The place does Hampton Roads’ actual property market stand? Right here’s what the consultants say. – The Virginian-Pilot

If there’s anything certain about the future of real estate in Hampton Roads, it’s that the future is uncertain.

Six industry experts shared their detailed analysis of Coastal Virginia’s real estate market at the 28th annual Hampton Roads Real Estate Market Review & Forecast on March 8 at the Chartway Arena. It was hosted by Old Dominion University’s E.V. Williams Center for Real Estate.

The speakers focused on the challenges and opportunities affecting the real estate market, including economic trends and insight on the residential, multifamily, retail, office and industrial sectors.

Van Rose, principal owner of Rose & Womble Realty, described 2022 as a year of two halves.

The momentum from a high volume of sales in 2021 carried into the first half of 2022 as low interest rates combined with a dwindling number of homes on the market. That helped sellers as about 80% of homes sold over their listing price, according to the report.

But then the “sticker shock” of rising prices combined with rising interest rates and low selection created an interest-rate paralysis, Rose said. The median sales price of homes peaked at $328,797 by May.

“The buyers are frozen, the sellers are frozen and they’re in shock,” he said.

The average price for resale homes, 90% of the market, rose to $345,000 last year, he said. From 2021 to 2022, sales of existing homes dropped 18%.

The average price for new construction homes rose to $459,000 and sales dropped by 11.5%, Rose continued. Building permits were down 22% from the year before.

Looking at the remainder of 2023, Rose said it’s as uncertain as the interest rates.

“I think the entire residential market is in great shape, if we find stability,” he said. “I think if anybody can be quasi-recession proof, it’s probably Hampton Roads.”

Paul Van, CEO and chief investment officer for Croatan Investments, said 2022 marked the end of a 14-year growth cycle for apartments that started after the global financial crisis.

“Vacancy was near record lows, rent growth was near peak levels, asset values at record highs and market liquidity at record lows,” Van said. “Investors were active and bullish, deals were getting done left and right.”

Then, it all came crashing down due to rent hikes and inflation. Local sales dropped 77%, he said.

“If you purchased a property a year ago … you’re down 20 to 30% of the asset value,” Van said. “Hampton Roads is doing slightly better than the national average, but to be down by 25% is nothing to brag about.”

Van said the firm expects deal flow to pick back up in mid- to late 2023.

“And as often during times like this, when you go from a market bottom to a market recovery, we can find the best investment opportunities ‚” Van said.

One issue that helps rental housing is that mortgage rates have gone up dramatically over the past year, he said.

“Due to this, it is now $900 more expensive to own a home than it is to rent,” he said, based on monthly payment. “This is a record spread and it’s actually much wider than where it was during the last housing market peak of the mid-2000s.”

Hampton Roads had an average asking rent of $1,390 per month after rent growth reached 11.7% in 2021 and 3.5% in 2022. The report tallied roughly 1,900 units under construction.

Nicole Campbell, assistant vice president of office leasing and sales for Divaris Real Estate, addressed the state of the office market this past year and the anticipation of the “great office glow up.”

Campbell said 2022 ended with a 7.5% vacancy in Hampton Roads while the national average was 12.5%.

While rent increased to $21 per square foot across all building classes and submarkets, Campbell said lease-up times have taken longer.

Availability also remains low due to a lack of new construction, she said, noting only 20,000 square feet of new office space was delivered in 2022.

Moving ahead over the next 12-24 months, Campbell said the “great office glow up” — describing a major transformation as old buildings come down and others are refreshed and renovated to attract tenants — is key to encouraging employees to forgo their work-from-home environment and return to the office.

“Although we haven’t returned to the velocity seen in 2019, because of recent shifts in our economy, Hampton Roads continues to have a stable office market that is prime to experience the great office glow up and attract high-quality tenants,” she said.

Gregg Christoffersen, senior vice president of brokerage and industrial lead for JLL, said most important to note is that the industrial market in Hampton Roads is changing and punching above its weight in ways like never before.

“We’re changing from what has historically been a built-to-suit market to a true speculative demand, speculative construction, industrial market and it’s a pretty compelling narrative,” he said.

Between the billion dollars in investments made to the Virginia Port Authority and nearly $7 billion by the Virginia Department of Transportation toward road infrastructure, bridges and tunnels, Christoffersen said it created a dynamic that puts the Hampton Road market even with the national average.

“We now have no vacancy, demand remains robust in this market and remains keenly healthy, but at the same time, our market is challenged by a very limited supply,” he said.

This year, Christoffersen said there is easily tenant demand of 2.5 million square feet of space with only roughly 1 million square feet available space.

In 2024, Christoffersen said the region will have a robust amount of supply, but it is probably insufficient to meet the levels of consistent demand.

Other limitations are the land constraints hindering rezoning, the availability of water and sewer infrastructure and continued supply chain delays.

Through it all, Christoffersen said the industrial market is healthy in terms of capital investment and job creation.

Jeff Fritz, vice president for Colliers, said Hampton Roads’ retail sector has been tested throughout the years between corporate bankruptcies, the Amazon effect and the pandemic, but has come out stronger.

Fritz focused on the resiliency of the shopping centers, retailers who occupy them and the buying and selling of the centers.

“2022 was really a banner year as pertains to the shopping center operations pertaining to net absorption, rent, growth and collections,” he said.

On the large box side, Fritz said the region is seeing good grocery, off-price discounters and fitness users. The small shop side is robust with wellness and food and beverage tenants. Outparcels are also strong with automotive and quick-service restaurants.

“On the flip side, our market has not and will not be immune to closures,” he said.

Looking ahead, Fritz said retail, like any other business, will have trials to endure.

“Retailers and shopping centers will not be without failures, but throughout that process, we will see more resiliency and a stronger market,” Fritz said. “I do expect Hampton Roads to be having another successful year in 2023.”

Bob McNab, director of the Dragas Center for Economic Analysis and Policy at ODU, led the presentation by thanking the crowd of 435 attendees.

“It is a sign of the resilience of the Hampton Roads region and the importance of real estate to our economy,” he said.

A highlight of this year’s event was the creation of the Robert M. Stanton Legacy Award, named for Stanton who died on Sept. 4. He was a revered commercial real estate developer who helped to shape the downtown Norfolk skyline and was an integral part of the establishment of ODU’s real estate program. Stanton was named the inaugural recipient of the award.

McNab took a look at the region’s slow-growing labor force. Prior to the pandemic, it was at 877,000 workers and currently stands at 841,000.

“It suggests that we have a challenge in front of us; it’s broad, deep and will limit our ability to grow as a region, as a state and as a nation in the coming years,” McNab said.

On the positive side for Hampton Roads, McNab said the defense budget has increased and will likely continue over the next five years. He also said we’re starting to see peak inflation in the rearview mirror.

“What we need is stability and certainty to muddle through 2023 so 2024 we have conditions for faster economic growth,” he said.

Sandra J. Pennecke, 757-652-5836, [email protected]