Rising occupancy rates not yet supported by increased rental rates
The Hampton Roads region office market showed inconsistent growth patterns during the third quarter according to JLL (NYSE:JLL) market reports. While rents for Class A space rose for the second quarter in a row as the vacancy rate dropped to 10 percent, rents for Class B space dropped slightly despite a modest decline in the vacancy rate.
“Although occupancy has risen, rents have yet to reflect this progress for most properties,” said Deborah Stearns, Senior Vice President, JLL, Hampton Roads. “Tenants are taking advantage of the comparative value in the market to move to better buildings. This is why there is tightening in the Class A inventory and effective rates are improving.”
According to the JLL report, downsizing is still occurring in many firms, creating multiple options for tenants seeking up to 60,000 square feet of space:
- Federal contractors: Unsurprisingly in a region which has historically relied heavily on federal and military spending, fewer contracts and less secure funding have driven defense contractors to cut back on square footage leased and term of lease.
- Professional occupiers: Law firms and financial companies whose business has rebounded continue to take advantage of technological advances that reduce the number of employees working in the office at a particular time and the amount of space required for paper documents in libraries and file cabine
“As a result of current conditions, it is not surprising that there is little demand for new construction except for projects targeted at specialized markets,” added Stearns. “However, good employment dynamics in the region have the potential to invigorate the market in coming years. Recent announcements of corporate relocations to Downtown Norfolk and the Peninsula have generated excitement and optimism for emerging market interest.”
Life Sciences
The region is working to diversify its economy and employment opportunities with an increased focus on bio-medical and life science industries. At the Life Net Headquarters in Virginia Beach, for example, this global leader in organ transplants and tissue regeneration research recently expanded its campus with a major lab facility.
Conversions
High inventory and low rents have made some chronically vacant office space attractive to developers trying to capitalize on interest in urban housing and mixed-use developments. At 1 Commercial Place, 330,000 square feet of previously high-rated office spaces is being converted into 300 apartments with enviable views and access to downtown amenities.
| 17,825,417 Total inventory (s.f.)* | -12,687 Q3 2016 net absorption (s.f.) | $18.27 Direct average asking rent | 287,858 Total under construction (s.f.) |
| 14.0% Total vacancy | 104,475YTD net absorption (s.f.) | -0.2% 12-month rent growth | 100% Total preleased |
*The surveyed buildings are Class A and B multitenant office buildings with 20,000 or more square feet in the Hampton Roads market, excluding medical.
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $59.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
