minimal Impact
No Impact
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
No Impact
Minimal Impact
Moderate Impact
Severe Impact
Percentage of Participants
Leve
l of I
mp
act
Impact of Sea-level Rise on Personal Real Estate Interest:Spring 2018, Spring 2017, Spring 2016
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Leve
l of I
mpa
ct
Percentage of Participants
n 2018
n 2017
n 2016
Thank you, Valbridge Property Advisors for sponsoring the 2018 Hampton Roads
Real Estate Markets Sentiment Survey.
If you would like to participate in this survey, please contact E.V. Williams Center for Real Estate Director,
Andy Hansz at [email protected].
45
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Think Currituck!
How can you be in two states at the same time?
Currituck County, North Carolina is actually part of Hampton Roads, Virginia’s Metropolitan Statistical Area. So when you expand your business here, you’ll get all the benefits of the economically robust, infrastructure-rich Southeastern Virginia corridor, plus extra advantages—including the lowest tax rate (.48 per $100 valuation) of all the Hampton Roads localities, and workforce incentives—offered only in North Carolina. It’s the best of both worlds; like being in two states at once. And that is one great state for your business to be in.
Larry J. Lombardi, Director252-232- 6015 | M: 301-237-8951
[email protected] 153 Courthouse Road, Currituck, North Carolina 27929
ThinkCurrituck.com
Download your free 2018 Hampton RoadsBusiness Resource Guide:
www.thinkcurrituck.com/hrbizguide
MISSION of the
E.V. Williams Center for Real Estate
The E.V. Williams Center for Real Estate strives to
connect those engaged or interested in real estate and economic development to the research, curriculum and students at Old Dominion University
(ODU). Through programming, research initiatives and publications the Center partners with its members, ODU
alumni and business leaders to educate the community and provide ODU students with enrichment experiences that
facilitate their professional development.
For membership or programming inquiries, please
contact Andy Hansz ([email protected]) or Natalie
Boehm ([email protected]).
E. V. WILLIAMS CENTER FOR REAL ESTATE
odu.edu/creed