SOUTHEAST SNAPSHOT, JUNE 2009

Hampton Roads Office Market

Scott Godbout, senior vice president at Harvey Lindsay Commercial Real Estate in Norfolk, Virginia, lives the current recession. He sees the downturn’s negative effect on office real estate, but he has to disagree when brokers compare the current recession to the Great Depression. In fact, he says the office market in Hampton Roads isn’t even as bad as it got the 1980s, when the price of commercial real estate went into a tailspin.

“This is not the greatest real estate recession since 1987. This is  a little bit of a soft market,” he says pointing to responsible construction as the main reason Hampton Roads isn’t experiencing a bit of recessionary déjà vu. “After the ’80s problems, the markets in Hampton Roads were very careful with what they built.”

The operative word in Godbout’s explanation of responsible development is were. Officials who completed office construction right as the recession was creeping into Hampton Roads are experiencing a dearth of tenants willing to sign up right away. Then again, he’s experienced worse.

“You have a couple buildings that got caught at the end of the cycle and had a tougher time. They completed just as the market flattened out, so they’re struggling a little getting tenants, but they’re getting good interest in their space,” he says. “I don’t see a huge problem here in ’08, ’09, possibly even into 2010.”

These potential leaseholders aren’t the only ones wary of today’s office market. Companies snug in existing space are also thinking twice about staying put. The allure of switching to a smaller property, particularly if a company is in the midst of downsizing, can sometimes be too strong to ignore. Alternate options should be exhausted before tenants start packing, Godbout says.

“Tenants need to understand that it’s very expensive to relocate. It used to be that everybody shows up on Saturday to move the office; it’s not that easy anymore,”  he says. “It’s not worth it for a couple bucks in lower rents.”

According to Godbout, however, demand for new space is still strong in Hampton Roads and surrounding submarkets. He points to new projects in The Town Center of Virginia Beach and City Center at Oyster Point in Newport News, Virginia, as signs that the market is still moving. “We’re not booming, but we’re building,” he says. “There’s development and construction going on. It’s not like we’re at a standstill here.”

— Jon Ross

Office Space Coming Soon

During the first quarter of 2009, three office buildings delivered in the Hampton Roads market. This brought 24,413 square feet into the area. The bigger, more threatening number comes from CoStar, which estimates that 893,591 square feet of office space are still in the development stages.

While the first quarter ended in a total negative absorption of 35,222 square feet — which is a more positive number than the negative 56,171 square feet of adsorption experienced in the fourth quarter — finding tenants for this office space may be an issue. Here are a few projects currently under construction:

Wachovia Center. 299,887 square feet. Southside submarket. Delivery: Second quarter, 2010.

12200 Warwick Blvd. 104,532 square feet. Peninsula submarket. Delivery: Second quarter, 2009.

4211 Monarch Way. 100,000 square feet. Southside submarket. Delivery: Second quarter, 2009.

Convergence Center IV. 92,000 square feet. Southside submarket. Delivery: Second quarter, 2009.

Casey Corners Building. 30,000 square feet. Peninsula submarket. Delivery: Third quarter, 2009.

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