SOUTHEAST SNAPSHOT, MAY 2008

Hampton Roads Multifamily Market

While it appears that vacancy rates are increasing in many major markets around the country, the Hampton Roads area continues to fare well in the midst of national economic hardship. There is a move toward building apartments in Hampton Roads around new town center developments. This trend is typified by such projects as Oxford at Newtown, a 265-unit luxury community that is expected to complete this month. The concept is to build housing near office, retail and entertainment to provide residents with all aspects of residential life. Oxford at Newtown is adjacent to the New Town development in Williamsburg, a mix of specialty shops, large retail stores, restaurant, offices and entertainment, most within walking distance to the community.

The “small town” mixed-use concept is taking off in the Hampton Roads area. With rising fuel cost, mixed-use makes living, working and playing in one area more cost effective and allows for more time to enjoy life. According to Real Data, the overall vacancy rate for the Virginia Beach-Norfolk-Newport News market, as of last October, was 5 percent. While it’s the highest vacancy rate in nearly 10 years, the market remains healthy. The 94.9 percent occupancy rate is consistently one of the highest in the Southeast. Based on the 1,112 communities currently under construction and the 1,800 proposed, area vacancy is expected to increase slightly but remain just under 6 percent. During the first quarter of 2008, concessions increased in many of the submarkets, including Williamsburg and Virginia Beach. These concessions were primarily represented in high-end Class A communities. Other communities with less high-end amenity packages actually fared better in the first quarter due to more price conscious customers and growing concern for fuel and energy increases.

For the remainder of 2008, steady rental growth will take place primarily in the Class B and C community portfolios as consumers continue to remain concerned about the economy. This will make nominal renewal increases during the next several months critical to maintaining higher than average occupancies, decreasing expenses and cutting back concessions on new leases. Currently, average rents range from $768 in Newport News to a high of $957 in Virginia Beach, according to Ripley Heatwole Company. Unlike years past, much of the new supply will come from the older cities in the region, which are capitalizing on redevelopment and new mixed-use projects. Also, developers will continue to build near town centers to capitalize on saving fuel cost for customers, while still giving them outstanding amenities.

The major submarket to watch is the Downtown Norfolk area. Across the region there are more than 4,000 apartments that were either planned or under construction as of last October, and 25 percent of them are in Norfolk. S.L. Nusbaum Realty Co. is developing three of the five newest complexes in Norfolk, with construction underway for the new 22-story Wachovia Center. The project will include 250,000 square feet of office space, 53 percent of which is leased; 175 apartments; and 50,000 square feet of retail space situated on 4.5 acres. “This project says downtown Norfolk continues to be the financial and business center for all of Hampton Roads,” says Mayor Paul Fraim. Wachovia Center is expected to complete in spring 2010. Also under construction by Nusbaum, River House Apartments will have 220 one-, two- and three-bedroom units, most with views of the Lafayette River. The community will boast an infinity pool and clubhouse featuring a panoramic view of the river, and a public walkway will be built along the waterfront. This community is expected to open in the fall.

Another submarket experiencing significant growth is Hampton, where the new Peninsula Town Center, a 1-million-square-foot mixed-use community is under construction and scheduled for completion next spring. The Town Center will include high-end retail shops, offices and restaurants in a park-like setting. Capitalizing on the easy access to Town Center is Somerset at Town Center Senior Apartments, a new 151-unit community built by Marlyn Development Co., which is scheduled to open this month. This community is one of several developed in the last 24 months in Hampton after a significant slowdown in apartment growth in the 1990’s.

There continues to be a strong demand for quality rental housing in the Hampton Roads area, and developers are working to fill that demand. Because many of the apartment communities currently under development are close to shopping and dining, more residents will be attracted due to concern over rising fuel costs. Customers want to increase quality of life by spending less time and money driving. These new projects show the continued movement in development toward incorporating all aspects of family life, shopping, dining and living in one area.

— Caroline Forehand is the director of marketing for S.L. Nusbaum Realty Co. in Norfolk, Virginia.

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