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State of the Commercial RE Market

State of the Commercial Real Estate Market- Hampton Roads

Over the past decade the commercial real estate landscape has experienced expediential change. Translation: E-commerce has been in full swing, we experienced a moderate recession that started in December of 2007 and concluded in 2009, the Covid outbreak bashed businesses in 2020, and the icing on the cake is interest rates doubled and are currently around 7.5%. __Hopefully by mid-summer, we will receive a reduction from the Fed? But through sheer cost cutting, marketing tactics, a sharp eye on employment, and determination, most businesses came back, and in some cases, stronger. Thankfully we have a solid military/government base which helps insulate our region.

So, what effect did all of that have on the current commercial real estate market?

Big box retail, large corporate office spaces, and new development had to redefine themselves. This resulted in a move to smaller footprints of space, or sadly even having to leave the market. Whereas during this same timeline, industrial, small office, and service-based retail centers have done relatively well.

On current office, according to the Hampton Roads Real Estate Market Review, 86% of both new and renewed office leases fall under 5,000 square feet. This reflects the dominant core of the office market and embraces some employees working remotely. Please note, there has been a growing trend for employees to return to office buildings both locally and nationally.

Simply Amazing, in the industrial sector, Hampton Roads has one of the lowest vacancy rates in the United States. We only have about a 1.8% vacancy rate. There continues to be a severe shortage in this inventory, and again, there is still a high demand. This can easily be charted back to WWII. The presence of shipyards and military related industrial uses have always fueled this market. Subsequently the industrial shortage has escalated sale and lease values.

More than ever on the retail front, shopping centers are competing with e-commerce. To be competitive, brick and mortar stores must offer something online stores can’t… there is still value to hands on product. The limelight of retail is now placed on service-based retail centers that simply can’t be found online from hardware stores to getting a haircut. Consumers are more comfortable than ever purchasing products online, especially with free/low-cost shipping and easy return policies. This online purchasing trend will continue to force physical retail locations to adapt to stay competitive.

On development, new construction cost has created a sticker shock amongst all in the commercial real estate market. Site work costs have soared to over $250,000-350,000/acre, existing industrial properties in good shape are selling for about 30% more than they did pre-covid, and new construction costs across the board believe it or not have doubled. Let’s not forget the time involved in development once you factor in the permitting process by municipalities, engineering, and public involvement it is taking users a minimum of a year to have doors open for business.

Whatever commercial endeavor you pursue, the operative word is preparation. There is no substitute for diligent homework, be it a lease, sale, or ground up development…knowledge of the mechanics of the market is key. Through well forged relationships in the industry, much of these noted needs can be gained on by a handful of skilled commercial real estate brokers.

Ron and Campana Waltz West, take pride in leveling the playing field so the client can make prudent business decisions. I would welcome the opportunity to speak more with you regarding your commercial needs or questions.

Ron is the former Chairman of the Board for the Williamsburg Chamber and Tourism Alliance. This organization oversees over 800 businesses in the Hampton Roads area. He was recognized as one of the Top 40 Under 40 business leaders in Hampton Roads from Inside Business and a Top 15 Under 50 recipient from the Greater Williamsburg Chamber and Tourism Alliance. He is also a Platinum Broker Award winner which recognizes the highest performing brokers (top 1 %) in the United States.

Ron A. Campana, Jr. is an Associate Broker with Campana Waltz Commercial Real Estate West. He can be reached at ron@cwcrew.net or at 757-209-2990.