SOUTHEAST SNAPSHOT, MAY 2006

Hampton Roads, Virginia Industrial Market

The current state of the Hampton Roads industrial market is strong and it appears as though it will remain that way for some time, as it is experiencing its tightest market conditions to date with an overall industrial vacancy of 5.24 percent. The Hampton Roads region continues to benefit from a historically steady economy due to the fact that the area is supported by the world’s largest naval base, the East Coast’s second busiest port, a healthy defense contracting economy and a diversified tourist industry. The declining vacancy rates and the dwindling supply of affordable and strategically located industrial-zoned land, along with the massive expansion of the port, have caused several national industrial developers to take note.

Johnson Development Associates, Ashley Capital, Liberty Property Trust and Devon USA are just a few of the developers who have recently entered the Hampton Roads industrial arena that are creating a large presence. These developers are introducing a new trend into the marketplace; they are building substantially larger speculative buildings than have been built in the past. These new developments range in size from 130,000 square feet to more than 800,000 square feet. In the past, the average speculative industrial facilities were rarely more than the 150,000- to 200,000-square-foot range. The scale of these new developments will help to satisfy a missing niche in the market, which is the ability to accommodate large users/tenants (300,000 square feet and larger) in one facility. In the past it has been very difficult to accommodate these 300,000-plus-square-foot tenants in fewer than two or more facilities.

In the past several months there has been approximately 2.7 million square feet of modern high-bay distribution space proposed, much of which is currently under construction. At this time roughly 2.4 million square feet of this space would be delivered on a speculative basis. To put these numbers into perspective, Hampton Roads’ overall industrial absorption last year was roughly 1.8 million square feet or 2 percent of Hampton Roads’ 96.8 million-square-foot industrial marketplace. The majority of the current industrial development is taking place in Isle of Wight County and the City of Suffolk. This is mainly due to the fact that these two locales are the last bastions of large tracts of affordable industrial-zoned land with adequate access to the marine terminals and arterial interstate systems.

The vast majority of these developments are comprised of high-bay distribution facilities. The main types of tenants these developers are trying to attract are both large scale distributors and third-party logistic companies. One of the main reasons why there has been such a dramatic demand for high-bay distribution space in the marketplace is due to the fact that the world’s largest shipping line, Maersk-Sealand, is in the process of developing a $450 to $600 million dollar marine terminal on 291 acres in the city of Portsmouth, which is slated to open in July 2007. This investment represents the largest privately built marine terminal in the United States, which is expected to increase the Virginia Port Authority’s capacity by 50 percent. This announcement has made the East Coast’s second busiest general cargo port even more attractive to distribution and third-party logistic companies and the developers that cater to them.

The new Maersk Terminal will be able to handle about 1 million 20-foot-equivalent units (TEU’s) of containers a year once it’s fully operational. TEU’s are a universal measure for containers, which come in 20-foot, 40-foot, and 53-foot lengths. The engineering firm of Moffatt & Nichol, a firm that specializes in intermodal planning and design as well as transportation and goods movement issues, estimates that in order to adequately process 700,000 containers approximately 20 to 60 million square feet of additional distribution space will be needed in the Hampton Roads region by 2030. Moffatt & Nichol emphasizes that these estimates are conservative and account for operational efficiency improvements expected in the future.

Much of the existing high-bay industrial space in the market continues to be digested as vacancy rates decline to record lows. One of the largest lease transactions to take place this past year was by NYK Logistics, a large third-party logistics company that services Target’s 1.8 million-square-foot distribution center, which is located in the city of Suffolk. NYK leased approximately 515,000 square feet of warehouse/distribution space in two adjacent buildings located at 301 and 500 West Lake Park Lane in the city of Hampton. American Port Services (APS), a logistics supplier based out of Savannah, Georgia, leased approximately 150,000 square feet in a facility located at 3700 Village Avenue in Norfolk Industrial Park. Another large 80,000-square-foot lease took place at Bridgeway Commerce Center in the city of Suffolk, the home of the Liberty Property Trust’s 130,000-square-foot distribution facility which is expandable by another 300,000 square feet. Dana Corporation, a supplier of truck frames for Ford was the tenant responsible for this lease. In conclusion, the Hampton Roads industrial market’s future remains bright and the development potential for our region remains strong.

— Charles L. Dickinson is an industrial specialist with NAI Harvey Lindsay in Norfolk, Virginia.

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