Phillips

In Hampton Roads, Virginia, current trends in the industrial market include continued strong demand for owner-occupied facilities due to low interest rates. “Buyers continue to seek 5,000- to 20,000-square-foot industrial buildings,” says Robert Phillips Jr., vice president of Thalhimer. “While Southside Hampton Roads will continue to experience a limited supply of larger spaces, it appears that the Virginia Peninsula may have a bit more than its share on hand with recent unrelated plant closure announcements. Port-related uses will continue to drive Hampton Roads bulk warehouse transactions.”

The majority of industrial development is taking place in the Southside Hampton Roads communities of Suffolk, Chesapeake and Isle of Wight County, primarily because this is where the land exists. This area also has a relatively low cost per acre and higher concentration of labor. The more mature industrial submarkets on the Virginia Peninsula, Newport News, Hampton and Williamsburg, continue to offer select sites for development along major interstates and arterials.

“However, the concentration of new development will continue at the edges of our market,” Phillips adds. “On the west, the Greenmount Industrial Park, the location of a 2 million-square-foot Wal-Mart distribution center, should see another distribution-related announcement very soon.”

Due to several plant closings, a large amount of inventory is now available. These buildings include:

• Federal Mogul’s 135,000-square-foot facility in Hampton

• John Deere’s 307,784-square-foot manufacturing facility in James City County

• Gateway Computers’ 421,000-square-foot office, manufacturing and warehouse facility in Hampton

• Penn Engineering’s 52,541-square-foot manufacturing facility in Suffolk

• Spiegel Group’s 375,000-square-foot distribution facility in Hampton

• Two shell buildings: in Suffolk, a 50,000-square-foot facility in Suffolk Industrial Park that is expandable to 130,000 square feet; in Franklin (Isle of Wight), a 58,000-square-foot building in Pretlow Industrial Park.

• On the positive side, examples of new construction/investment include:

• Target Stores’ development of its 1.5 million-square-foot East Coast Import Distribution Center in Suffolk.

• Sara Lee Coffee and Lipton Tea both significantly expanded their plants and warehousing facilities in Suffolk.

The Newport News/Williamsburg Airport has announced its new AirCommerce Park, targeting the air manufacturers and other aerospace industry users requiring frontage on a concrete apron (tarmac). “While this manufacturing sector is notably ‘down’ at the moment, this development will broaden the future user/manufacturer pool of new entrants to our marketplace,” Phillips notes.

Another exciting and significant development that may result in related industrial demand involves the National Institute of Aerospace (NIA) and Craig Davis Properties’ development of 60,000 square feet of office and research space in Hampton. The NIA is a NASA-funded research center that may attract as much as $400 million in grants over the next 20 years. NASA Langley Research Center selected a six-university team headed by the University of Virginia and Virginia Tech to direct the development of technologies in aerospace and atmospheric science. Construction is underway on this development, which is a tremendous boon to the market and will positively affect the high-tech segment of the Hampton Roads industrial market in the coming years.

Absorption trends in Hampton Roads have been declining over the past few years. According to the Old Dominion University Center for Real Estate and Economic Development’s 2002 Market Survey, “Annual industrial absorption has continued its downward trend from over 3 million square feet in 2000 to approximately 2.8 million square feet in 2001 and now down to approximately 2 million square feet in 2002. This drop in absorption indicates an actual market growth of only 2 percent for the year 2002. The stronger local absorption in the past 2 years has been a direct result of large distribution facilities locating in this market.”

One notable concentration of absorption and investment occurred in Chesapeake as a direct result of Ford’s 2001/02 Norfolk Assembly Plant expansion to enhance the F-150 Truck production and potentially the Super Duty F-series. TDS/US Inc. leased 450,000 square feet to sequence and meter parts for just-in-time delivery to the Ford assembly line and Visteon leased 74,000 square feet to manufacture advanced plastic fuel tank systems.

The bulk of Hampton Roads’ inventory, like the nation’s, screams for manufacturers. There are many outstanding manufacturing properties available in Hampton Roads for all types of industry, throughout the 35,000- to 90,000-square-foot range and above. This existing product, the majority of which was built in the mid- to late 1990s, can be found scattered between the westernmost Williamsburg submarket and the Virginia Beach oceanfront to the east. As Chesapeake’s Winter 2002-2003 Economic Development Report points out, Chesapeake and Hampton Roads are home to several major automotive parts manufacturers, including Johnson Controls, Nistem Corporation and Usui International, taking advantage of existing building inventory, location, labor force and pro-business climate.

The Hampton Roads industrial market snapshot is best captured by Douglas Ellis, president of Ellis-Gibson Development Group in Virginia Beach. Ellis has been involved in many notable industrial projects throughout Hampton Roads over the years, including the development of the 500,000-square-foot Cost Plus World Market distribution center in Isle of Wight County.

“We are a region of singles and doubles with regard to normal industrial activity,” Ellis says. “Capital/business investment is on hold, the demand side is very limited. Vacancy rates/supply have been reasonable due to the realization by most developers that our market does not justify large speculative construction. Absorption has really been driven by distribution centers for retail distribution, investment purchases for 1031 exchanges and local users purchasing older buildings capitalizing on today’s low finance rates. Public warehousers also play a more active role due to their need for facilities inside which to conduct their primary business. The above transactions, however, should not be used to demonstrate health or normal business demand or absorption.”

“I would add that this region remains as it always has, ready and optimistic,” says Phillips. “We have the location and infrastructure — labor, ports, rail, interstate, air, business climate, building and land inventory, and incentives — to both retain expanding companies and attract new entrants. We are stable, stable, stable.”


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