SOUTHEAST SNAPSHOT, MAY 2004

Hampton Roads Office Market

Dawn Griggs, SIOR Commercial Sales & Leasing Thalhimer/Cushman & Wakefield

The Hampton Roads, Virginia, office market will experience steady growth over the next year, according to Dawn Griggs of Thalhimer/ Cushman & Wakefield. Average asking rental rates will inch up to a projected overall market rate of $15.70 per square foot, a blended average for Class A and B space. With job growth increasing, office space absorption will escalate and new office developments will be announced.

“The Peninsula’s City Center at Oyster Point has proved a very sound investment,” says Griggs. “With three office buildings complete and several retail operations (restaurants) open, we can expect additional announcements within the hospitality sector that will round out the center along with the residential, which is under construction.”

The impact of the City Center development has not yet been truly experienced by the community. Once it evolves into a full-blown residential, hospitality and office community, it will become a destination for many. The space being occupied by the new tenants of City Center are largely image enhancement opportunities for existing Peninsula businesses. “We are seeing some corporate headquarters relocation from outside of the area as well,” Griggs adds.

Another noteworthy subsection of Hampton Roads is Williamsburg; the New Town Development is creating synergy with the opening of the SunTrust building along with several other mixed-use buildings, which are in the final stages of approval by James City County. The residential portion of the urban development should be underway by second quarter and another major retail announcement will be unleashed by this summer. This new “financial district” for Williamsburg is welcomed by both new and existing businesses; there has not been a center of town since the Rockefellers came in the 1950s.

“The majority of development is taking place in the ‘center of town,’ such as Virginia Beach, Chesapeake, Newport News and Williamsburg,” notes Griggs. “This is largely due to the existing infrastructure and location, location, location!”

Who is responsible for the new development? The local commercial real estate community believes so strongly in the market, they are leading the pack with new construction.

“One of our leading tenants has always been the government and, therefore, government contractors. NASA Langley is further enhancing its facilities on the Virginia Peninsula, thus causing additional demand for office space within close proximity to the NASA campus,” Griggs says.

On the Peninsula, the leading office leases have been within The City Center at Oyster Point. The U.S. Attorney’s office moved from downtown Newport News into 17,000 square feet and Langley Federal Credit Union relocated its corporate offices into a 35,000-square-foot space within Fountain Plaza III. Specialty Foods Group relocated its corporate headquarters to 10,000 square feet in The Newport News Plaza building located at the corner of Pilot House Drive and Jefferson Avenue. Moreover, The Mitre Corporation leased 19,000 square feet and Policy Studies leased 8,960 square feet in Hampton Technology Center.

Equally as strong, the south side of Hampton Roads enjoyed several new leases in downtown Norfolk at 150 W. Main: SunTrust Bank leased 53,120 square feet and Kaufman & Canoles leased 68,071 square feet. In Virginia Beach, The Town Center of Virginia Beach was successful in leasing 9,358 square feet to Legg Mason Wood Walker, and, in One Columbus Center, HBA Architects leased 16,624 square feet.

There were three major transactions in the suburban Southside market, specifically Chesapeake: Sentara Health Care leased 40,211 square feet in The Crossings I building, AMSEC LLC leased 57,429 square feet in the Battlefield Technology Center, and Canon USA leased 65,374 square feet at Greenbrier Business Center.

The range of Class A rental rates goes from $18.50 to $21 per square foot. Vacancy rates are up almost 31 percent from 1 year ago, standing at about 15 percent.

“Those looking for chance may want to keep an eye on Suffolk, Chesapeake and Williamsburg,” Griggs says. “Major opportunities will present themselves in the near future.”

Overall, the forecast for the Hampton Roads office sector is optimistic. “We should have the best year economically since 1984 if all of the indicators are correct,” says Griggs.

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