By Lydia Wheeler
The outlook for 2014 is optimistic for those in Hampton Roads real estate as the multifamily, retail, industrial and office markets continued to recover locally last year.
According to the report for Old Dominion University’s 19th Annual Hampton Roads Real Estate Market Review and Forecast, apartment construction hit a record high with 3,632 units under way as of October. The area also saw record levels of demand with 2,500 units absorbed.
The report was the topic for an event Thursday afternoon at the Ted Constant Convocation Center in Norfolk.
Though the multifamily market experienced the biggest boom, industry experts are expecting occupancy rates to dip slightly in 2014, the report said.
“I think the trend is your friend,” said Dwight Dunton III, president of Bonaventure Realty Group. “The question is, can you have too much of a good thing in a good location? In the short-term that’s what everyone needs to be cautious about.”
Competition for renters is to be expected, which bodes well for consumers. If supply outpaces demand, Dunton said landlords will start offering concessions and Class B tenants could find themselves moving into Class A properties. The average rental rate in Hampton Roads last year was $952 with one-bedroom units averaging $850 a month and two-bedroom units averaging $959 a month.
Continuing on with the good news, retail saw growth in the grocery submarket with five Walmart Neighborhood Markets under construction now throughout the region, a new Walmart Supercenter open on Jefferson Avenue in Newport News and another under construction in the Pembroke area of Virginia Beach.
Kroger, which purchased Harris Teeter, opened its 124,000-square-foot marketplace concept store on Holland Road and construction is under way on two more stores in Portsmouth and Suffolk.
Whole Foods announced its plans to anchor retail in the Newport News Tech Center development and site work has begun on Fresh Market in Norfolk’s Ghent neighborhood.
“I’m pretty excited about 2014,” said David Machupa, vice president at Cushman & Wakefield | Thalhimer. “My big concern is the large amount of big box space coming on the market.”
Kmart and Sears closed stores nationally and locally last year. JCPenney closed its 209,000-square-foot store at The Gallery at Military Circle. Ruby Tuesday closed 30 restaurants across the country, including one in Virginia Beach. Radio Shack announced plans to close 500 stores, and Barnes & Noble put itself up for sale.
With big box space coming available, the region experienced a slight increase in the vacancy rate from 7.85 percent to 8.37 percent in 2013, according to the report.
“It doesn’t accurately reflect the strength of Hampton Roads,” Machupa said, and lenders are looking at the numbers. “It’s a concern for the mom-and-pop shops that are trying to get money to open an additional location.”
Overall, Machupa said retail is headed in the right direction. A lot of activity now, he said, is a good indicator of a strong 2014.
As for the office market, Hampton Roads is still catching up. Though there was a large dip in absorption in 2013 because of sequestration and downsizing, Class A rental rates increased by 62 cents a square foot and Class B rental rates increased an average of $1.08 per square foot.
Hampton Roads, according to the report, was impacted by sequestration. Cuts to the defense budget trickled down to defense and government contracting companies, which chose to respond by downsizing.
“I think the reality is defense expenditures will continue to reduce,” said Deborah Stearns, senior vice president at JLL. “The challenge for Hampton Roads is to achieve a disproportionate share of a shrinking defense budget.”
With an aging population, the medical sector has been a constant for Hampton Roads in terms of office sales, leasing and new construction. Projects that broke ground include the 26,400-square-foot two-story medical office Bon Secours will occupy at Ghent Station, the four-story Class A medical office building at DePaul Medical Center and Sentara Leigh Medical Center’s five-story Class A tower that opened in November. More construction is expected in the latter half of 2014 and in 2015.
Looking back, Stearns said the largest leases came from Amerigroup and USAA.
“I personally believe we’ll see less downsizing and right-sizing in 2014,” she said. “I’m optimistic we’ll see companies start to grow again.”
As for the industrial market, vacancies fell by 2.16 percent representing dramatic improvement with a fourth straight year of decline.
“Slow and steady improvement in most submarkets is lowering vacancy rates and absorbing quality product,” the report said. “It is expected that 2014 will continue this trend.”