HAMPTON ROADS REAL ESTATE MARKET REVIEW - … · HAMPTON ROADS REAL ESTATE MARKET REVIEW ... Hampton Roads is the fourth largest MSA in the southeast US, ... David Machupa and

E. V. WILLIAMS CENTER FOR REAL ESTATE

AND ECONOMIC DEVELOPMENT

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E. V. Williams Center for Real Estate & Economic Development

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Data for Old Dominion University E.V.Williams Center for Real Estate and EconomicDevelopment Market Survey was collected inthe fourth quarter — 2009

C O N T E N T S

Message From The Director

CREED Executive Committee

CREED IPAC Members

CREED Council Members

Hampton Roads Retail Market Survey

Hampton Roads Industrial Market Survey

Hampton Roads Office Market Survey

Hampton Roads Residential Market Survey

Hampton Roads Multi-Family Market Survey

Commercial Real Estate Investment Market Review

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M E S S A G E F RO M T H E D I R E C T O R

WWelcome and thank you for joining us for the 2010 Old Dominion University E. V. Williams Center for RealEstate and Economic Development (CREED) Real Estate Market Review and Forecast. This is our 15th annual market report and review and we sincerely appreciate your continued support.

Hampton Roads is officially designated the Virginia Beach – Norfolk – Newport News VA-NC MSA by theOffice of Management and Budget. It encompasses 2,628 square miles, has a population of more than 1.6million and a workforce of nearly 800,000. Hampton Roads is the fourth largest MSA in the southeast US,comprised of 16 cities and counties in Southeastern Virginia and Northeastern North Carolina, and is the largestconsumer market between Washington DC and Atlanta.

According to the Old Dominion University Economic Forecasting Project, our region’s economy is slatedto grow, but at a rate lower than our long term average of 3.3 percent. Continued growth in defense, port, andtourism, three of our major economic drivers, will offset declines in other economic sectors. The economicpundits look to improving conditions in the second half of 2010 and a much better 2011. What will 2010 havein store for the commercial real estate markets? Will the housing market ever regain the momentum of acouple of years ago? While answers to these questions and others dependupon a multitude of factors, some evidence can be found within the pages ofthis report as well as from the presentation of our industry experts.

Growth and development at CREED is driven significantly by membersupport. CREED welcomed the realization of the CREED Council and theinstallation of Industry Professional Advisors to the Center (IPAC) in 2009.Together, these membership bodies are dedicated to creating a nationallyprominent center of excellence in real estate research, education, and practicalapplications here at Old Dominion University.

In 2009, CREED increased meaningful student internships with regionalindustry partners and hosted nationally recognized speaker, Frank Nothaft,Chief Economist for Freddie Mac, in Norfolk to advise our membership.CREED sponsored several events in the College of Business and PublicAdministration, including a guest speaker series and an inaugural student/industry meet and greet reception,valuable resources for both the real estate student community and professionals.

Looking ahead to 2010, Dr. Michael J. Seiler, the Robert M. Stanton Chair of Real Estate, is working withScott Adams, Regional Managing Director, CB Richard Ellis, to design a Capstone case studies class where IPACmembers will be brought in to guest lecture for each case. In addition, there will be several on-site trips to localIPAC member offices/on-going projects.

CREED is one of the most cost effective networking organizations you can support. There are manymember benefits, including complimentary event registrations to the Hampton Roads Real Estate MarketReview and Forecast and the annual CREED Business Meeting and Luncheon. The CREED website has over40,000 page views, providing tremendous marketing leverage for your membership listing. CREED Council andIPAC membership also provides further opportunity for those of you who want to see real estate establish itselfas an academic major of choice for Old Dominion University students.

There are many people to thank for their contributions to this report and the annual market review. Manywriters, speakers, and event planners make this program such a success. Of course, a special thank you to allthe volunteers within the real estate and economic development community for providing their expertise andsharing their data. None of this is possible without your commitment.

In closing, please note that we have changed the way we present some of our information. Every effortis made to provide the most accurate information in these reports. If you find an error, or have a suggestion onhow to improve upon these reports, please contact me with comments.

Your continued support is truly appreciated.

John R. Lombard, Ph.D.

John R. Lombard, Ph.D.Associate Professor and Chair

Department of Urban Studies and Public Administration

Director, E. V. Williams Center for Real Estate and Economic Development

Old Dominion University

College of Business and Public Administration

Norfolk, VA 23529-0218

Direct line: (757) 683-4809 Center line: (757) 683-5352

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To obtain additional copies of this report, please go to our website: www.odu.edu/creed

Send to:

John R. Lombard, Ph.D., Director E. V. Williams Center for Real Estate and Economic DevelopmentOld Dominion University2092 Constant HallNorfolk, VA 23529

Telephone:(757) 683-4809

E-Mail:[email protected]

THE 2010 EXECUTIVE COMMITTEE OF THE CREED COUNCIL

The purpose of the Creed Council is to provide professional expertise in

various aspects of real estate and economic development to make

recommendations to the University concerning policy and operations of the

CREED as well as the University’s real estate curriculum.

Executive CommitteeChair .................................................. Brad SanfordDirector .............................................. John LombardProgram Chair .................................. Stephanie SankerPublications Chair ............................. Brian DundonMembership Chair ........................... Craig CopeCurriculum Co-Chairs........................ Jon Crunkleton

....................................................... Brad SanfordSponsorship Chair ............................. Fred FackaBy-Laws Chair .................................... Andrew KeeneyPast Chair........................................... Tom DillonAt-Large............................................. Jonathan Guion

....................................................... Billy King

....................................................... Aubrey Layne

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Market Review Committee Industrial................................. William C. Throne and

............................................ Stephanie SankerOffice...................................... Scott AdamsRetail....................................... David Machupa and

............................................ David ChapmanMulti-family............................. Charles Dalton/Real DataResidential.............................. Blair Hardesty and Van RoseInvestment.............................. Scott Adams

Research/Editorial Committee Albert DuncanBrian DundonNancy GossettElizabeth HancockJanice HurleyJoy LearnSandi PrestridgeMaureen RooksBrad SanfordLane SheaKristi Sutphin

The 2010 Officers And Members Of The Council Are As Follows:

Honorary MemberRobert M. Stanton, CSM and CPMStanton Partners, Inc.

Jeff AinslieAinslie Group

G. Robert Aston, Jr.TowneBank

Ramon W. Breeden, Jr.The Breeden Company

Sanford (Sandy) M. CohenDivaris Real Estate, Inc.

Craig CopeLiberty Property Trust

Cecil V. CutchinsOlympia Development Corporation

Robert L. DeweyWillcox & Savage, PC

Thomas M. DillonFulton Bank

N. Joseph Dreps BB&T

Pamela J. FaberLeClair Ryan

Joel T. Flax, CPAGoodman and Company

David M. GianascoliGee’s Group Real EstateDevelopment

John L. Gibson, IIIEllis-Gibson DevelopmentGroup

Warren HarrisCity of Virginia Beach Economic Development

Aubrey L. Layne, Jr.Great Atlantic Management, LLC

Miles B. LeonS. L. Nusbaum Realty Company

INDUSTRY PROFESSIONAL ADVISORS TO THE CENTER (IPAC)

THANK YOU 2010 SPONSORS

2010 Hampton Roads Real Estate Market Review 6

Michael W. McCabeHarvey Lindsay CommercialReal Estate

Michael NewsomeClark Whitehill Enterprises, Inc.

Harrison J. PerrinePerrine Investments

Don Perry Continental Development

Victor L. PickettGrandbridge Real EstateCapital, LLC

Thomas E. RobinsonRobinson Development Group

Jim V. RoseRose & Womble Realty Co.,LLC

Bradley R. Sanford, MAIDominion Realty Advisors

Burrell F. SaundersCMSS Architects, PC

Reese SmithReese Smith & Associates

Tony SmithRobinson Development Group

Deborah K. Stearns, CPM, SIORHarvey Lindsay CommercialReal Estate

Richard ThurmondWilliam E. Wood

Jon S. WheelerWheeler Interests

Robert T. WilliamsTri City Developers, LLC

Rod WoolardCity of Norfolk Economic Development

Steven WrightCity of Chesapeake Economic Development

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82010 Hampton Roads Real Estate Market Review

J. Scott AdamsCB Richard Ellis of Virginia, Inc.

Tom AthertonMEB General Contrators

Jim BradshawWoolpert LLP

Stewart Buckle, IIThe Morgan Real Estate Group

M. Albert CarmichaelHarvey Lindsay Commercial Real Estate

W. Page CockrellHurt & Proffitt

Lawrence J. Colorito, Jr., MAIAxial Advisory Group, LLC

Hahns L. CopelandDARVA Group LLC

Ann K. CrenshawKaufman & Canoles, P.C.

Don Crigger, CCIMCB Richard Ellis

Jon R. Crunkleton, Ph.D.Old Dominion University

Kim CurtisTidewater Home Funding

William G. DardenHearndon Construction Co.

George C. DavisWest Neck Community Association

Laura B. de GraafCommercial Real Estate Banking,Bank of America

Michael DivarisDivaris Real Estate, Inc.

Helen DragasThe Dragas Companies

Brian DundonDundon & Associates

Frederick D. FackaTuckahoe Asset Management

Sandra FerebeeGSH Residential Sales

Brian E. Gordineer, A.A.SCity of Hampton, Office of the Assessor

Howard E. GordonWilliams Mullen

Dennis W. GruelleAppraisal Consultation Group

Jonathan S. Guion, SIORJonathan Commercial Properties

Elizabeth O. HancockOffice of Real Estate Assessor, Norfolk

Russell G. Hanson, Jr.Hanson Capital, LLC

Carl HardeeLawson Realty Corporation

John HarryJohn C. Harry, Inc.

Dorcas T. Helfant-BrowningDTH Properties, LLC

Virginia P. Henderson, MAICommercial First Appraisers, LLC

CharlesHutchisonVanasse Hangen Brustlin, Inc.

Michael A. InmanInman & Strickler, P.L.C.

Cherie JamesWall, Einhorn & Chernitzer, P.C.

Terry JohnsonAbbitt Realty

MalloryKahlerCity of Portsmouth Economic Development

E. Andrew KeeneyKaufman & Canoles, P.C.

R. I. King, IIThalhimer/Cushman & Wakefield

William E. King, SIORHarvey Lindsay Commercial Real Estate

April KoleszarKoleszar Properties, Inc.

Barry M. KornblauSummit Realty Group, Inc.

Tyler LeinbachMeredith Construction Company, Inc.

John R. (Jack) Lewis, IIECS Mid-Atlantic, LLC

Harvey Lindsay, Jr.Harvey Lindsay Commercial Real Estate

Susan Long-MolnarManaging Communications Consulting

CREED COUNCIL MEMBERS

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Jeffrey R. MackThe CIM Group

Lauren MarshFrye Properties

Mike Mausteller

Michael McOskerThalhimer/Cushman & Wakefield

G. Cliff MooreVirtexco Corporation

Michael NiceGeorge Nice and Sons, Inc.

Thomas O’GradyKBS , Inc.

James N. Owens, CCIMHarvey Lindsay Commercial Real Estate

Robert L. Philips, Jr.Thalhimer/Cushman & Wakefield

Victor L. PickettGrandbridge Real Estate Capital

Sandra PrestridgeCity of Norfolk, Economic Development

Chris ReadCB Richard Ellis

F. CraigReadRead Commercial Properties

John C. Richards, Jr.CB Richard Ellis/Melody & Co.

Rennie RichardsonRichardson Real Estate Corporation

Maureen G. RooksThalhimer/Cushman & Wakefield

Jim V. RoseRose & Womble Realty Co., LLC

J. Randy Royal Kimley-Horn and Associates

Robert J. RuhlCity of Virginia Beach,Economic Development

Stephanie SankerS.L. Nusbaum

Paula J. ShendowWireless Capital Partners

Kenneth Sisk, P.E.The Vision Group

Anthony W. SmithRobinson Development Group

Robert M. StantonStanton Partners, Inc.

Jeremy R. StarkeyMonarch Capital, LLC

Deborah StearnsHarvey Lindsay Commercial Real Estate

Daniel R. StegallDaniel Richard Stegall, PC

Terrie L. SuitWilliams Mullen

Leo SuttonHistoric Ventures, LLC

Michael SykesBank of Hampton Roads

Robert M. Thornton, CRE, CCIM, SIORThalhimer/Cushman & Wakefield

William C. Throne, SIOR, CCIM, ALCThalhimer/Cushman & Wakefield

Jamie TollenaereClancy & Theys Construction

Stewart Tyler, ASARight of Way Acquisitions & Appraisals

GeorgeD. Vick, IIIHarvey Lindsay Commercial Real Estate

Edward W. WareNorfolk Redevelopment & Housing

H. Mac Weaver, IIWells Fargo Real Estate Group

Edward M. WilliamsWilliam E. Wood & Associates

Julia WilsonG. L. Wilson Building Co.

F. Blair WimbushNorfolk Southern Corporation

Peter E. Winters, Jr.SunTrust Corporation

Chris WoodJD & W

John Wright Waverton Associates

HAMPTON ROADS

REAL ESTATE

MARKET REVIEW

RETAILAuthor David Machupa

Thalhimer/Cushman & Wakefield

Survey Christine Bullard

Collection Old Dominion University

Data Analysis/ David Chapman

Layout Old Dominion University

Financial The E. V. Williams Center for Real Estate and Economic

Support Development (CREED) functions and reports are

funded by donations from individuals, organizations

and the CREED Council.

Disclosure The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center forReal Estate and Economic Development, nor sponsoring companies and/or individuals makes any representation or warranty as to its accuracy.

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This survey gathered information about strip shopping centers and regional malls located in the MSA that were gen-erally 30,000 square feet in size or larger. Additionally, information on retail-oriented freestanding buildings at least23,000 square feet and freestanding buildings that contained furniture stores, discounters, grocery stores or categorykiller retailers that met the established size criteria were included in the survey. Automotive uses and buildings containing“downtown storefronts” were not included. Although available retail space in many submarkets (e.g., Ghent) is best de-scribed as a collection of small specialty shops, storefronts or freestanding buildings, practical limitations dictated thatthe focus of the survey be on larger product types.

The survey data was collected between October 2009 and January 2010. Questionnaires were mailed to owners,leasing agents and property managers responsible for retail properties meeting the selection criteria. Direct contact wasutilized as a follow-up to the mailing to encourage participation. Information on square footage for freestanding build-ings was obtained from building owners, tax records, store managers and retail real estate representatives. Sales in-formation was obtained from property owners, real estate agents, appraisers, and real estate assessors.

Methodology

2 0 1 0 R E T A I L

This report analyzes the 2009 retail real estate conditions within the Virginia Beach–

Norfolk–Newport News, Virginia Metropolitan Statistical Area (the “MSA”), which is commonly

known as Hampton Roads. It provides supply, vacancy, construction, absorption and rent data

for the MSA to provide a comparison of the data for Southside and Peninsula areas of

Hampton Roads for specific submarkets and product types. The survey includes properties

from the Southside of Hampton Roads located in the cities of Chesapeake, Norfolk,

Portsmouth, Smithfield, Suffolk and Virginia

Beach. Properties are also included from the

Peninsula of Hampton Roads in Gloucester,

Hampton, Newport News, Poquoson,

Williamsburg and York County.

This survey is believed to be the most

comprehensive analysis of retail real estate

trends in the MSA. The report includes

information on all retail product types

including regional malls, freestanding

buildings and strip centers of various classifications. The scope of the report also includes a

summary of new retail construction, an analysis of absorption, and a review of retail investment

sales that have occurred in the region.

OverviewG E N E R A L

Asking Rates: The market rate per square foot of a retail property (excluding freestanding buildings and malls), ex-clusive of additional rents that may be paid under a triple net lease. Interpretation of average retail rates in differentproduct types and submarkets should be viewed cautiously given the tremendous variability in rates for like productsand for properties located within the same submarket. Factors such as visibility, co-tenancy and accessibility are someof the many sources of variation in market rates which should be considered.

Big Boxes: Contiguous retail space that is at least 23,000 square feet and located in any one of the identified prod-uct types. Retailers occupying big boxes include, but are not limited to, the following: category killers, specialty stores,discounters, furniture stores, grocery stores and theaters. Bowling alleys, automotive uses, roller rinks and ice-skatingrinks were not included.

CAM: Common Area Maintenance

Product Types: Properties were classified according to one of the following nine retail product types. The InternationalCouncil of Shopping Centers defined the first six categories. Three additional categories were included to accuratelycategorize the remaining properties.

Neighborhood Center 30,000 to 150,000 square feet; supermarket anchored

Community Center 100,000 to 350,000 square feet; discount department store, supermarket or drug store anchored

Fashion/Specialty Center 80,000 to 250,000 square feet; fashion anchored

Power Center 250,000 to 600,000 square feet; category killer, home improvement and discount department store anchored

Theme Festival Center 80,000 to 250,000 square feet; restaurants, entertainment anchored

Outlet Center 50,000 to 400,000 square feet; manufacturer’s outlet store anchored

Freestanding Individual building not considered a shopping center

Mall Shopping center with area designed for pedestrian use only

Other Any center that does not fit into a typical category

Regional Mall Node: Submarket anchored by regional mall.

Small Shop: In-line retail space usually less than 10,000 square feet located in a multi-tenanted shopping center.

Submarkets: Hampton Roads is divided into 35 retail submarkets (25 Southside submarkets and 10 Peninsula sub-markets) which reflected general concentrations, pockets or corridors of retail product type. Geographical boundariesof the retail submarkets were influenced by density of existing retail product, physical or geographical obstacles, ex-isting transportation networks, municipal boundaries, population concentrations and retailers’ perceptions of the MSA.Final determination of specific boundaries of each submarket was made by a subcommittee of the Real Estate Boardcomprised of retail real estate professionals who are actively involved in the MSA. Also highlighted were specific sub-markets that are anchored by regional malls. A map which identifies the general location of each submarket is includedin the centerfold of this report.

Triple Net Lease: Type of lease under which a tenant pays its pro-rata share of real estate taxes, insurance and com-mon area maintenance.

Definitions of Terms

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As we moved into 2009, we all realized a correction was going totake place. The scale that had been tipped to the landlord andproperty owner side for the past few years was going to tip to thetenant’s side. During 2006 and 2007, we witnessed vacancy rates hitthe lowest levels since the inception of the ODU CREED marketsurvey, while small shop rental rates reached the highest peaks. 2008ended with vacancy rates creeping up, lenders closing the pursestrings, and landlords, tenants, developers and brokers all realizingthat the glory days of 2006 and 2007 were but a distant memory.Change did take place in 2009. Vacancy rates increased on both sidesof the water: the average rental rate for small shop space decreasedon the Southside and rose slightly on the Peninsula, but overall wasdown slightly for the entire market. Due to greatly reduced interest

from lenders, new development cameto a halt. If a project was not already financed, newer, more stringent loan requirementsmade development unattractive. Yet for all the negative press we read about commercialreal estate nationally, retail real estate in Hampton Roads weathered the storm nicely.

Hampton Roads did see some tenants leave or downsize their presence in themarket. Dillard’s vacated Chesapeake Square Mall, Ukrop’s and Old Navy closed inWilliamsburg, and Circuit City closed nationwide. We all know the old saying, “out withthe old, in with the new”; even in this economic market, the new came in. Retailerhhgregg signed locations for one of the former Circuit City locations and one Linens nThings location, Restaurant Depot purchased the vacant Value City site in Virginia Beach,

Trader Joe’s and Pet Smart moved into Hilltop, and CVS drug store entered Hampton Roads with six locations. Higher end grocery stores did expand in Hampton Roads this past year. Harris Teeter opened three locations:

Brennaman Farms in Virginia Beach; Harbour View Marketplace in Suffolk; and Quarterpath Crossing in Williamsburg.Additionally, The Fresh Market opened in the former CompUSA space in Newport News. While not considered higherend, Dollar Tree did sign a lease for a portion of the former Circuit City in Chesapeake Square for their new groceryconcept.

2009 did not have the Big Box activity of years past. Although, in 2008, Wal-Mart purchased land for a new supercenter in the Edinburgh area of Chesapeake; they have yet to break ground. Lowe’s, too, purchased a site in 2008 andhas yet to begin construction. Target relocated to and opened at The Peninsula Towne Center, joining JC Penney,Barnes and Noble, and a remodeled Macy’s. Wal-Mart is under construction in Olney on the Eastern Shore. The CoastGuard Exchange occupied the former Circuit City in the Greenbrier area of Chesapeake, while the City of Virginia Beachpurchased the Pembroke location for a future light rail station and leased it to East Coast Appliances. One Life Fitness,formerly Gold’s Gym, opened a new 60,000 square foot facility in the Chesapeake Square submarket.

What caused some concern in 2009 were the areas that were over built, particularly Williamsburg. We saw TheMarquis project in Williamsburg go to foreclosure, witnessed Settlers Market dance with foreclosure, and High Streetremains largely vacant.

Overall, in comparison to the retail market on a national level, the Hampton Roads market performed well.Landlords and tenants have worked together to survive this economy, and some of the tea leaves we are reading leaveus hopeful that 2010 will surpass 2009.

Year In Review

2 0 1 0 R E T A I L

Landlords and tenants haveworked together to survivethis economy, and some ofthe tea leaves we are readingleave us hopeful that 2010will surpass 2009.

The Hampton Roads retail market contains approximately51,696,243 square feet of gross leasable area (“GLA”) in 409 properties,with an average asking rental rate of $16.16 triple net. The US CensusBureau indicates the population of Hampton Roads is approximately1.7 million, resulting in a 30.41 square feet of retail supply per person.Certain methodological differences (e.g., the inclusion of freestandingbuildings and malls in this survey) make itdifficult to compare per capita supply inthe MSA to a national average statistic.

Hampton Roads consists of two markets, the Southside and Peninsula. The Southsidemarket has approximately 33,535,280 square feet, or roughly 66% of the total squarefootage in the market, in 273 properties. The average asking rent for small shop space de-creased by $.46 over 2008 to $16.32 triple net. In 2009 there was an increase in the vacancyrate of 1.61% to 8.09%, while new construction added 302,352 square feet to the Southsidemarket.

The Peninsula also experienced changes this past year. The 136 properties on thePeninsula that were surveyed combined for 18,160,963 square feet of product. The aver-age asking price of small shop space increased $.19 to $15.82 per square foot triple net. Thevacancy rate also increased from 9.97% to 13.18%. Although the increase in vacancy is moredramatic, it can be explained by the over-development in Williamsburg and the phasing inof the large Peninsula Towne Center project inHampton. The Peninsula Towne Center projectadded 895,000 square feet of new product ofwhich, by design, 479,000 square feet openedand were occupied in 2009. The grand openingof this project in March 2010 will likely further decrease the vacancy rate for the Peninsula.

Despite the increase in vacancy rate and re-duction of asking rents, overall both markets per-formed well in 2009. Moving forward into 2010, all aspects of retail real estate will be affected by lender actions, or lackthereof. Reasonable access to capital will be crucial for all participants in commercial real estate: tenants, landlords,investors and developers. We move forward focusing on the positive signs of upticks and activity in the market, whileacknowledging that 2010 may bring some challenges.

Hampton Roads Market Survey

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The Peninsula Towne Centerproject added 895,000square feet of new productof which, by design, 479,000square feet opened and wereoccupied in 2009.


2 0 1 0 R E T A I L

NewNumber of Construction Occupied AbsorptionProperties GLA in SF Vacant SF % Vacant in SF in SF in SF

2010Southside 273 33,535,280 2,714,514 8.09% 302,352 30,820,766 (288,440) Peninsula 136 18,160,963 2,392,710 13.18% 981,463 15,768,253 362,777Total 409 51,696,243 5,107,224 9.88% 1,283,815 46,589,019 31,183,543

2009Southside 265 33,265,028 2,155,822 6.48% 275,252 31,109,206 238,525 Peninsula 133 17,112,012 1,706,536 9.97% - 15,405,476 (109,898)Total 398 50,377,040 3,862,358 7.67% 275,252 46,514,682 128,627

2008Southside 263 33,086,160 2,215,479 6.70% 1,038,291 30,870,681 339,596Peninsula 133 17,133,079 1,617,705 9.44% 1,009,000 15,515,374 100,485Total 396 50,219,239 3,833,184 7.63% 2,047,291 46,386,055 440,081

2007Southside 259 32,407,761 1,876,676 5.79% 1,552,392 30,531,085 1,741,962Peninsula 131 16,895,155 1,480,266 8.76% 1,042,451 15,414,889 576,788Total 390 49,302,916 3,356,942 6.81% 2,594,843 45,945,974 2,318,750

2006Southside 246 30,852,210 2,063,087 6.69% 593,520 28,789,123 1,280,869Peninsula 129 16,337,458 1,499,357 9.18% 618,179 14,838,101 687,097Total 375 47,189,668 3,562,444 7.55% 1,211,699 43,627,224 1,967,966

2005Southside 243 30,184,395 2,676,141 8.87% 271,610 27,508,254 341,736Peninsula 125 15,799,778 1,648,774 10.44% 185,000 14,151,004 496,338Total 368 45,984,173 4,324,915 9.41% 456,610 41,659,258 838,074

2004Southside 243 30,336,266 3,169,748 10.45% 419,458 27,166,518 419,138Peninsula 127 16,094,161 2,027,477 12.60% 330,000 14,066,684 412,018Total 370 46,430,427 5,197,225 11.19% 749,458 41,233,202 831,156

2003Southside 245 30,180,691 3,433,311 11.38% 574,400 26,747,380 535,167Peninsula 126 15,546,085 1,891,419 12.17% 676,000 13,654,666 932,008Total 371 45,726,776 5,324,730 11.64% 1,250,400 40,402,046 1,467,175

2002Southside 239 29,760,443 3,548,230 11.92% 828,800 26,212,213 1,185,818Peninsula 123 14,906,530 2,183,872 14.65% 202,750 12,722,658 242,563Total 362 44,666,973 5,732,102 12.83% 1,031,550 38,934,871 1,428,381

2001Southside 230 29,436,515 3,760,087 12.77% 918,100 25,676,428 (158,181)Peninsula 121 14,477,970 1,997,875 13.80% 212,229 12,480,095 147,115Total 351 43,914,485 5,757,962 13.11% 1,130,329 38,156,523 (11,066)

2000Southside 220 28,816,383 2,933,294 10.18% 2,064,727 25,883,089 1,344,209Peninsula 118 15,249,617 2,012,637 13.20% 758,370 13,236,980 292,785Total 338 44,066,000 4,945,931 11.22% 2,823,097 39,120,069 1,636,994

1999Southside 208 27,089,939 2,551,059 9.42% 1,414,805 24,538,880 1,961,927Peninsula 112 14,548,482 1,604,287 11.03% 1,253,342 12,944,195 1,592,805Total 320 41,638,421 4,155,346 9.98% 2,668,147 37,483,075 3,554,732

1998Southside 195 25,463,588 2,886,635 11.34% No Data 22,576,953 No DataPeninsula 102 12,952,845 1,601,455 12.36% No Data 11,351,390 No DataTotal 297 38,416,433 4,488,090 11.68% No Data 33,928,343 No Data

Market Overview

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SOUTHSIDE SUBMARKETSThere were 25 retail submarkets on the Southside this year with an average size of 1,282,302 square feet per

submarket. The largest Southside markets were Greenbrier and Military Highway, with combined square footage of7,591,749 square feet. The Greenbrier/Battlefield submarket, at 4,140,568 square feet, has one of the lowest vacancyrates at 3.72%, and one of the highest small shop asking rates, at $19.57 per square foot triple net.

The range of vacancy rates in the Southside submarkets can be seen in the table below.

RETAIL SUBMARKETS

Average Number of Small ShopProperties GLA in SF Vacant SF % Vacant Rate PSF

Bay Front 5 272,051 14,841 5.46% $17.28

Birdneck/Oceanfront 4 191,655 29,117 15.19% $9.95

Campostella 6 332,904 82,675 24.83% $13.05

Chesapeake Square 9 2,111,322 68,100 3.23% $16.33

Churchland-Portsmouth/Harborview 14 1,041,880 133,156 12.78% $14.38

Dam Neck 7 1,509,037 33,557 2.22% $17.71

Downtown 3 1,281,338 28,475 2.22% $13.75

Ghent 10 431,588 66,463 15.40% $18.56

Great Bridge 18 1,349,846 163,930 12.14% $16.80

Greenbrier/Battlefield Boulevard 23 4,140,568 154,096 3.72% $19.57

Hilltop/Great Neck 12 1,534,848 70,814 4.61% $21.55

Holland/Green Run 10 863,663 40,842 4.73% $14.00

Indian River/College Park (Including Chesapeake) 4 482,309 74,265 15.40% $13.75

Kempsville 12 1,233,576 128,707 10.43% $15.88

Little Creek Road /Wards Corner/Ocean View 18 1,897,244 268,710 14.16% $14.62

Little Neck 11 1,441,219 145,651 10.11% $17.62

Lynnhaven Road (Virginia Beach Boulevard To Holland Road) 8 1,822,451 180,544 9.91% $18.40

Middle Portsmouth 15 1,620,465 170,884 10.55% $13.21

Military Highway/Janaf 17 3,451,181 189,231 5.48% $14.62

Newtown 10 534,504 76,245 14.26% $13.33

ODU 1 39,691 8,675 21.86% $19.00

Pembroke 24 2,811,994 429,863 15.29% $16.17

Princess Anne Road

(From Kempsville Road To Holland Road) 14 1,809,522 70,158 3.88% $17.71

Smithfield 5 279,764 5,436 1.94% $17.00

Suffolk 13 1,050,660 80,079 7.62% $17.90

Total 273 33,535,280 2,714,514 8.09% $16.32

Southside by Submarket


2 0 1 0 R E T A I L

PENINSULA SUBMARKETSThere were 10 retail submarkets on Peninsula with an average size of 1,816,096 square feet. The two largest

Peninsula submarkets are now Patrick Henry and Williamsburg. The Patrick Henry submarket, anchored by a regionalmall, has the lowest vacancy rate on the Peninsula. Williamsburg, without a regional mall, has found that its newdevelopments, for the most part, have been less than successful.

The Patrick Henry submarket continues to be one of the most desired submarkets in Hampton Roads. With4,427,594 square feet and a vacancy rate of just 2.73%, Patrick Henry welcomed The Fresh Market and hhgregg to itstenant mix in 2009.

In the Hampton Roads market, the Neighborhood Center remains the predominant product type with 160properties and over 12 million square feet of GLA. The Community Centers comprised over 10 million square feet, withboth product types showing nominal decreases in the average rental rate and vacancy.

Average Number of Small ShopProperties GLA in SF Vacant SF % Vacant Rate PSF

Coliseum Central 15 3,385,870 730,046 21.56% $19.09

Denbigh 14 1,458,299 305,350 20.94% $13.67

Foxhill/Buckroe/East Mercury 7 725,224 101,407 13.98% $13.80

Gloucester 9 1,069,924 226,694 21.19% $13.50

Hampton Misc 2 118,972 19,470 16.37% $10.75

Newmarket/Main (To Include Hampton) 13 1,389,156 258,124 18.58% $10.56

Patrick Henry/Oyster Point/Kiln Creek 32 4,427,594 120,837 2.73% $17.97

Poquoson 2 108,521 7,650 7.05% $15.00

Williamsburg 32 4,672,080 564,264 12.08% $19.07

York County 10 805,323 58,868 7.31% $13.50

Total 136 18,160,963 2,392,710 13.18% $15.82

Peninsula By Submarket

Retail Product Type

19

Total Retail Product By Type

New AverageNumber of Construction Small Shop Average Properties GLA in SF in SF Vacant SF % Vacant Rate PSF CAM PSF

Neighborhood Center 160 12,142,531 379,611 1,384,113 11.40% $15.21 $2.52

Community Center 57 10,046,893 - 1,237,966 12.32% $15.96 $2.42

Fashion/Specialty Center 10 1,485,711 - 99,606 6.70% $24.12 $3.97

Power Center 29 10,035,863 17,704 933,848 9.31% $20.58 $3.11

Theme Festival Center 1 100,000 - - No Data No Data No Data

Outlet Center 1 349,927 - - No Data No Data No Data

Other 64 2,374,569 11,500 268,159 11.29% $16.11 $2.90

Freestanding 77 7,832,145 - 523,269 6.68% $8.60 $2.50

Mall 10 7,328,604 875,000 660,263 9.01% $23.50 $17.65

Total 409 51,696,243 1,283,815 5,107,224 9.88% $16.16 $2.62


Neighborhood Center 113 8,684,474 273,148 999,763 11.51% $15.35 $2.53

Community Center 37 6,163,976 - 590,161 9.57% $16.01 $2.42

Fashion/Specialty Center 8 1,005,711 - 63,214 6.29% $24.12 $3.97

Power Center 19 5,952,816 17,704 375,667 6.31% $20.09 $3.11

Theme Festival Center 1 100,000 - - No Data No Data No Data

Outlet Center - - - - No Data No Data No Data

Other 44 1,545,485 11,500 143,534 9.29% $16.44 $2.90

Freestanding 44 4,523,821 - 290,400 6.42% $9.25 $2.50

Mall 7 5,558,997 - 251,775 4.53% $15.00 No Data

Total 273 33,535,280 302,352 2,714,514 8.09% $16.32 $2.69


Neighborhood Center 47 3,458,057 106,463 384,350 11.11% $14.90 $2.16

Community Center 20 3,882,917 - 647,805 16.68% $15.88 $2.35

Fashion/Specialty Center 2 480,000 - 36,392 7.58% No Data $5.55

Power Center 10 4,083,047 - 558,181 13.67% $21.35 $2.72

Theme Festival Center - - - - No Data No Data No Data

Outlet Center 1 349,927 - - No Data No Data No Data

Other 20 829,084 - 124,625 15.03% $15.45 $2.50

Freestanding 33 3,308,324 - 232,869 7.04% $8.17 $1.42

Mall 3 1,769,607 875,000 408,488 23.08% $32.00 $17.65

Total 136 18,160,963 981,463 2,392,710 13.18% $15.82 $2.49

Southside By Type

Peninsula By Type


Retail Submarkets

Southside

1 Bayfront

2 Birdneck/Oceanfront

3 Campostella

4 Chesapeake Square

5 Churchland/Harbourview

6 Dam Neck

7 Downtown Norfolk

8 Ghent

9 Great Bridge

10 Greenbrier/Battlefield Boulevard

11 Hilltop/Great Neck

12 Holland/Green Run

13 Indian River/College Park

14 Kempsville

15 Little Creek Road/Wards Corner

16 Little Neck

17 Lynnhaven

18 Middle Portsmouth

19 Military Highway/Janaf

20 Newtown

21 ODU

22 Pembroke

23 Princess Anne

24 Smithfield

25 Suffolk

Peninsula

26 Coliseum Central

27 Denbigh

28 Foxhill/Buckroe

29 Gloucester

30 Hampton Miscellaneous

31 Patrick Henry

32 Poquoson

33 Newmarket/Main

34 Williamsburg

35 York County

21


Big Box Vacancy in Hampton Roads increased in 2009 to 2,091,398 square feet. This number represents 41% ofthe retail vacancy in the total market, an increase of 302,905 square feet over last year’s numbers. More than half of thisincrease can be attributed to the relocation of Target in Hampton, and the closing of Ukrop’s and Old Navy inWilliamsburg. As a result of the new Big Box Vacancy in Hampton Roads, new retailers such as hhgregg, the US CoastGuard Exchange, and The Restaurant Depot entered the market.

Big Box Vacancy

2 0 1 0 R E T A I L

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Southside 1,316,595 1,607,323 2,073,115 2,207,416 2,220,935 1,906,391 1,513,523 1,142,319 957,887 948,288 907,688 1,102,093

Peninsula 864,474 1,232,255 1,328,841 1,435,489 1,407,021 1,556,029 1,141,207 982,263 819,163 827,360 880,805 989,305

TOTAL 1,950,441 2,839,578 3,401,956 3,642,905 3,627,956 3,462,420 2,654,730 2,124,582 1,777,050 1,775,648 1,788,493 2,091,398

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

SouthsidePeninsulaTOTAL

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Vac

ant

Squa

re F

eet

Vacancy By Submarket

Big Box Vacancy

SOUTHSIDE

BAY FRONTBayside I & II A 79,397Cape Henry Plaza A 58,424Kroger H 47,000Marina Shores G 29,000

BIRDNECK / OCEANFRONTBirdneck SC A 65,460Farm Fresh H 29,296Harris Teeter H 48,000Linkhorn Shops A 48,899

CAMPOSTELLA Atlantic Commons A 63,393Bainbridge Marketplace A 46,444Campostella Corner A 43,375George Washington

Commons A 44,942Holly Point SC A 65,321Southgate Plaza A 69,429

CHESAPEAKE SQUAREBJ’s H 115,660Chesapeake Center B 270,602Chesapeake Square Mall I 800,000Crossroads Center at

Chesapeake Square D 225,000Food Lion @ Chesp. Sq. H 45,000Home Depot H 130,060Lowes H 115,000Taylor Road Plaza A 60,000Wal-Mart Supercenter/

Sam’s Club H 350,000

CHURCHLAND / PORTSMOUTH / HARBOURVIEW

Academy Crossing G 45,483Churchland Blvd SC (Formerly Farmco Plaza)

A 52,966Churchland Place Shoppes G 21,000Churchland SC A 149,741Churchland Square A 72,189Grand H 30,000

Harbourview Station East D 217,308Harbourview Station West D 83,007Lowes (Churchland) H 55,000Marketcenter at Harbourview A 65,750Marketplace Square A 12,461Poplar Hill Plaza B 102,326Sterling Creek A 75,660Town Point Square A 58,989

DAM NECKDam Neck Crossing B 138,571Dam Neck Square A 67,917General Booth Plaza A 73,320Red Mill Commons D 750,000Red Mill Walk B 240,000Sandbridge SC A 66,800Strawbridge Marketplace A 172,429

DOWNTOWNChurch Street Crossing A 51,000MacArthur Center Mall I 1,100,000Waterside Festival MarketplaceI 130,338

GHENT201 Twenty One A 15,61621st Street Pavilion G 21,000Center Shops A 139,081Colley Village A 44,585Farm Fresh H 40,000Ghent Place G 13,000Harris Teeter H 27,000Palace Shops I, II C 71,794Palace Station G 38,000The Corner Shops G 21,512

GREAT BRIDGE Cahoon Commons D 215,000Cedar Lakes Center A 35,396Centerville Crossing A 50,000Crossings at Deep Creek A 68,970Dominion Marketplace A 73,103Dominion Plaza SC A 63,733Former Winn Dixie H 50,000Glenwood Square A 73,859Great Bridge SC A 156,937Hanbury Village A 100,560Harbor Watch Shoppes G 21,505Las Gaviotas A 82,000Millwood Plaza G 16,930Mt. Pleasant Shopping Center A 100,000Mt. Pleasant Village A 39,970Wilson Village A 52,500Woodford Shoppes B 9,760Woodford Square B 139,623

GREENBRIER / BATTLEFIELD BOULEVARD

Battlefield Marketplace G 30,000Chesapeake Crossing B 287,679

Crossways Center I & Eden Way Shops D 438,725

Crossways II D 152,686Edinburgh Commons D 195,111Edinburgh East D 133,000Gainsborough Square A 88,862Greenbrier Mall I 809,017Greenbrier Market Center D 487,580Greenbrier South SC A 97,500Home Depot H 130,060K-Mart/OfficeMax H 165,000Knell’s Ridge Square G 40,000Lowes H 114,000Orchard Square A 88,910Parkview @ Greenbrier A 83,711Regal Cinemas H 60,763The Shoppes at Greenbrier G 40,000Towne Place at Greenbrier C 127,109Village Square G 15,000Volvo Parkway SC G 41,874Wal-Mart Way Crossing G 80,160Wal-Mart/Sam’s Club/Kohl’s D 433,821

HILLTOP / GREAT NECK Great Neck Square A 93,887Great Neck Village A 73,836Hilltop East C 100,000Hilltop North B 202,511Hilltop Plaza B 152,025Hilltop Square B 270,093Hilltop West G 60,000La Promenade C 63,280Marketplace at Hilltop C 113,000Regency Hilltop B 236,549Renaissance Place G 47,667Target H 122,000

HOLLAND / GREEN RUNAuburn Place A 42,709Chimney Hill B 207,175Green Run Square A 75,000Holland Plaza SC A 165,663Holland Windsor Crossing B 47,400Lowes H 125,323Lynnhaven Green A 50,838Rosemont Center A 12,700Shipps Corner A 63,355Timberlake SC A 73,500

INDIAN RIVER / COLLEGE PARKCollege Park I & II B 181,902Indian River Plaza B 126,017Indian River SC A 123,752Tidewater Plaza A 50,638

KEMPSVILLE Arrowhead Plaza A 97,006Fairfield SC B 239,763Kemps Corner Shoppes G 25,929

The following is a list of the properties included in this year’ssurvey listed by submarket with acode representing the type ofproperty. The GLA of the propertyis also listed. A Neighborhood Center B Community Center C Fashion/Specialty Center D Power Center E Theme Festival

F Outlet Center G Other H Freestanding I Mall

23


2 0 1 0 R E T A I L

Kemps River Center A 62,507Kemps River Crossing B 245,268Kempsville Crossing A 111,394Kempsville Plaza A 60,778Parkway Marketplace A 26,602Providence Square SC A 135,915University Shoppes A 26,100Woods Corner A 152,314

LITTLE CREEK ROAD / WARDS CORNER/ OCEAN VIEW

Ames/Kroger B 140,568Dollar Tree Shopping Center A 51,415East Beach Shoppes A 63,000Farm Fresh - Little Creek H 66,000Glenwood Shoppes A 53,255Little Creek and Tidewater

Shops B 119,820Little Creek East SC B 202,000Little Creek Square A 82,300Meadowbrook S C G 27,260Mid-Town A 75,768Mid-Way SC G 31,000Ocean View SC A 73,658Roosevelt Gardens SC A 109,175Southern SC B 258,035Suburban Park B 127,450Super Wal-Mart H 225,000Wards Corner Strip A 61,540Wedgewood SC A 130,000

LITTLE NECK Birchwood SC A 358,635Home Depot H 130,060Kroger H 45,000London Bridge Plaza B 120,000Lowes H 160,000Lynnhaven Convenience G 36,900Lynnhaven Shopping Center B 191,136Princess Anne Plaza West C 77,558Regatta Bay Shops G 60,000Sam’s Club Plaza D 248,604

LYNNHAVEN ROAD Lynnhaven Crossing G 55,550Lynnhaven East B 97,303Lynnhaven Mall I 1,293,100Lynnhaven North B 176,254Lynnshores Shopping Center G 12,692Lynnway Place G 30,213Parkway Plaza G 44,227Wal-Mart H 113,112

MIDDLE PORTSMOUTHAfton SC A 106,500Alexander’s Corner

Shopping Center A 50,826

Airline Marketplace A 69,000Airline Plaza A 99,549Elmhurst Square A 66,250Gilmerton Square G 43,236Manor Commerce Center G 67,060Manor Shops G 14,573Olde Towne Market Place A 38,200Rodman SC A 45,000Super Wal-Mart H 200,000Triangle SC A 82,430Victory Crossing D 356,000Victory West Shopping Center A 167,102Williams Court B 214,739

MILITARY HIGHWAY / JANAF3455 Azalea Garden Road A 73,180Best Square B 140,030Broad Creek SC D 205,417Bromley SC A 106,200CostCo H 110,000Dump/Mega Office G 115,854Farm Fresh H 60,000Food Lion #170 H 41,000Grand Outlet H 35,000Janaf D 878,381Lowes H 115,000Military Crossing D 195,003Military Triangle G 10,061Northampton Business

Center G 85,000Super K-Mart & Shoppes B 200,000Super Wal-Mart H 224,513The Gallery @ Military Circle I 856,542

NEWTOWNCypress Plaza SC A 59,012Cypress Point A 117,958Diamond Springs North

(Shopping Center) A 23,880Newpointe SC A 92,978Newtown Baker Crossing A 91,687Newtown Center G 19,876Newtown Convenience

Center G 19,800Thomas Corner SC G 23,557Weblin Square G 31,552Wesleyan Commons

Shopping Center A 54,204

ODUUniversity Village G 39,691

PEMBROKEAragona SC A 69,700Best Buy H 45,000Circuit City H 38,414Collins Square A 123,870

Columbus Village East A 63,000Columbus Village

Entertainment Center E 100,000Dean Plaza (Former HQ) D 140,000Former Bloom Brothers H 50,400Giant Square B 150,000Goodwill H 34,000Haverty’s H 55,000Haygood SC B 178,533Haynes H 228,000Hunter’s Mill Shoppes G 22,827Loehmann’s Plaza C 139,380Northern Super Center G 36,588Pembroke East B 27,200Pembroke Mall I 570,000Pembroke Meadows SC A 81,592Pembroke Place B 165,000Pembroke Plaza G 34,900Roomstore H 50,000The Town Center of

Virginia Beach C 313,590Value City H 95,000

PRINCESS ANNE ROADBrenneman Farm SC A 227,217Courthouse Marketplace A 122,000Home Depot H 260,000Kempsville Marketplace A 71,460Landstown Commons D 505,766Lynnhaven Square S C G 22,933Parkway SC A 64,820Pleasant Valley Marketplace A 86,107Princess Anne Marketplace B 209,500Princess One SC A 84,725Salem Crossing D 92,407Salem Lakes SC A 37,087Woodtide SC A 25,500

SMITHFIELDCypress Run SC G 25,000Eagle Harbor A 77,400Shoppes at Eagle Harbor A 23,000Smithfield Plaza B 89,120Smithfield Square A 65,244

SUFFOLKBennetts Creek Crossing A 109,812Bennetts Creek Food Lion A 64,544Harbor View Shoppes A 17,000Holland Plaza A 69,345Kensington Square A 60,000Lowes H 150,000Oak Ridge A 38,700Suffolk Plaza B 174,221Suffolk Plaza West A 60,000Suffolk SC B 85,803Suffolk Specialty Shops G 15,200

25

Suffolk Village SC G 11,875Wal-Mart Super Center H 194,160

PENINSULA

COLISEUM CENTRALColiseum Corner A 49,267Coliseum Crossing B 221,004Coliseum Marketplace A 86,681Coliseum Specialty Shops G 15,026Coliseum Square G 45,041Hampton Towne Centre D 376,100Hampton Woods A 89,092Home Depot H 130,060Peninsula Towncenter I 875,000Riverdale Plaza D 280,133Sports Authority H 40,000Target H 122,000The Power Plant D 621,150Todd Center & Todd Lane

Shops B 242,000Wal-Mart Super Center H 193,316

DENBIGHBeaconsdale SC A 28,000Denbigh Speciality Shops G 24,504Denbigh Village Centre B 334,299Ferguson Center G 118,000Former Hills Denbigh H 86,589Jefferson Crossing

(formerly Denbigh Crossing) A 145,000Kmart H 115,854Lee Hall Plaza A 36,000Newport Crossing B 200,088Richneck Shopping Center A 63,925Stoneybrook Shopping Center A 74,340Turnberry Crossing A 53,775Village Square A 40,000Warwick Denbigh SC B 137,925

FOXHILL / BUCKROE / EAST MERCURYBuckroe SC A 89,594Farm Fresh Phoebus H 39,000Kmart H 94,500Langley Square A 154,103Marketplace @ Nickerson A 70,450Nickerson Plaza A 83,849Willow Oaks Village Square S.C. B

193,728

GLOUCESTER6513 Market Drive H 92,273Food Lion H 40,000Hayes Plaza SC A 52,651Hayes SC A 100,000Home Depot H 100,000Lowe’s H 125,000

Wal-Mart Super Center H 220,000Winn Dixie Marketplace B 165,000York River Crossing B 175,000

HAMPTON MISCELLANEOUSKecoughtan SC A 64,327The Shops at Hampton Harbor G 54,645

NEWMARKET / MAIN4113 W Mercury Blvd. H 49,7704205 W. Mercury Blvd. H 28,080Brentwood SC A 53,600Dresden SC G 35,000Forest Park Square B 150,000Francisco Village A 55,865Hampton Plaza B 173,199Hilton SC A 74,000Midway Shopping Center G 58,780Newmarket South D 368,085Plaza @ Newmarket B 117,377Warwick Center A 150,000Warwick Village A 75,400

PATRICK HENRY / OYSTER POINT / KILN CREEK

Bayberry Village A 72,883Best Buy Building H 135,000City Center C 230,000Commonweatlh Center G 30,279Fairway Plaza G 37,950Glendale SC G 30,000Grand Furniture H 35,000Harris Teeter H 52,334Haverty’s H 45,000Haynes H 170,000Hidenwood SC A 108,000Jefferson Commons D 400,000Jefferson Greene G 57,430Jefferson Plaza D 178,200Kroger H 55,000Lowes H 120,000Market Place @ Oyster Point A 69,660Newport Marketplace D 450,000Newport Square B 184,126Office Depot H 30,122Oyster Point Plaza A 73,197Oyster Point Square A 83,089Patrick Henry Mall I 714,607Patrick Henry Place A 96,391Sam’s Club H 133,880The Shoppes at Oyster Point G 30,000Victory Center @ Kiln Creek A 61,000Village Square @ Kiln Creek B 263,000Villages of Kiln Creek G 45,300Wal-Mart Super Center H 201,146Yoder Plaza SC D 235,000

POQUOSONPoquoson SC A 57,458Wythe Creek Plaza SC A 51,063

WILLIAMSBURGColony Square A 66,806Ewell Station A 68,048Festival Marketplace G 16,216Gallery Shops G 18,187Governor’s Green SC A 100,000Home Depot H 130,000James York Plaza B 137,708Kingsgate Green B 138,348Lowes H 163,000Marketplace Shoppes G 26,626Marketplace Shopping

Center A 36,000Monticello Marketplace B 299,792Monticello SC A 82,000Newtown C 250,000Norge Crossing H 52,000Olde Towne SC G 30,000Prime Outlets F 349,927Quarterpath Crossing A 85,600Settlers Market at New Town B 195,000Staples H 37,400The Marquis (Phase I) D 1,000,000Village Shops at Kingsmill G 82,200Wal-Mart SuperCenter H 210,000Williamsburg Crossing A 149,933Williamsburg Farm Fresh A 79,188Williamsburg Marketcenter B 120,920Williamsburg Outlet Mall I 180,000Williamsburg Pavillion Shops G 50,000Williamsburg SC I & II B 251,000Williamsburg

Towne and Cnty A 49,802WindsorMeade

Marketplace D 174,379Yankee Candle H 42,000

YORK COUNTYGrafton SC A 32,000Heritage Square A 73,665Kiln Creek Center A 45,700Marketplace @ Yorktown A 73,050Patriots Square A 47,231Shady Banks SC A 57,654Wal-Mart SuperCenter H 220,000Washington Square

Shopping Center B 183,403York Square A 48,720Yorkshire Downs G 23,900

HAMPTON ROADS

REAL ESTATE

MARKET REVIEW

INDUSTRIALAuthor William C. Throne, SIOR, CCIM, ALC

Data Stephanie Sanker, SIOR, CCIM

Preparation

Survey Stephanie Sanker, SIOR, CCIM

Coordination

Reporters Greenbrier Christine KaempfeBainbridge/S. Elizabeth River Area Chip WorleyCavalier Industrial Park Pat Mumey

& Scott WermersNorfolk Commerce Park/Central Norfolk Area Worth RemickNorfolk Industrial Park Charles DickensonWest Side/MidTown Norfolk Area Billy KingLynnhaven Brian BakerGreenwich/Cleveland Streets Area Bobby BeasleyAirport Industrial Area Bobby BeasleyPortsmouth Abe EllisSuffolk Bill ThroneIsle of Wight Billy KingCopeland/Lower Peninsula Clay CulbrethOyster Point/Middle Peninsula Area Bobby PhillipsOakland/Upper Peninsula Area Clay CulbrethWilliamsburg Extended Area Bobby Phillips

Financial The E. V. Williams Center for Real Estate and Economic DevelopmentSupport (CREED) functions and reports are funded by donations from

individuals, organizations and the CREED Council.

Disclosure The data used for this report are deemed reliable; however, neitherOld Dominion University, the E. V. Williams Center for Real Estate andEconomic Development, nor sponsoring companies and/or individu-als makes any representation or warranty as to its accuracy.

27


This survey includes the following types of properties:

■ Office-warehouse, industrial and shop facilities of 5,000 square feet or greater, although some facilities of less than5,000 may be included.

■ Properties having less than 80% office space.

■ Both owner-occupied and leased properties; owner-occupied is defined as property that is 100% occupied by abusiness that is the same as or is related to the owner of the building.

■ All properties that are available and are listed for sale or lease, regardless of whether they are occupied, unless theyare strictly available for sale as an investment property are included. For example, a property that is available forsale and is currently occupied on a short term lease is included.

■ All properties that have commenced construction (foundations installed as a minimum) are included.

The survey excludes the following types of properties:

■ Land.

■ Warehouse or shop facilities on shipyard properties.

■ Warehouse or industrial facilities on federal government property (e.g. military installations).

■ Industrial facilities on government property (e.g. Norfolk International Terminal or Newport News Marine Terminal).

Methodology

This report analyzes the 2009 industrial real estate conditions within the Virginia Beach-Norfolk-Newport News, VA-NC Metropolitan Statistical Area (the MSA), also known asHampton Roads. It provides inventory, vacancy, rent, sale and other data for the MSA. Thesurvey includes properties in the cities of Chesapeake, Hampton, Newport News, Norfolk,Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg, plus the counties ofGloucester, James City, York and Isle of Wight.


2 0 1 0 I N D U S T R I A L

Functional submarket delineations are determined with some regard to city boundaries, but boundaries are not de-terminative. The entire market is divided into 16 submarkets defined by industrial building concentrations, the trans-portation network, and pertinent physical features. The area map included in this report provides a location for keyreference.

The E.V. Williams Center for Real Estate and Economic Development (CREED) at Old Dominion University has beentracking the inventory of the Hampton Roads industrial market since 1995. The results of this year’s survey (collected

during the 4th quarter of 2009) indicate that the HamptonRoads industrial market currently encompasses 108,722,115square feet or space located in 2,876 buildings throughoutthe region. This is an increase of 4,304,462 square feet, or4.1% from last year’s survey. The increase is primarily due todelivery of new construction in 2009 begun in 2007/2008and increased accuracy of surveyors over previous years.Totals may differ from other market surveys due to the self-imposed limitations established by the ODU CREEDmethodology described above.

Dissecting The MarketThe Hampton Roads industrial market is driven by three major forces: the government, the port, and the local econ-

omy. Building size, configuration and overall composition is shaped by these three forces. Four different product typesemerge to serve the region:

a. Distribution: Services the port and the military. Offers dock level loading and clear heights in excess of 22 feet.

b. Flex, sales and service: Offering a higher percentage of office area to warehouse, with lower ceiling heights inthe production and warehouse area. Can require supporting yard area.

c. General Industrial: Typically multi-tenant and smaller space designed for a broad range of industry typesproviding moderate clear height, grade and dock level loading and a 10-20% office build-out.

d. Manufacturing: Traditional blend of office, manufacturing, shipping and receiving, with facilities specificallydesigned for each specific use. Usually owner-occupied.

Hampton Roads has been buffeted by the global economy specific to distribution space. The area continues to suffer from the glut of existing and new product. With TEU volume down 17.4% through November 2009 in comparisonto 2008, much of the space is expected to continue to sit idle. Asking lease rates for new construction distribution spaceexceeded $5.00 NNN per square foot per year in 2008. The current ‘market’ for Class A space is hovering at $4.00 NNNper square foot. Sublease space has leased for as low as $1.00 NNN per square foot.

This downward trend in rates is expected to hit bottom in 2010 for new, highly functional space. Modest absorptionis expected. Second generation warehouse with limited loading and/or reduced clear heights will continue to languishas rental rates for Class A space hits a practical bottom, with no reduction left for lesser quality product.

Flex and general industrial space has also suffered in the current recession. Specifically, the building and service sup-port industries have pulled back, but not abandoned the Hampton Roads market. The demographic strength of the re-gion coupled with anticipated migration trends from rust belt states continues to make the area an attractive market.Most companies that operate here plan to continue, perhaps with some reduction in size. Other national and regional

29

The results of this year’s survey (collectedduring the 4th quarter of 2009) indicate thatthe Hampton Roads industrial market currentlyencompasses 108,722,115 square feet or spacelocated in 2,876 buildings throughout theregion. This is an increase of 4,304,462 squarefeet, or 4.1% from last year’s survey.


companies have been active in establishing a presence.Market uncertainty has forced most landlords to reduce rents in

exchange for continued tenancy. Companies with leases rolling over in2009 chose either to move to smaller facilities or negotiate reducedrental rates. While distribution space has seen lease rate reductions of25% or more, flex and general industrial rents have suffered a moremodest 10-15% decline over 2008.

Statistically, manufacturing facilities in large measure are owneroccupied. Manufacturing properties that come to market are mostoften for sale and do not compete directly with the lease market. Un-fortunately, manufacturing buildings such as the Ford plant in Norfolkdramatically contribute to overall vacancy. Due to their specialized na-ture, they are often on the market for extended periods. The recent

closing of the Interna-tional Paper plant inFranklin resulted in build-ings placed on the mar-ket in the Cavaliersubmarket (Chesapeake:127,600 square feet) andin the Oakland UpperPeninsula submarket (Newport News: 268,750 square feet). The effect

these buildings had on vacancy was to add 2.1% to the Cavalier submarket and 5.52% to the Oakland Upper Peninsulasubmarket.

Vacancies in 2010 should stabilize due to a combination of no new construction and continued modest absorption.Manufacturing may suffer further in 2010 with plant closures if the U.S. economy does not rebound.

The Effect Of The General Economy On The Local Market

The global economy, U.S. public policy decisions, and private sector reaction has affected the real estate market inHampton Roads, as it has in the broader national industrial market.

1. Lending has been significantly curtailed. New construction lending for speculative building is practically non-existent. Investment lending is coming under increased scrutiny in keeping with national trends. Debt coverage,appraised values, cash flow discounts for vacancy/credit loss/management are increasing, and loan to values aresubsequently falling to ‘conservative’ lows.

Tom Dillon, Senior Vice President with Fulton Bank, a strong regional bank, believes we are back to a more normal, healthy lending climate: less risk, with more measured and realistic underwriting criteria reminiscent ofthe banking environment prior to the recent market run-up. Fulton Bank is still lending locally to the industrialsector, as are other regional banks such as BB&T, Towne Bank, and Bank of Hampton Roads.

2. The global slowdown in import and export container traffic has had a significant effect on industrial space in theregion. The current glut of distribution space is directly attributable to diminished port activity.

Fulton Bank is still lendinglocally to the industrial sector, asare other regional banks such asBB&T, Towne Bank, and Bank ofHampton Roads.

2 0 1 0 I N D U S T R I A L

31

10.210.9

13.5

12.3

10.8

6.4

7.4 7.5

5.99 6.13

5.2

5.87

10.51

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

15%

12%

9%

6%

3%

0%

11.1

Hampton Roads Industrial Market Vacancy Rate

8.7 8.6

7.3 7.6

9.2

3. Business expansion and relocation plans for many corporations were put on hold for most of 2009. Business ex-penses associated with potential health care reform, proposed tax changes, and environmental legislation havecreated uncertainty in corporate planning. This has, in turn, tabled most facility decisions.

The net effect on the industrial market throughout 2009 has been a slowing in deal volume. National industrial leasing activity in 2009 fell to 230.8 million square feet according to Cushman and Wakefield’s 4Q09 Marketbeat US Industrial Report. This is significantly less than the ten year average of 293.5 million square feet. Construction in the fourthquarter of 2009 of 13.5 million square feet was one of the lowest totals ever recorded. Investor sales totaled only 60.5million square feet, the lowest amount recorded since 1991.

REAL Capital Analytics recorded similar trends in their Industrial Year in Review published January 21, 2010. 2009 dealvolume was off by 63%. Total number of industrial properties sold was down 58%.

For Hampton Roads, 20 buildings were sold in 2009 in comparison to 35 for 2008 for a 43% reduction. Lease volumeshared a similar downward trend in 2009 in comparison to 2008, with 2.7 million square feet of leasing in 2009 comparedto 3.1 million in 2008.


Market Overview There are a number of bright spots in the Hampton Roads industrial market. The ODU CREED Market Report is

defined by sixteen submarkets. Out of those sixteen submarkets:

a. Six submarkets (37.5%) have lowered vacancy rates since last years report.

b. Six submarkets (37.5%) have a vacancy rate less than 8%.

c. Four submarkets (25.0%) have a vacancy rate less than 6%.

d. Two submarkets (12.5%) have a vacancy rate less than 5%.

As a whole, the Peninsula fared well in 2009, primarily with the leasing of large blocks of sublease space. Vacancyin total for the Peninsula dropped from 10.08% to 9.49%, with all but the Oyster Point/Middle Peninsula submarketsregistering drops in vacancy.

Overall, vacancy for 2009 in Hampton Roads increased moderately in comparison to 2008.

Sales

2 0 1 0 I N D U S T R I A L

Representative Building Sales:

Location/Submarket Date Sq. Ft. Price $/SF

875 Middleground Boulevard, Oyster Point January 2009 62,052 $5,161,370 $83.13

3749 Progress Road, Norfolk Industrial May 2009 52,553 $3,200,000 $60.89

1425 Air Rail Road, Virginia Beach September 2009 5,000 $421,500 $84.30

129 Pennsylvania, Virginia Beach September 2009 8,550 $450,000 $52.63

3728 Profit Way, Chesapeake September 2009 32,500 $2,240,000 $73.44

415 Rotary Street, Hampton October 2009 12,000 $605,000 $50.42

11850 Canon Boulevard, Newport News June 2009 20,292 $1,500,000 $73.92

Financing is the challenge for 2010. Owner-buyers will find regional banks receptive, while investors will have adifficult time meeting underwriting requirements. Banks are requiring higher loan-to-values and stronger cash flows tofind favor with loan committees.

Leasing

33

Representative Lease Rates:

Location/Submarket Sq. Ft. $/SF Per Year Term

200 West Park, Hampton 56,129 $4.75 5 year

500 Woodlake Circle, Greenbrier 11,000 $6.30 5 year

101 Lummis Road, Suffolk 35,000 $3.50 2 year

4500 Progress Road, Norfolk 44,000 $3.75 5 year

4021 Seaboard Court, Portsmouth 6,500 $9.23 2 year

680 Carolina Road, Suffolk 7,695 $4.05 3 year

Begin Size (s.f.) 2001 2002 2003 2004 2005 2006 2007 2008 2009

< 5,000 $6.34 $7.16 $6.95 $7.30 $7.75 $7.85 $7.90 $7.95 $6.50-$7.00

5,000 - 20,000 $4.46 $5.80 $5.89 $6.20 $6.50 $6.75 $6.95 $6.95 $5.00-$6.00

20,000 - 40,000 $4.35 $4.99 $5.21 $5.45 $5.75 $5.85 $5.90 $5.75 $4.75-$5.50

40,000 - 60,000 $4.15 $4.13 $4.44 $4.75 $4.95 $5.00 $4.75 $4.50 $4.00-$5.00

> 60,000 $3.24 $3.43 $3.15 $4.00 $4.30 $4.35 $4.25 $4.00 $3.25-$4.25

Begin Size (s.f.) 2001 2002 2003 2004 2005 2006 2007 2008 2009

< 5,000 30% 15% 32% 25% 30% 25% 20% 23% 18%

5,000 - 20,000 40% 52% 44% 40% 42% 30% 15% 13% 23%

20,000 - 40,000 15% 18% 12% 15% 13% 15% 20% 17% 17%

40,000 - 60,000 9% 8% 7% 8% 6% 10% 20% 20% 15%

> 60,000 6% 7% 5% 12% 9% 20% 25% 27% 27%

Rents For Available Spaces By Size Range 2009

Percentage Of Available Spaces By Size Range 2009

Land sales were non-existent in 2009. Financing for speculative development was unavailable. Land owners werenot in the mood to discount prices. That trend is not expected to change in 2010, with most industrial land owner’scontent to hold and wait out the current downturn in value.

InvestmentThere were few investment sales traded in 2009. Most out-of-town investors looked for ‘vulture’ buys, which to date

have not materialized. Local cash buyers are content to wait to see if the market erodes further before spending theirfunds. ‘Keep your powder dry’ was a phrase most often heard in investment circles.

Land


Submarket Totals

BldgsSubmarket City Surveyed Total s.f. Vacancy s.f. Vacancy %

Greenbrier Area Chesapeake 202 8,469,468 749,882 8.85%

Bainbridge/S. Elizabeth River Area Chesapeake 142 5,877,538 489,508 8.33%

Cavalier Industrial Park Area Chesapeake 188 6,045,061 555,686 9.19%

Norfolk Commerce Park/ Norfolk 144 7,080,388 2,719,450 38.41%Central Norfolk Area

Norfolk Industrial Park Area Norfolk 348 10,372,544 1,399,257 13.49%

West Side/Midtown Norfolk Area Norfolk 271 6,463,281 443,771 6.87%

Lynnhaven Area Virginia Beach 278 7,994,242 1,015,633 12.70%

Greenwich/Cleveland Streets Area Virginia Beach 125 3,089,916 184,214 5.96%

Airport Industrial Park Area Virginia Beach 71 3,611,776 349,086 9.67%

City of Portsmouth Portsmouth 154 4,775,530 262,595 5.60%

City of Suffolk Suffolk 123 11,762,676 2,249,644 19.13%

Isle of Wight Isle of Wight 28 2,658,340 756,216 28.45%

Southside Totals 2,074 78,200,760 11,179,842 14.29%

Copeland/Lower Peninsula Area Peninsula 400 12,213,348 2,041,608 16.72%

Oyster Point/Middle Peninsula Area Peninsula 128 4,430,793 192,957 4.35%

Oakland/Upper Peninsula Area Peninsula 133 4,872,279 303,221 6.22%

Williamsburg Extended Area Peninsula 60 9,004,935 359,143 3.99%

Peninsula Totals 721 30,521,355 2,896,929 9.49%

Totals 2,876 108,722,115 14,076,771 12.95%

2 0 1 0 I N D U S T R I A L

“Hampton Roads was one of the first areas of the country outside the commodity-producing states of Texas and theupper Midwest to commence economic recovery. The Brookings Institute’s MetroMonitor project reported a 1.4% increasein gross metropolitan product (GMP) over the third quarter, and GMP now exceeds the pre-recession peak set in the fourthquarter of 2008. November’s not-seasonally-adjusted unemploymentrate was 6.6 %, still above historical averages, but 2.8 percentage pointsbelow the comparable national rate, and the 0.4% decline in non-farmemployment over 12 months remained below job loss rates of 2.0%statewide and 3.4% nationally.” So says Thalhimer’s MarketbeatHampton Roads Industrial Report for the Fourth Quarter of 2009. Thereport also notes that Hampton Roads experienced a 3.6% year-over-year drop in local manufacturing compared to 10.7% reductionnationally and an 8.6% loss statewide. Good news is sometimesrelative.

This year’s Old Dominion report shows an industrial vacancy rateof 12.95%. While Hampton Roads appears to be weathering theeconomic storm fairly well in many categories, the following statisticsfrom Cushman and Wakefield’s 4Q09 Marketbeat US Industrial Reportshow us in league with most other markets in terms of industrialvacancy.

Hampton Roads Versus The World

Hampton Roads, the United States and the world are in unusual territory with events and circumstances not experiencedin generations. How the future ultimately shapes the national and regional industrial market is hard to predict.

The Hampton Roads industrial market is expected to maintain the new ‘status quo’ in 2010: modest absorption, limitedgrowth, and slightly reduced vacancy rates. Rents for distribution space will continue to soften in the coming year. Generalmanufacturing building prices are expected to fall by 5-10%, particularly with more specialized properties. General industrialrents will stabilize, and vacancy should ease slightly by year end. Deal ‘velocity’ is not expected to increase in 2010.Subsequently, total transactions will most likely remain at levels established in 2009.

Beyond 2010, Hampton Roads should follow local historical trends with a modest recovery leading to a healthy, balancedindustrial market. The Port of Virginia will renew its quest to become the dominant East Coast port of the 21st century.Government spending will continue to drive a large portion of industrial demand. Moderate population growth due toimmigration from other regions of the country will require building space for general industrial uses. Words used in 2010to describe the industrial market will most likely be ‘patience’, ‘conservative’, ‘modest’ and ‘survived another year’.

Conclusions

35

VacancyCity Rate

Atlanta, Georgia 10.6%

Baltimore, Maryland 12.5%

Central New Jersey 9.5%

Chicago, Illinois 11.4%

Dallas/Ft. Worth, Texas 12.5%

Indianapolis, Indiana 10.6%

Inland Empire, California 13.4%

Los Angeles (South), California 5.7%

Oakland, California 9.2%

PA I-81/I-78 Distribution Corridor 14.6%

Richmond, Virginia 10.9%

Savannah, Georgia 19.9%

Seattle, Washington 9.3%

TOTAL-ALL MARKETS: 10.8%

Industrial Submarkets

Southside

Airport Industrial Park

Bainbridge

Cavalier

Central Norfolk

Cleveland

Greenbrier

Lynnhaven

Norfolk Industrial Park

Portsmouth

Suffolk

West Norfolk

Peninsula

Copeland

Oakland

Oyster Point

Williamsburg Extended

37

HAMPTON ROADS

REAL ESTATE

MARKET REVIEW

OFFICEAuthor Authored by J. Scott Adams, CCIM

Regional President, CB Richard Ellis

Financial The E. V. Williams Center for Real Estate and Economic Support Development (CREED) functions and reports are

funded by donations from individuals, organizationsand the CREED Council.


39


2 0 1 0 O F F I C E

The Hampton Roads, Virginia office market ended 2009 with relatively strong momentum

and with statistical performance far stronger than our regional neighbors. While the market

vacancy rate climbed during 2009, most regional submarkets remain in healthy balance of

supply and demand.

Highlights of our relative strength include:

• For the fifth straight year, the Hampton Roads market had positive absorption of office

space, a statistic that is unique within the mid-south region and very rare nationally.

• The overall office market vacancy rate remains below the national average office

vacancy rate.

• The financial and development communities have effectively limited the addition of

new office market supply with less than 2.2 million square feet of new deliveries in

the last five years. This total new construction represents less than 10% of our total

market size.

The information in this report relies on the market research of CB Richard Ellis

(“CBRE”). CBRE research relies on multiple data sources including its brokers, its broker

network, website research, and Co-Star.

For Hampton Roads in particular, CBRE research is focused on buildings 20,000 square feet

and larger, which is not purely any of the following office uses: medical space, owner-occupied,

or government facilities. These exclusions reduce the overall market size versus what other data

sources may present for Hampton Roads.

This smaller set of approximately 300

properties is more appropriate to study as it

relates more closely to the health of the

traditional multi-tenant office market.

The summary charts that follow reveal

insights on the Hampton Roads office

market as it relates to the market’s

submarkets and classes of space at year-end

2009, as well as the historical context of how

the market absorption, vacancy rate, and new construction deliveries during 2009 compared

to the prior four years. Following these summary charts is a more detailed analysis of the

individual submarkets and a regional comparison of the overall Hampton Roads market.


The Hampton Roads area is divided into two land areas by one of the most famous bodies of water in the world. TheHampton Roads harbor is where the Chesapeake Bay meets the James River and the areas above and below the harborare respectively referred to as “the Peninsula” and “South Hampton Roads.” In addition to many smaller municipalities,the Peninsula includes the cities of Hampton, Newport News, and Williamsburg. South Hampton Roads (also referred toas the “Southside”) includes the cities of Norfolk, Virginia Beach, Chesapeake, Portsmouth and Suffolk. All areas of thePeninsula and South Hampton Roads are referred to as “suburban markets” other than the downtown Norfolk area ofSouth Hampton Roads.

The summary chart below shows that at year-end 2009, downtown Norfolk had the market’s lowest vacancy rate ofthe three major geographies. The suburban South Hampton Roads area has over 4.5 times the supply of downtownNorfolk and has a respectable 14.2% vacancy rate. The concern area shown is the Peninsula submarket which has a significantly higher vacancy rate of 17.6%.

Overall Market Summary By Geography

41

Vacancy Rate By Geography At Year-End 2009

Total Vacant Vacancy Average

Area Sq. Ft. Sq. Ft % Asking Rent

Downtown Norfolk 3,236,648 353,129 10.9% $21.21

Suburban Southside 14,715,101 2,086,168 14.2% $19.24

Suburban Peninsula 5,118,154 901,906 17.6% $17.97

Totals 23,069,903 3,341,203 14.5% $19.11

The suburban South Hampton Roadsarea has over 4.5 times the supply ofdowntown Norfolk and has arespectable 14.2% vacancy rate.


2 0 1 0 O F F I C E

Vacancy Rate By Class of Property At Year-End 2009

Total Vacant Vacancy Average

Area Sq. Ft. Sq. Ft % Asking Rent

Class A 10,486,973 1,650,980 15.7% $21.05

Class B 10,504,242 1,402,345 13.4% $17.07

Class C 2,078,688 287,828 13.8% $14.62

The following charts show the market’s year-end vacancy rate for each of the last five years, as well as the overallmarket absorption and new construction deliveries during each of those years. While the market has not experiencednegative absorption in any of the last five years, the overall vacancy rate has climbed significantly from 8.3% at year-end2006 to 14.5% at year-end 2009. The increased vacancy rate can be attributed in part to the new construction deliver-ies during that time, as well as the additional supply of office buildings to the multi-tenant market which were formerlyowner-occupied buildings. An example of this second category is the former single-tenant USAA Building at LakeWright Executive Center in Norfolk which is now 54% available for other tenants to occupy.

Overall Market Summary With Historical Context

A second way to study the overall market is performance by the different “classes” of office space. Research dividesthe buildings surveyed into Class A, B, or C, depending on physical and location characteristics. Class A describes thehighest quality office space and will, in most cases, be the most professionally managed, offer the best locations, and at-tract the highest quality tenants. Class B buildings also offer good location and quality with little functional obsolescencedespite typically being older than Class A buildings. Class C buildings do compete for traditional market office tenants,but typically have inferior quality and location.

The summary chart below shows that at year-end 2009, the vacancy rates for Class B and C properties were belowthe vacancy rate for Class A properties. The Class A market comprises approximately 45% of the total market and hasthe highest average asking rents. The relatively higher vacancy in Class A buildings can be attributed in part to the softeconomy in 2009, as well as the typical lease-up timeline for all of the new buildings delivered in the last several years.

Overall Market Summary By Class Of Property

43

2005 2006 2007 2008 2009

20.00%

15.00%

10.00%

5.00%

0.00%

Hampton Roads Overall Market Vacancy RateAt Year End Of 2005-2009

8.5% 8.3%9.1%

12.1%

14.5%

2005 2006 2007 2008 2009

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

-100,000

-200,000

Hampton Roads Overall Market AbsorptionFor Years 2005-2009

582,584

702,406

439,358

82,521 73,972


2 0 1 0 O F F I C E

2005 2006 2007 2008 2009

12.00%

9.00%

6.00%

3.00%

0.00%

Hampton Roads Downtown NorfolkVacancy Rate At Year End 2005-2009

9.4%

6.2%5.7%

9.3%

10.9%

44

As mentioned earlier, the downtown Norfolk submarket continues to boast the lowest vacancy rate of the region’sprimary geographies. Downtown Norfolk’s year-end vacancy rate of 10.9% was a significant increase from its recent lowof 5.7% at year-end 2007. At year-end 2009, six office buildings in downtown Norfolk had 20,000 square feet or more invacant space. In fact, both the Monticello Office Building and Bank of America Center have 50,000 square feet or morein vacant office space.

These totals do not include “future available” space which consists of buildings under construction and tenantsuites that are leased now, but fully expected to come vacant in the near term. For downtown Norfolk, this means thatthe vacancy rate is expected to rise in 2010 as the currently 70% pre-leased Wells Fargo Center comes on line withmuch of the leased area attributable to tenants vacating from the Bank of America Center and World Trade Center.

Downtown Norfolk Submarket

2005 2006 2007 2008 2009

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

Hampton Roads Overall Market Construction DeliveryFor Years 2005-2009

255,158199,626

662,327

368,926

685,696

Southside Suburban Market

The Southside suburban market is the largest office submarket in the overall Hampton Roads market. Thelargest concentrations of office space within the Southside suburbs are Greenbrier/Battlefield in Chesapeake,Pembroke in Virginia Beach, the I-64/264 interchange area (Newtown/Witchduck) that includes parts of Norfolk andVirginia Beach, and Central Norfolk. Each of these four office concentration areas has over 2 million square feet ofoffice space.

The year-end vacancy rate of 14.2% for the Southside suburbanmarket was a substantial increase from its low of 7.7% at year-end2005. The historical chart below shows that the submarket vacancyremained under 9.0% through year-end 2007 before climbing to12.3% at year-end 2008 and 14.2% at year-end 2009. The mostsubstantial individual negative impact on the market vacancy during2009 was the additional 200,000 square feet of space put on themarket in the former USAA Building.

The year-end vacancy rate of14.2% for the Southsidesuburban market was asubstantial increase from itslow of 7.7% at year-end 2005.

2005 2006 2007 2008 2009

15.00%

13.00%

11.00%

9.00%

7.00%

5.00%

3.00%

1.00%

- 1.00%

Hampton Roads Suburban SouthsideVacancy Rate At Year End 2005-2009

7.7%8.4%

8.9%

12.3%

14.2%

45


Peninsula Suburban Market

The Peninsula suburban market is approximately 1/3 the size of the Southside suburban market. The largestconcentrations of office space within the Peninsula suburbs are Hampton and the Oyster Point/Jefferson Avenue areain Newport News. Both of these office concentrated areas have over 2 million square feet of office space.

The year-end vacancy rate of 17.6% for the Peninsula suburban market was a substantial increase from its low of9.6% at year-end 2006. The historical chart shows that thesubmarket vacancy remained under 11.0% through year-end2007 before climbing to 13.5% at year-end 2008 and 17.6% atyear-end 2009. The most substantial negative impacts on themarket vacancy during 2009 were the delivery of 116,000square feet of speculative office space at Peninsula TownCenter in Hampton and another 60,000 square feet deliveredin City Center at Oyster Point.

The largest concentrations of office spacewithin the Peninsula suburbs are downtownHampton and the Oyster Point/JeffersonAvenue area in Newport News. Both ofthese office concentrated areas have over 2million square feet of office space.

2 0 1 0 O F F I C E

2005 2006 2007 2008 2009

20.00%

18.00%

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

Hampton Roads Suburban PeninsulaVacancy Rate At Year End 2005-2009

9.9% 9.6%

10.9%

13.5%

17.6%

The relative strength of the Hampton Roads office market can be more clearly illustrated by comparing the area’s2009 performance to the nearby Virginia market of Richmond, as well as the North Carolina markets of Raleigh and Charlotte. All data is gathered from market research using a variety of local data sources. It should be noted that theRaleigh market size premium is in part because the properties surveyed include buildings between 10,000 and 20,000SF whereas the other three markets are limited to buildings 20,000 square feet and larger.

The year-end 2009 vacancy rate of 14.5% for Hampton Roads was significantly lower than each of the referencedsurrounding markets which ranged from 17.3% to 19.3% vacant during the same time period. The 2009 absorption chartbelow illustrates that the substantial reduction in occupied space (i.e. negative absorption) for each of the other markets contributed in large part to Hampton Roads’ relative outperformance of other regional markets.

Regional Office Market Comparison

47

Regional Office Market Comparison As Of Year-End 2009

Market Total Vacant Vacancy Average Sq. Ft. Sq. Ft. % Asking Rent

Hampton Roads, VA 23,069,903 3,341,203 14.5% $19.11

Richmond, VA 25,705,307 4,961,124 19.3% $17.98

Raleigh, NC 45,075,693 8,418,958 18.7% $20.57

Charlotte, NC 36,157,350 6,255,222 17.3% $22.44

Hampton Roads Richmond Raleigh Charlotte

1,000,000

500,000

0

- 500,000

- 1,000,000

- 1,500,000

Regional 2009 Office Market Absorption

73,972-1,230,510

-421,643

-776,606

Office Submarkets

Southside

1 Airport/Northampton

2 Chesapeake/Greenbrier

3 Downtown Norfolk

4 Central Norfolk

5 Hilltop/Oceanfront

6 Corporate Landing

7 Kempsville

8 Little Neck

9 Lynnhaven

10 Military Circle

11 Newtown/Witchduck

12 Northern Suffolk

13 Pembroke

14 Portsmouth

Peninsula

15 Downtown Hampton

16 Hampton Roads Center

17 Coliseum Central

18 Downtown Newport News

19 Newmarket

20 Oyster Point

21 Suburban Newport News

22 Williamsburg/

James City Co./

York County

HAMPTON ROADS

REAL ESTATE

MARKET REVIEW

RESIDENTIALAuthor/ Blair Hardesty

Data Analysis/ Director

Layout Residential DataBank




51


2009 was a rebuilding year for the Hampton Roads real estate market. New construction permits and closingscontinued to decline; however, the percent declines slowed in 2009. Builders continue to focus on selling standing in-ventory and significant progress was made in 2009. The current new construction inventory of attached product below$300,000 and detached product below $400,000 is in short supply. Residential building permits declined 14.2% in 2009versus 2008. There were 2,735 new construction closings recorded, a decline of 17.4% from 2008.

Thanks to lower prices and the first time homebuyer tax credit, the existing home market saw an improvement inthe number of closings reported for the first time in four years. There were 15,541 closings reported, an increase of 6.5%.versus 2008.

Foreclosures and short sales are necessary, but unpleasant parts of the real estate market correction process. Theforeclosure rate is at historically high levels in Hampton Roads. In 2009, foreclosures and compromised sales accountedfor 19.7% of all residential closings.

2009 has proven that there is light at the end of the tunnel. It will take time, but even now, product that is pricedaffordably is still moving. While some builders have left the marketplace, others that are focusing on affordable products are thriving.

The Year In Review

The Hampton Roads Residential Market statistics covered in this report analyze the new

home building industry and the existing home sales activity for the year 2009. Included are the

cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk,

Virginia Beach, and Williamsburg, and the counties of Gloucester, Isle of Wight, James City,

Southampton, and York. The new construction data contained in this report was gathered from

the actual deeds recorded and from the building permits issued by each city or county. The sales

data and existing home closings data was gathered from the Real Estate Information Network.

2 0 1 0 R E S I D E N T I A L


For 2009 the average price of a new construction, single family detached home in Hampton Roads was $360,046,down 10.1% from 2008. The city of Virginia Beach had the highest average closing value with an average price of $452,619.All municipalities had declines in average closing value except for Newport News which experienced an increase of 8.1%.The average closing price of a new, detached home in Newport News was$278,682 during 2009. The largest percent decline in average closing price was inJames City County where the average price for a new, detached home dropped26.7% to $336,213.

During the fourth quarter of 2009, the average price of a new, detached homewas $342,976, down 7.7% from the fourth quarter of 2008. The average closingprice for a condominium unit in a multi-story building during 2009 was $373,739,down 9.1% from 2008. Multistory buildings are defined as flat over flat buildingswith three or more stories and generally, are elevator served. Currently, only a fewcities/counties in Hampton Roads have new construction multi-story buildings; Virginia Beach, Chesapeake, Norfolk, Newport News and James City County. All of the areas experienced declines inaverage closing price. Norfolk had the highest average closing price for the year at $408,724.

New Construction

53

* Sales Information Provided By the Real Estate Information Network

New Construction Permits, Sales and Closing Activity(2008 Versus 2009)

TABLE I

All Product Types 2008 2009 + / - 2008 2009 + / - 2008 2009 + / -Area Permits Permits % Diff. Sales Sales % Diff. Closings Closings % Diff.

Chesapeake 617 647 4.9% 474 618 30.4% 589 594 0.8%

Franklin/Southampton 62 59 -4.8% 25 33 32.0% 21 29 38.1%

Gloucester 193 132 -31.6% 147 78 -46.9% 154 94 -39.0%

Hampton 174 129 -25.9% 107 155 44.9% 97 111 14.4%

Isle of Wight 240 151 -37.1% 159 109 -31.4% 201 128 -36.3%

James City County 399 319 -20.1% 216 171 -20.8% 410 311 -24.1%

Newport News 98 80 -18.4% 129 134 3.9% 148 99 -33.1%

Norfolk 269 244 -9.3% 193 196 1.6% 249 209 -16.1%

Portsmouth 93 82 -11.8% 102 59 -42.2% 123 47 -61.8%

Suffolk 345 357 3.5% 283 324 14.5% 316 305 -3.5%

Virginia Beach 762 507 -33.5% 783 663 -15.3% 888 681 -23.3%

Williamsburg 27 40 48.1% 5 5 0.0% 8 12 50.0%

York County 203 181 -10.8% 174 122 -29.9% 179 143 -20.1%

TOTALS 3,393 2,911 -14.2% 2,744 2,640 -3.8% 3,311 2,735 -17.4%

The city of Virginia Beach had thehighest average closing value with anaverage price of $452,619. Allmunicipalities had declines in averageclosing value except for Newport Newswhich experienced an increase of 8.1%.


During the fourth quarter of 2009, the averageprice of a new, condominium unit in a multi-storyunit was $348,902, down 16.8% from the fourth quar-ter of 2008.

The average closing price of a multiplex condo-minium unit was $229,436, down 3.8% from 2008.Representative examples of multiplex condominiumunits are the classic Dragas four-plex product andthe Franciscus ten-plex product. All municipalitiesexcept for Virginia Beach had declines in averageclosing value, which experienced an increase of 10%to $258,353. The city of Norfolk experienced the

largest drop in average closing price, down 34% to $223,740. The average closing price of a multiplex condominiumunit was $240,078 during the fourth quarter of 2009, on par with the fourth quarter 2008 average of $241,279.

The average closing price for new townhomes and duplexes in Hampton Roads dropped 8.3% in 2008 to $268,710.All areas except for Franklin, Newport News and the city of Williamsburg experienced declines in average closing price.However, none of these increases were significant. The largest percent decline was in Hampton where the averageprice dropped 21.1% from 2008 to $226,070.

Overall, the average price for a new construction home in Hampton Roads was $323,801 for 2009, down 10.5% from2008. During the fourth quarter, the average price of a new home was $311,055, down 8.4% from the fourth quarter 2008.

2 0 1 0 R E S I D E N T I A L

Hampton Roads New Construction Average PricesTABLE II

SINGLE FAMILY TOWNHOME/ ALL PRODUCTDETACHED MULTI STORY MULTI PLEX DUPLEX TYPES

2000 $192,180 $196,811 $132,352 $162,328 $183,026

2001 $128,484 $284,419 $137,042 $154,985 $193,118

2002 $226,602 $280,800 $155,632 $159,488 $215,161

2003 $255,568 $319,656 $183,160 $202,551 $244,113

2004 $312,006 $377,882 $210,409 $248,496 $295,114

2005 $401,242 $337,966 $236,865 $299,576 $363,825

2006 $436,769 $415,042 $261,724 $326,215 $396,321

2007 $431,139 $494,472 $246,473 $305,061 $387,816

2008 $400,497 $411,229 $238,550 $292,999 $361,816

2009 $360,046 $373,739 $229,436 $268,710 $323,801

55

Hampton Roads Existing Home Average PricesTABLE III

2009 Single Family Detached Average Closing Values

New Construction Versus Existing

GRAPH I

ALL PRODUCTDETACHED ATTACHED TYPES

2000 $130,827 $82,963 $119,480

2001 $140,484 $89,293 $128,330

2002 $152,522 $99,131 $139,688

2003 $172,664 $111,368 $157,478

2004 $207,160 $140,137 $190,303

2005 $252,654 $176,399 $232,865

2006 $271,525 $194,186 $250,889

2007 $283,507 $199,305 $261,506

2008 $267,594 $199,093 $251,492

2009 $246,012 $185,293 $232,152

Ches

apea

ke

Glou

cest

er

Ham

pton

Isle

ofW

ight

Jam

es C

ityCo

unty

New

port

New

s

Norfo

lk

Ports

mou

th

Sout

ham

pton

Coun

ty

Suffo

lk

Virg

inia

Beac

h

York

Coun

ty

$500,000

$450,000

$400,000

$350,000

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$-

New ConstructionExisting HomesVariance

$354

,919

$263

,843

$91,

076

$267

,690

$233

,581

$34,

109

$306

,193

$178

,526

$127

,667

$385

,001

$281

,356

$103

,645

$336

,213

$361

,982

$(25

,769

)

$278

,682

$211

,010

$321

,358

$194

,849

$126

,509

$247

,273

$152

,729

$94,

544

$231

,349

$150

,552

$341

,746

$452

,619

$307

,542

$145

,077

$423

,591

$343

,126

$80,

465

$243

,203

$98,

543

$80,

797

$67,

672

The overall average closing price for an existing home during 2009in Hampton Roads was $232,152, down 7.7% from 2008. James CityCounty had the highest average closing price for an existing home at$334,742, a decline of 5.8% from 2008. All areas experienced declinesin average closing prices except for Gloucester County and the city ofWilliamsburg which had increases of 1.4% and 4.4%, respectively.During 2009, existing homes in Hampton Roads sold on average for92.1% of the original listing price.

The 2009 fourth quarter average for existing homes in HamptonRoads was $226,980, down 6.6% from the fourth quarter of 2008.

For 2009, the average price for an existing detached home inHampton Roads was $246,012, a decline of 8.1% from 2008. James CityCounty had the highest average closing price reported during the yearat $361,982, but was down 3.7% compared to 2008. The largest percentdecline in average price was in Franklin/Southampton County with adecline of 14.9% to $150,552. Virginia Beach had the largest dollardecline in average closing price with a decline of $29,878 to $307,542for the year. During 2009, detached existing homes in Hampton Roadson average sold for 91.9% of the original listing price.

The average price for the fourth quarter was $241,549, down 6.2% from the fourth quarter of 2008. Attached existinghomes in Hampton Roads had an average closing price of $185,293 during 2009. This is a decline of 6.9% or $13,800 from2008. All areas except for Hampton and Gloucester saw declines in average closing price. Isle of Wight County had thehighest percent decline with a loss of 11.7% down to $207,462 for 2009. Hampton had the only notable increase inaverage closing price with a3.2% increase to $163,778.During the year, attachedexisting homes on averagesold for 92.9% of the originallisting price.

The average price duringthe fourth quarter for attachedexisting homes was $182,342,down 5.6% from year agonumbers.

During 2009, detached existing homesin Hampton Roads on average sold for91.9% of the original listing price.


Existing Homes

2 0 1 0 R E S I D E N T I A L

New Construction Closings Product Mix 2009

GRAPH II

24%Townhome/

Duplex

11%Multi-Plex7%

Multi-Story

58%Single Family

Detached

57

Single-Family Detached is still the dominant type of housing in Hampton Roads. For 2009, more than 66% of all newresidential building permits issued in Hampton Roads were for detached housing. There were 1,937 permits issued, down14.9% from 2008. The city of Chesapeake had the largest number of permits issued, with 441 (22.8%) for the year and wasthe sole municipality to have an increase in detached permits versus 2008. All other municipalities experienced declinesin the number of permits issued, most notably Virginia Beach, Norfolk and Gloucester. Gloucester had the largest percentdecline in permits issued, with a 31.6% decline.

In 2008 detached housing accounted for 57% of new construction closings. There were 1,558 new, detached closingsrecorded in 2009. This is a decrease of 15% from the previous year. The largest percent decline occurred in Portsmouth,down 53.5% to 40 closings recorded for the year. The decline in Portsmouth can be attributed to Kings Gate Crossing byPace Homes selling out the last of its inventory in 2009.

Suffolk, Norfolk and Franklin/Southampton County, each experienced increases in the number of closings with 6.9%,5.2% and 47.4% increases respectively. The increase in Franklin/Southampton County is relatively small; 19 in 2008 versus28 in 2009. The increase in Franklin/Southampton County can be attributed in part to Sandy Creek Estates by TowneDevelopment which accounted for 25% of the closings in 2009.

Fee-simple detached housing accounts for 86.5% of new, detached housing in Hampton Roads. Based on permitsand closings, the top new construction fee-simple detached community for 2008 was Woodbridge Point in Virginia Beach.There were 62 closings by five builders with an average closing price of $382,456. Summit Construction Corp recordedthe largest number of closings with 22,yielding an average closing price of$396,877. These homes had an averagesize of 2,909 square feet, yielding anaverage price per square foot of $136.

The top single family detachedcondominium community for permitsand closings was Sherwood Lakes inVirginia Beach. The community had 39closings in 2009 with an average closingprice of $420,687. Home Associates ofVirginia closed the majority of homesduring 2009, with 26 closings. Thesehomes had an average price of $400,304,an average size of 2,288 square feet,yielding an average price per square footof $175.

Hearndon Construction was the topbuilder of new detached fee simplehousing during 2009. Hearndon had 64permits issued and 66 closings recordedin four communities on the Southside.The greatest success came from OldeMill Run in Chesapeake which had 22closings with an average price of$378,733 and an average price per square foot of $119. In addition, Hearndon had 32 detached condominium closingsat Towne Park at Goose Creek in Chesapeake.

Individual Market Segments

Market Share for Detached HomesClosings by Price Range

GRAPH III

100%

75%

50%

25%

0%

Resale New Construction

$500K +

$400K to $500K

$300K to $400K

$200K to $300K

<$200,000


Terry Peterson Residential was the top new detached condominium builder during 2009. Terry Peterson had 32detached condominium permits issued and 45 closings recorded in three separate communities on the Southside. KingsFork Farm in Suffolk accounted for the largest number of closings with 20 recorded. These units had an average priceof $280,035 and an average price per square foot of $125. Additionally, Terry Peterson had 66 permits issued and 44closings recorded for other product types during 2009.

There is currently standing inventory of 852 new construction, single family detached homes. Based on the sales paceof 2009 this is a supply of 6 months.

The Multi-Story Condominium market experienced a significant decline in 2009.Permits were up 5.9% from last year’s low with 126 issued. However, with the continuedabundance of high end inventory in the market, less than half of the permits were forelevator served buildings. Closings were down 52.5%, with 196 recorded. Virginia Beachaccounted for the majority of the closings with 132 (67%) recorded.

Southmoor at Ridgely Manor by The Dragas Companies was the top multi-storycondominium project with 83 closings recorded. These units had an average closing priceof $180,506 and an average price per square foot of $139. Southmoor is a 3-story walk-upcondominium in Virginia Beach that will have 280 units when complete.

With regard to elevator served buildings, the top multi-story condominium for2009 was the Sanctuary at False Cape by The Futura Group in Virginia Beach. There were 28 closings, with an averageprice of $409,279. The success can be attributed to auction sales and significantly reduced prices. Based on the sales paceof 2009, Hampton Roads has a current supply of nearly five years of multi-story inventory.

Multi-Plex condominium permits experienced a slight decline versus 2008. There were 247 permits issued, a declineof 3.5% from 2008. The largest decline occurred in James City County, down 65% to 14 permits for the year. Chesapeakeaccounted for the largest number of permits issued during the year with 114 (46%).

There were 311, multi-plex condominium closings recorded in 2009. This is only a small decline of 5.5% versus2008. Half of the municipalitiesexperienced declines in the number ofclosings. Chesapeake, Norfolk andYork County experienced increases.Chesapeake had the largest increase,up 112.5% to 102 recorded during2009.

The top multi-plex community for2009 was Brighton Park in Chesapeakeby The Dragas Companies. Thecommunity had 88 permits issued and92 closings recorded during 2009. Theaverage closing price was $208,695 withan average size of 1,501 square feet,yielding an average price per squarefoot of $139.

The Dragas Companies was thetop multi-plex builder during 2009.There were 112 permits issued and 105closings recorded in four separatecommunities on the Southside.

Summit Construction Corprecorded the largest number ofclosings with 22, yieldingan average closing price of$396,877. These homes had anaverage size of 2,909 squarefeet, yielding an average priceper square foot of $136.

2 0 1 0 R E S I D E N T I A L

Market Share for Attached HomesClosings by Price Range

GRAPH IV

100%

75%

50%

25%

0%

Resale New Construction

$400K +

$300K to $400K

$200K to $300K

$100K to $200K

<$100,000

59

Townhome and Duplex permits experienced an 18.9% decline versus 2008 with 601 permits issued. Half of themunicipalities experienced a decline in permits with Virginia Beach having the highest percentage loss at 53.7% with106 permits issued during the year.

Closings were off 9.1% from last year, with 670 closings recorded. Portsmouth experienced the largest loss, down81.1% to only seven closings for the year. Hampton had a notable increase, up 192.9% to 41 closings. Townhome andduplex closings were the most prominent type of new attached housing with a 57% market share.

The top townhome community in Hampton Roads for 2009 was Riverwalk Townes in York County by Ryan Homes.The community features two story fee simple townhomes with one car garages. In 2009 there were 40 permits issuedand 46 closings recorded with an average price of $252,617. Ryan Homes was the top builder for new townhomes andduplexes in Hampton Roads. There were 76 permits issued and 102 closings recorded in three separate communitieson the Peninsula.

90

80

70

60

50

40

30

20

10

0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Day

s O

n M

arke

t 69

69

61

46

36

27 28

48

66

84

87

77 76

80

78

72

Average Market Time Existing Home ClosingsGRAPH V

There are currently 13, new construction, “active adult”, age restricted communities in Hampton Roads. During2009, these communities yielded 129 closings, a market share of 4.6% of all new construction closings.

The top new construction, age restricted community for 2009 was Colonial Heritage in James City County by LennarCorporation. There were 40 closings recorded with an average closing price of $316,690. Based on the closing pace of2009, it will take 23 months to absorb the current standing inventory of homes in age restricted communities.

Age Restricted Communities


Existing home closings for 2009 were up 6.5% from 2008 with 15,541 closings reported for the year. Overall, theaverage size of these homes was 1,788 square feet with an average price per square foot of $130. The average markettime to sell an existing home was 87 days, the largest number of days since 1994 when market time tracking began.

Detached existing homes accounted for 77% of all existing home closings during 2009, with 11,992 closings reported.Closings were up 7.4% for the entire year. The majority of municipalities experienced increases in the number of closingswith only Franklin/Southampton County experiencing a notable decline. The Southside accounted for 71% of the existingdetached home closings with 8,521 closings reported. The average home size of the closings reported during the yearwas 1,900 square feet, with an average price per square foot of $129.

The majority of inventory homes in Hampton Roads are existing, single family detached homes, and represent 67%of total market listings. There are currently 7,658 existing, detached homes on the market in Hampton Roads. Based on

the sales pace of 2009, this is a 7.5 months supply. Of these, the price rangewith the largest amount of inventory is the $100,000 to $200,00 price rangewith 2,266 active listings, representing 29.6% of existing single familydetached homes.Attached, existing home closings were up 3.4% from 2008 with 3,549reported. The majority of municipalities experienced a decline in closings,however, Virginia Beach had a significant increase and accounted for 52.8%of existing attached closings.The average home size of the closings reported was 1,410 square feet,

with an average price per square foot of $132. Attached homes in the $100,000 to $200,00 price range commanded thelargest percentage of the market with 65%. Attached, existing homes account for 21.7% of all Hampton Roads housinginventory with 2,483 homes on the market. Based on the sales pace of 2009, this is a supply of 8.2 months. The majorityof these homes (55%) are in the $100,000 to $200,000 price range.

Foreclosed home closings continued to increase during 2009. There were 3,583 existing home foreclosure andcompromised sale closings, an increase of 121% from 2008. This represents a 19.7% share of the market during 2009, upsignificantly from the 9.1%, market share in 2008. December had a considerable increase with a 27.3% market share.

There are currently 995 foreclosed homes listed in REIN, which is 8% of all existing homes currently listed. Additionally,there are currently 1,098 (8.8%) short sale/compromised listings on the market. Combined, these listings account for16.8% of all active listings in Hampton Roads.

Total Market Numbers

The combined total number of new construction and resale closings for 2009 was 18,267, up 2.1% from 2008. TheSouthside areas closed 13,299 homes, up 4.2%, with an average closing price of $251,651. The Peninsula areas closed4,977 homes, off 3.3% from 2008. The average price was $230,412.

The combined average price for homes in Hampton Roads, both new construction and resale, was $245,867 down9.6% from last year.

Existing Home Market

Attached, existing homes account for 21.7%of all Hampton Roads housing inventory with2,483 homes on the market. Based on thesales pace of 2009, this is a supply of 8.2months. The majority of these homes (55%)are in the $100,000 to $200,000 price range.

2 0 1 0 R E S I D E N T I A L

61

JUL

07 AUG

SEP

OCT

NOV

DEC

JAN

08 FEB

MAR AP

R

MAY JUN

JUL

AUG

SEP

OCT

NOV

DEC

JAN

09 FEB

MAR AP

R

MAY JUN

JUL

AUG

SEP

OCT

NOV

DEC

400

350

300

250

200

150

100

50

0

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0%

Num

ber

of

Clo

sing

s

% T

ota

l Clo

sing

s

Total Short Sale/ Foreclosure ClosingsTotal Closings

Foreclosure and Short Sale Closings in Hampton RoadsGRAPH VI

30,000

25,000

20,000

15,000

10,000

5,000

0

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0%

Exi

stin

g H

om

es

New

Co

nstr

ucti

on

Existing HomesNew Construction

15 Year Closing History — New Construction & Existing HomesGRAPH VII

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

No. of Permits

# Community Builder Issued

1. Brighton Park C Dragas Companies 88

2. Southmoor at RidgelyManor, V Dragas Companies 72

3. Bay Village, R Raymond KeyGeneral Contrator 54

4. Hampton Roads Crossing, S Terry/Peterson Res 53

5. Woodbridge Pointe, V Various Builders 49

6. Sherwood Lakes, V Various Builders 46

7. Warrington Hall, C Various Builders 44

8. Sajo Farm, V Terry/Peterson Res 43& Napolitano Ent

9. Culpepper Landing, C Various Builders 42

10. Heritage Park, V Various Builders 30

10. Eagle Lake at Plantation Classic Design Bldrs 30North, C & Murray Homes

No. of Permits

# Community Builder Issued

1. Colonial Heritage, J Lennar Corp 47

2. Michelle Point, J Health E Community 45

3. Riverwalk Townes, Y Ryan Homes 40

4. Fieldstone Glen atAberdeen, H L L Bldg Corp 28

5. New Town, J GCR Inc & AtlanticHomes 23

6. Fords Colony, J Various Builders 20

6. Liberty Crossing, J Ryan Homes 20

6. Fenwick Hills, J Various Build 20

9. Marywood, J Centex Homes 19

10. Villas of Yorktown, Y Villa Development 18

10. Highgrove, Y Centex Homes 18

No. Average # Community Builder Closed Price

1. Brighton Park, C Dragas Companies 92 $ 208,695

2. Southmoor at Ridgely Manor, V Dragas Companies 83 $ 180,506

3. Woodbridge Pointe, V Various Builders 62 $ 382,456

4. Hampton Roads Crossing, S Terry/Peterson Res 45 $ 237,438

5. Warrington Hall, C Various Builders 41 $ 247,209

6. Heritage Park, V Various Builders 40 $ 617,723

7. Sherwood Lakes, V Various Builders 39 $ 420,687

8. Bridgewater at Eagle

Harbor, I Franciscus Co., Inc. 38 $ 218,814

9. Nichols Park at Lexington, V Chesapeake Homes 36 $ 304,861

9. Remington Park, S Chesapeake Homes 36 $ 195,335

No. Average # Community Builder Closed Price

1. Riverwalk Townes, Y Ryan Homes 46 $ 252,617

2. Colonial Heritage, J Lennar Corp. 40 $ 316,690

3. Liberty Crossing, J Ryan Homes 37 $ 243,801

4. Michelle Point, J Health E Community 36 $ 196,973

5. New Town, J GCR Inc & Atlantic Homes 24 $ 279,706

6. Fenwick Hills, J Various Builders 19 $ 268,029

6. The Townes at Whitehall, J Ryan Homes &HHHunt Homes 19 $ 237,116

8. Hampshire Glen, H Various Builders 18 $ 343,339

8. Patriots Walk, G Patriot Bldrs 18 $ 297,697

8. Braemar Creek atGreensprings, J Franciscus Co., Inc. 18 $ 238,991

Southside Top SubdivisionsRanked by Permits

Peninsula Top SubdivisionsRanked by Permits

TABLE IV

Southside Top SubdivisionsRanked by Closings

Peninsula Top SubdivisionsRanked by Closings

TABLE V

2010 Hampton Roads Real Estate Market Review 62

2 0 1 0 R E S I D E N T I A L

PERMITS ISSUED CLOSINGS

# OF CLOSINGS TOTAL REVENUE

BUILDER PERMITS ISSUED BUILDER PERMITS ISSUED BUILDER PERMITS ISSUED

1 Dragas Associates 197 1 Dragas Associates 233 1 Dragas Associates 51,081,615

2 Ryan Homes 108 2 Chesapeake Homes 154 2 Chesapeake Homes 42,237,572

3 Terry/Peterson Residential 98 3 Ryan Homes 133 3 Ryan Homes 35,552,044

4 Chesapeake Homes 94 4 Hearndon Constr Corp 98 4 Hearndon Constr Corp 29,590,187

5 Hearndon Constr Corp 93 5 Franciscus Co Inc 93 5 Terry/Peterson Residential 25,129,974

6 Napolitano Ent Inc 78 6 Terry/Peterson Residential 89 6 Napolitano Ent Inc 23,765,829

7 Mcq Bldrs & Dev Inc 58 7 Napolitano Ent Inc 63 7 Franciscus Co Inc 22,878,769

8 L L Bldg Corp 57 8 Mcq Bldrs & Dev Inc 58 8 Armada Hoffler 20,320,783

9 Raymond Key Comm Contr Llc 54 9 Centex Homes 51 9 Mcq Bldrs & Dev Inc 18,138,835

10 Lennar Corp 47 10 Hhhunt Homes 41 10 Centex Homes 13,917,223

11 Health E Community Ent Inc 45 10 Health E Community Ent Inc 41 11 Ashdon Builders Inc 13,294,366

12 Franciscus Co Inc 44 12 Lennar Corp 40 12 Lennar Corp 12,667,580

13 Associated Contr Svc Inc 42 13 L L Bldg Corp 38 13 Stephen Alexander Homes 12,053,993

14 Centex Homes 38 14 Ashdon Builders Inc 35 14 Summit Constr Corp 11,885,700

15 Hhhunt Homes 37 15 W H Bldrs Llc 31 15 The Futura Group Llc 11,216,242

16 W H Bldrs Llc 34 16 Summit Constr Corp 29 16 Hhhunt Homes 11,089,513

17 Home Associates Of Va 33 17 Stephen Alexander Homes 28 17 Home Associates Of Va 10,702,913

18 Villa Development 32 18 The Futura Group Llc 27 18 L L Bldg Corp 10,214,527

19 Moody Dev Corp 31 18 Home Associates Of Va 27 19 Sadler Bldg Corp 9,316,102

20 Virginia Ent Inc 28 18 Villa Development 27 20 Terry Industries 9,106,804

20 Lowery Constr Co Inc 28 18 Pace Constr & Dev Corp 27 21 L R Hill Custom Bldr 8,799,673

22 Ashdon Builders Inc 27 18 Triangle Constr Llc 27 22 Villa Development 8,675,867

23 Stephen Alexander Homes Inc 26 23 Eagle Construction 25 23 Eagle Construction 8,590,778

23 Pace Constr & Dev Corp 26 24 Terry Industries 24 24 Wermers Development 8,139,785

23 CMH Homes Inc 26 25 Wermers Development 23 25 Health E Community Ent Inc 8,045,166

26 Summit Constr Corp 24 26 Sadler Bldg Corp 22 26 Ainslie Group Inc 7,715,066

26 David A Nice Bldrs 24 26 Bishard Development Corp 22 27 Bishard Development Corp 7,375,600

28 Terry Industries 22 28 Affordable Homes Inc 21 28 W H Bldrs Llc 7,017,965

29 Area Builders Of Tidewater 21 28 Lowery Constr Co Inc 21 29 Pace Constr & Dev Corp 6,924,750

29 R A Lawson Corp 21 30 Atlantic Homes Corp 20 30 Triangle Constr Llc 6,695,030

2009 TOP HAMPTON ROADS BUILDERSBy Permits Issued, Closings Recorded & Total Revenue

TABLE VI

63

Residential Submarkets

Southside

Chesapeake.

Franklin/So. Hampton

Isle of Wight Co

Norfolk

Portsmouth

Suffolk

Virginia Beach

Peninsula

Glouster

Hampton

James City County

Newport News

York County

65

HAMPTON ROADS

REAL ESTATE

MARKET REVIEW

MULTI-FAMILYAuthor Charles Dalton

Data Analysis/ Real Data

Layout




67


2 0 1 0 M U L T I - F A M I L Y


The Norfolk-Virginia Beach-Newport News Apartment Report, published by Real Data, is

a detailed analysis of the rental market within conventional apartment communities in the

Hampton Roads region. The area has been divided into nine submarkets: Chesapeake,

Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach, Williamsburg and

York. Combined, these areas contain a survey base of over 90,000 units within conventional

apartment communities of 50 or more units each.

The Norfolk-Virginia Beach-Newport News market is divided into two portions by the

James River. The Peninsula area is north of the James River and contains Hampton, Newport

News, Williamsburg and York. The Tidewater area is south of the James River and contains

Chesapeake, Norfolk, Portsmouth, Suffolk and Virginia Beach. The submarket with the highest

concentration of units is Virginia Beach, which accounts for one-quarter of the regions

apartment units.

The occupancy rate in the Hampton Roads region remains one of the highest in the

Southeast, but, like the rest of the country, has been negatively impacted by the current

recession and weak housing market. Occupancy rates fell to their lowest level in over ten

years in the first half of 2009. Occupancies have improved slightly in the second half of 2009

with average occupancy rising to 93.1% as of

October 2009.

Development activity remains moderate.

As of October 2009, there were approximately

1,700 units under construction, and only 1,500

additional units proposed.

The average quoted rental rate is $882,

with one-bedroom rents averaging $785 per

month, two-bedroom units averaging $887 per

month, and three-bedroom units reporting an

average rental rate of $1,053 per month.

Average rental rates from existing inventory

increased by only $2.75 in the last twelve

months; while this is a mere increase over last

year, this is significantly better than most

markets throughout the southeast which have

seen sharp decreases in rents.

Submarket Percentages

11%Chesapeake

12%Hampton

22%Newport

News

15%Norfolk

8%Portsmouth

25%VirginiaBeach

1%Suffolk

2%York County4%

Williamsburg

Historical Apartment DevelopmentTABLE I

Norfolk-Virginia Beach-Newport NewsDevelopment of apartment units in this market peaked dur-ing two time periods, the early 1970s and the late 1980s. De-velopment during the 1990s, and so far in the 2000s, ismodest compared to past development.

Historical ApartmentDevelopment

69

25,000

20,000

15,000

10,000

5,000

0

Pre-‘64 ‘65-‘69 ‘70-‘74 ‘75-‘79 ‘80-‘84 ‘85-‘89 ‘90-‘94 ‘95-‘99 ‘00-‘04 ‘05- ‘09

Num

ber

of

Uni

ts


Historical Multi-Family Building Permits Norfolk-Virginia Beach-Newport News

Overall housing development in the region was at its peak from 2002-2006 with more than 10,000 permits issuedannually for single and multi-family housing. With the slow down in the overall housing market, residential permitsissued fell to 5,149 in 2008 which is less than half of the activity at the peak of the market in 2005. Based on single andmultifamily permits issued year to date, the slow down in new housing starts is expected to continue with less than 5,000

units permitted in 2009.Multi-family permit activity, which includes rental and for-sale units, was

strongest in 2005. However, much of the permit activity has not been rentalapartments, but instead, for-sale condominiums and townhouses, especiallyin recent years when a decline in interest rates made it easier for manypeople to get into the for-sale arena. The number of multifamily permitsissued has risen in each of the last four years, but remains well below thepeak year of 2005.

Multi-Family Permit Activity

Much of the permit activity has not beenrental apartments, but instead, for-salecondominiums and townhouses,especially in recent years when a declinein interest rates made it easier for manypeople to get into the for-sale arena.

2 0 1 0 M U L T I - F A M I L Y

3,200

3,000

2,800

2,600

2,400

2,200

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

Pe

rmit

s Is

sue

d

1,31

5 1,81

1

1,10

2 1,21

6 1,38

4

684

1,51

9

2,35

5

2,29

2

2,33

9

3,08

5

1,15

9

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(thru Nov.)

Annual Multi-Family Permit ActivityTABLE II

2,14

1

As of October 2009, there were over 1,700 apartment units under construction within eleven communities in theNorfolk-Virginia Beach-Newport News market. There are an additional 1,522 apartment units in the planning stage.Chesapeake remains the most active area for new apartment development with four communities either underwayor in planning. Developers are also active in Hampton, Newport News and Norfolk.

Apartment Development Activity

600

500

400

300

200

100

0

Num

ber

of

Per

mit

s

39

9

46

500

79 67

232

321

96

0 15

325

284

Nov. 2008

Dec. 2008

Jan. 2009

Feb. 2009

Mar. 2009

Apr. 2009

May 2009

Jun. 2009

Jul. 2009

Aug. 2009

Sep. 2009

Oct. 2009

Nov.2009

1,000

900

800

700

600

500

400

300

200

100

0

Nu

mb

er

of

Un

its

Chesapeake Hampton Newport News Norfolk Portsmouth Suffolk Virginia Beach Williamsburg York County

Under ConstructionProposed

Multi-Family Permits Issued – Past 12 MonthsTABLE III

Multi-Family Permits Issued – Past 12 MonthsTABLE IV

71


Demand for housing can be measured by calculating the number of housing units absorbed within a given timeframe. Absorption is defined as the net change in occupied units. Therefore, positive absorption occurs whenpreviously vacant or newly built dwellings become occupied. Based on historical performance, the Norfolk-VirginiaBeach-Newport News area is expected to absorb between 600 and 900 units annually. The collapse of the housingmarkets nationwide and the weakening economy caused a significant drop in demand for rental housing in 2008. Thearea experienced a surge in demand for rental units in 2009. This was due in part to the difficulties in the for-salehousing market and rental rate concessions being offered by apartment communities.

Demand

2 0 1 0 M U L T I - F A M I L Y

1400

1200

1000

800

600

400

200

0

-200

-400

-600

-800

-1000

Uni

ts A

bso

rbed

(Dem

and

)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

AbsorptionTABLE V

73

The overall vacancy rate for the Norfolk-Virginia Beach-Newport News market as of October 2009 was 6.9%,unchanged from a year ago. While this is the highest the vacancy rate has been in nearly 10 years, the market is stillrelatively healthy. Vacancy rates are expected to remain in the 7-8% range in 2010. Employment growth is the drivingfactor in demand for rental housing and the area will need to see sustained job growth for occupancy rates to improve.

Vacancy

300

200

100

0

-100

-200

Chesapeake Hampton Newport News Norfolk Portsmouth Suffolk Virginia Beach Williamsburg York County

Ab

sorp

tion

(Ann

ual)

Submarket Absorption – 2009TABLE VI

7.5

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

.5

0

Vaca

ncy

Rat

e (A

nnua

l)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Overall VacancyTABLE VII

Multi-Family Submarkets

Southside

Chesapeake

Norfolk

Portsmouth

Suffolk

Virginia Beach

Williamsburg

Peninsula

Hampton

Newport News

York County


Most submarkets saw an improvement in vacancy rates over the past year. Suffolk, Portsmouth and Hampton eachexperienced an improvement in vacancy rates of 150 or more basis points. Norfolk which has had a steady supply ofnew units coming on-line experienced the largest jump in vacancy rates.

As of October, the average rental rate in Norfolk-Virginia Beach-Newport News was $882.

2 0 1 0 M U L T I - F A M I L Y

9%

8%

7%

6%

5%

4%

3%

2%

1%

0%

Chesapeake Hampton NewportNews

Norfolk Portsmouth Suffolk VirginiaBeach

Williamsburg York County Overall

Rat

e

October 2008October 2009

$1000

$900

$800

$700

$600

$500

$400

$300

$200

$100

$0

Ave

rag

e R

enta

l Rat

e

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Submarket Vacancy RatesTABLE VIII

Average Rental Rates (New & Existing Communities)TABLE IX

Rental Rates

77

Average overall rents ranged from a low of $795 in Portsmouth to a high of $945 in Virginia Beach. Portsmouth, NewportNews and Norfolk all reported rents lower than the average rent of $882, while Hampton, Williamsburg, Suffolk,Chesapeake, York and Virginia Beach all reported rents higher than the average overall rent.

Average Rents

$1000

$900

$800

$700

$600

$500

$400

$300

$200

$100

$0

Portsmouth Newport News Norfolk Overall Hampton Williamsburg Suffolk Chesapeake York County Virginia Beach

Ave

rag

e R

ent

(low

est

to h

ighe

st)

Average Rent by Submarket – October 2009TABLE X

AVERAGE RENT $882


There were over 450 conventional apartment communities with more than 50 units surveyed in the Hampton Roadsregion in October. Of the 90,000 apartment units surveyed, the top five firms manage nearly one-third of these units.

Management

RoanokeRoanoke has fewer than 10,000 conventional apartment units within communities of at least 30 units. Although

weaker than last year, the occupancy rate in Roanoke was the strongest of any of the 19 markets surveyed by Real Datain 2009 at just over 93%. There were two new buildings completed in downtown Roanoke over the past year, the CottonMill and the Lawson Building East. Both are revitalizations of historic buildings. Same-store rents were up slightly inRoanoke, unlike most Southeastern cities where rents declined. The average rent rose to $668.

RichmondThere are more than 3,300 new apartments either under-construction or proposed to be built, according to the

August 2009 Richmond Apartment Index. The Tri-Cities region leads the area in development activity with over 1,300units under-construction or proposed at this time. The vacancy rate in the Richmond apartment market rose to almost9% in August 2009. Vacancy rates will continue to rise as current development comes online. The average rental ratein Richmond is now $804 per month. Rent growth is expected to remain flat into 2010.

Regional Trends

2 0 1 0 R E T A I L

S.L. Nusbaum

Great Atlantic

Drucker & Falk

Lawson Companies

Breeden Management

WMCI

Perrel Management

Ripley-Heatwole

AIMCO

PRG Real Estate

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Top 10 Management CompaniesTABLE X

HAMPTON ROADS

REAL ESTATE

MARKET REVIEW

INVESTMENTAuthor J. Scott Adams, CCIM

Regional President, CB Richard Ellis




79


2 0 1 0 I N V E S T M E N T

Most people involved in the commercial real estate investment market are relievedthat 2009 is over. We began 2009 not knowing how far we had to fall, and we begin 2010feeling like we are coming up from the bottom.

2009 will be remembered nationally as the transition year from the initial panic of thefinancial markets and historic economic recession to hopefully the bottom of the investmentmarket. Real estate investors realized during 2009 that the “super-cycle” of debt financingwas over for the foreseeable. Going forward, real estate investments will require much moreequity than in the fantastic investment sales run during 2005, 2006, and 2007.

Investors are expected to have renewedinterest in commercial real estate beginningin 2010. Many predict that the sector willbenefit strongly as the economy recoversand capital flows return. Well-managedcommercial real estate should continue tooffer returns higher than bond investments.The 20%-plus returns reported during the topof the investment cycle will be far less likelyobtained with the more conservativeunderwriting in place during 2010.

While some investors may try to “buy at the bottom,” most experts believe thatinvestors should instead focus on solid value investing no matter the exact market timing.Assets with stable cash flows and credit tenants without significant capital needs will remainin high demand with the debt markets showing signs of solidifying for these specificproperties. Assets that have high vacancy, extensive pending lease expirations, and/orsignificant deferred maintenance will find the capital markets remaining very difficult during 2010.

The Hampton Roads region has out-performed many national industry benchmarksand should compete well for investment capital considering all Mid-Alantic and Southeastmarkets. Numerous substantial investment transactions did occur during 2009, and mostexperts predict more should occur during 2010.


81

2009 was a very slow year for investment sales brokers nationwide. The $52 billion in 2009 deal volume was a 90%drop from the $522 billion tracked just two years earlier. In fact, the 2009 deal volume was the lowest in nearly a decadeas the historical graph below illustrates. The good news is that the volume and activity were noticeably stronger in thefourth quarter of 2009, perhaps building momentum for an even better 2010.

As 2009 dragged on, investors were able to achieve even better pricing towards the end of the year for the assets that closed. Value declines are widely reported to average more than 40% off pricing peaks recorded during 2007.Cap rates on all properties climbed, with only multi-family properties and assets in top tier markets having sale pricingthat remained close to previous years. The unique availability of multi-family financing, in large part explains this rela-tive outperformance by one property type. The stronger relative pricing in top tier markets (i.e. Washington, D.C.) canbe attributed to the presence and interest of institutional and foreign buyers who tend to be less reliant on individualasset debt financing.

There is, however, a general feeling that buyers and sellers are beginning to have more common ground on whatfair sales prices should be. The technical term for this is the “Bid-Ask Gap”and, by many accounts, it is becoming narroweras we begin 2010. Of course, many opportunistic buyers continue to believe that sales prices have to fall further to makeinvestments worthwhile. Any significant jump in volume will require a return of larger deals and portfolio transactionswhich have remained low to date with the limited large-financing options available. Investors with cash are poised to takeadvantage of highly attractive buying opportunities at cyclical lows, while distressed owners continue to hold off on selling into this market if possible.

Capital Markets During 2009

Capital Markets Activity Remains Limited

Property Sales — All Core

$600

$500

$400

$300

$200

$100

0

2003 2004 2005 2006 2007 2008 2009

Bill

ions

$99

EntityPortfolioOne Off

$160

$46

$230

$71

$256

$73

$39

$250

$142

$111$44

$135

$134

Source: Real Capital Analytics, January 2010


The most prominent investment market story of 2009 was the steady growth in distressed assets. The chart belowillustrates that commercial real estate loan balances that were higher than the value of the underlying assets grewdramatically during 2009 to a level up four-fold from year-end 2008. Furthermore, for as bad as it has been to date,predictions are that 60% of loans maturing between 2012 and 2014 will also have negative equity. Real Capital Analytics

reports that over $160 billion of significant commercial real estate mortgages arecurrently in default; a potentially large percentage of $500 billion of commercial realestate mortgages scheduled to mature over the next few years may be in default as well.Loan extensions executed in 2010 and 2011 will help borrowers in the near term, butthey also contribute more risk to the system in the years ahead.

The United States government has implemented programs potentially beneficialto the industry. The combined $1.5 billion TARP program and stimulus package haveprovided some stability to the financial markets, but long-term benefits remain unclear.Credit flow certainly has not returned freely, and most real estate owners remain highlyfrustrated with the difficulty of getting a loan. An October 2009 bank regulator policy

statement called “Prudent Commercial Real Estate Loan Workouts” encourages loan modifications and extensions forcreditworthy borrowers which helped avert further 2009 problems.

Many owners of distressed assets are asking the extremely difficult question of “Is it the best use of my cash to investit back in this deal I already own?” Real estate professionals are hoping that economic fundamentals and asset pricingrebound more quickly than most economists expect. A recovery will help more loans be re-financeable without dramaticequity infusion.

Growth In Distressed Assets Continues

The combined $1.5 billionTARP program and stimuluspackage have provided somestability to the financialmarkets, but long-termbenefits remain unclear.

Cumulative CRE Distress

$200

$180

$160

$140

$120

$100

$80

$60

Bill

ions

1‘08

2 3 4 1‘09

2 3 4

TroubledREOResolved

Source: Real Capital Analytics, January 2010

2 0 1 0 I N V E S T M E N T

Conservative underwriting remains the standard with lower leverage capital not even available for all deals. Thedeals most likely to be financed have substantial owner equity, high-quality sponsors, high-quality assets, and stabletenancy. Deals not meeting any of these criteria will face tough challenges to find a loan that will meet owner objectives. For the foreseeable future, cash will remain king when it comes to securing a loan. The cautious approachto lending by institutions that are in the lending market is a large part attributable to the current state of bank balance sheets and the underlying fundamentals of the economy and the real estate industry.

Bank balance sheets are already overloaded with all types of real estate loans, many with a high volume of trou-bled assets. The FDIC estimates that 60% of loans held by banks during 2009 were property-based (including both res-idential and commercial assets). Many banks areclosely monitoring their capital ratios as delin-quency rates continue to rise.

Many experts believe that financing will become more available as the national job mar-ket improves. With over eight million jobs lostduring the United States recession so far, theemployment markets have considerable groundto make up. The resurgence in real estate fun-damentals, such as rents and occupancies, will unfortunately lag the resurgence in the over-all economic recovery.

Loans are most readily available for multi-family assets which benefit from the activeand less conservative approach to date of Government Sponsored Enterprise (“GSE”) lend-ing. The primary GSE’s are known as Fannie Mae and Freddie Mac. Unfortunately, there areno GSE’s making loans on other commercial property types such as office buildings andshopping centers.

One common method of addressing more conservative lender underwriting seen fre-quently during 2009 was the offer of seller financing. Seller financing is a form of lending in which the seller makes asecured loan to the buyer to finance a portion of a property’s sale price. Favorable terms such as “below-market interestrate” and “interest only” is included in seller financing in many cases. Clearly, many owners who want to be sellers donot want to wait for the lending markets to recover such that seller financing would no longer be necessary.

The Commercial Real Estate Lending Market Today

83

The FDIC estimates that 60%of loans held by banks during2009 were property-based(including both residential andcommercial assets).


2009 Transactions in Hampton Roads

Like all national markets, Hampton Roads saw a dramatic decline in investment sales volume in 2009 versus re-cent years. Frozen credit markets and concerns of when market fundamentals will begin to improve contributed tolower capital flows across all property types.

That being said, by many reports the Hampton Roads area has maintained employment levels far better thanmany other regions of the country. The military and port presence in Hampton Roads, combined with our relativelydiverse local economy, has helped the area remain stable and attract real estate investors looking for less risk rela-

tive to other more volatile markets.The Emerging Trends in Real Estate 2010 survey,

undertaken jointly by PricewaterhouseCoopers and UrbanLand Institute, ranked Hampton Roads favorably amongover 50 nationally-tracked markets. Among the ranking of“U.S. Markets to Watch” in terms of commercial/multi-family investment, Hampton Roads was ranked ahead ofmany prominent Mid-Atlantic and Southeast markets including Baltimore, Orlando, Miami, Jacksonville, andTampa.

The chart below summarizes the 11 commercialtransactions closed in Hampton Roads in 2009 with saleprices of $5 million or more. Three of the largest four

sales were multi-family, which is logical given the stronger debt availability for this asset class. It is also noteworthythat three of the qualifying transactions (one office asset and two retail assets) were sales to owner-occupants, a re-cent national trend.

2 0 1 0 I N V E S T M E N T

The Emerging Trends in Real Estate 2010 survey,

undertaken jointly by PricewaterhouseCoopers and

Urban Land Institute, ranked Hampton Roads favorably

among over 50 nationally-tracked markets. Among the

ranking of “U.S. Markets to Watch” in terms of

commercial/multi-family investment, Hampton Roads

was ranked ahead of many prominent Mid-Atlantic

and Southeast markets including Baltimore, Orlando,

Miami, Jacksonville, and Tampa.

2009 Sales Transactions In Hampton Roads Of $5 Million Or More

Property Name Property Purchase Size $/Size Purchaser Seller

Type Price

Springhouse @ Newport Multi-Family $29,250,000 432 Units $67,708 Bluerock RE, LLC AIMCO

Harbour View East Retail $23,201,954 91,237 SF $254 Halvorsen Real Estate Landonomics

The Townes @ Jones Run Multi-Family $23,000,000 300 Units $76,667 Breeden Company Newport Housing, LP

Woodshire Apartments Multi-Family $22,100,000 288 Units $76,736 Harbor Group International AIMCO

Lynnwood Plaza Office $7,800,000 8,1445 SF $96 ADS Tactical Parkway Properties

London Bridge Shopping Center Retail $7,250,000 118,705 SF $61 River City Capital, LLC First Republic Corporation

5112 Virginia Beach Boulevard Retail $6,000,000 89,000 SF $67 Restaurant Depot Virginia Beach Associates, L.P.

Country Club Apartments Multi-Family $5,590,000 102 Units $54,803 Country Club Estates, LLC Estate of Billie D. Gordon

875 Middle Ground Boulevard Industrial $5,161,370 62,052 SF $83 Advanced Technologies Dean Parkinson

Greenbrier Portfolio Industrial $5,150,000 60,200 SF $86 J & G Greenbrier Properties WBS Realty Greenbrier

110 S. Independence Boulevard Retail $5,000,000 38,414 SF $130 City of Virginia Beach Cardinal Capital

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