O F F I C E

The State of Virginia leases 33,000 square feet of office space in the Divaris-leased and -managed Interstate Corporate Center in Norfolk, Va.

Hampton Roads Offers New Office Opportunities

VIRGINIA BEACH, VIRGINIA — The Hampton Roads office market, which consists of Virginia Beach, Norfolk, Chesapeake, Portsmouth, Suffolk, Hampton, Newport News, and Williamsburg, Va., is experiencing significant growth.  This is due, in part,  to the strong local economy, the shipping industry, good schools, good retail and to its close proximity to Washington, D.C.  Moreover, office space is half the price of that in Northern Virginia.

According to Krista Costa, corporate services and leasing associate for Divaris Real Estate, Inc. (DRE), is the construction of new Class A office space continues unabated to meet pent up demand. While national tenants new to the area are a positive trend, she explains that many existing tenants are expanding or upgrading, moving to Class A office properties as well.  This has been a key growth point for the office market.

Areas that have seen the most significant office activity are Virginia Beach’s central business district and downtown Norfolk, where demand is high due to the close proximity to great restaurants, retail and residential properties in the immediate area.  Examples of this trend are the new headquarters building for Resource Bank in Virginia Beach and that for Dominion Enterprises, which recently consolidated to a headquarters building in Norfolk. Virginia Beach’s Town Center has seen over 550,000 square feet of office space completely leased, of which 350,000 square feet has been built in the last few years.

Divaris continues, “Most of the existing space has been leased.  One of the latest trends is for big shipping companies to move to Hampton Roads. The Port Authority has invested a lot in container cranes, so shipping companies can move more easily into Norfolk’s harbor, where there is good access in and out to sea, instead of sailing up to Baltimore.  This has been key for shipping related businesses to the area.”

According to CoStar, which compiles statistics for markets across the country, the overall vacancy rate for the Hampton Roads office market at year-end 2006 was 7.4 percent. Net absorption for the fourth quarter 2006 was 314,676 square feet, and overall rental rates increased to $17.16 per square foot. Specifically for Class A office properties, the vacancy rate is 9.4 percent, while absorption was 251,324 square feet in the fourth quarter 2006, and rental rates stood at $20.14 per square foot.

Hampton Roads’ highest office vacancy rate was in 2002 at 14.3 percent, gradually dropping to its lowest rate of 7.4 percent in 2006.

“In general, building costs have risen approximately 30 percent, causing rental rates to reach all-time highs,” says Michael Divaris, president of DRE. “While these rental rates are still low compared to Washington, D.C., they have doubled from what they were ten years ago.”

According to Vivian Turok, senior vice president of office leasing in DRE’s corporate headquarters, “By encouraging property owners to invest in energy efficient ‘green’ buildings, a lot of money can be saved, especially as energy costs are about to go through the roof!” Liberty III in Chesapeake is Hampton Roads’ first pre-certified LEED Building.

DRE has been involved with some of the more significant leasing activities in the market, signing a lease with the Commonwealth of Virginia at Interstate Corporate Center, a 439,000-square-foot property located at the intersection of interstates 64 and 264 in Norfolk.  DRE leases and manages the complex. The Commonwealth occupies 33,000 square feet of office space, housing several state agencies. Also at Interstate Corporate Center, DRE renewed a lease for 31,600 square feet with Harris Publishing.

Turok also added, “Driven by our desire to live and work in the same place, we expect to see more town centers being developed like those in Virginia Beach’s central business district, Oyster Point in Newport News, and Harbour View Town Center in Suffolk.”

Government agencies, including defense and homeland security, are increasing their space requirements, and Hampton Roads has the land to supply it. Suffolk, which was primarily rural as recently as five years ago, now has Class A office space that is home to some of these federal government agencies.

Norfolk Southern, which is headquartered in Hampton Roads, is heavily invested in its rail system to provide improved service into the central regions of the country, at the same time gearing up the region to become the leading port on the Eastern Seaboard. All of this activity is contributing to Hampton Roads’ attraction for corporate customers.