Author William C. Throne, CCIM, ALC, SIOR

Data Preparation Stephanie Sanker, CCIM

Survey Coordination Stephanie Sanker, CCIM

Reporters Greenbrier Ron Biesecker& Christine Kaempfe

Bainbridge/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 PhilipsOakland/Upper Peninsula Area Clay CulbrethWilliamsburg Extended Area Bobby Phillips

Industrial

Acknowledgements

27

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 Advisory Board.

Disclosure The data used for this report is deemed reliable; however, neitherOld Dominion University, the E. V. Williams Center for Real Estateand Economic Development, nor sponsoring companies and/or individuals makes any representation or warranty as to its accuracy.

282009 Hampton Roads Real Estate Market Review

2 0 0 9 I N D U S T R I A L

General Overview

This survey includes the following types of properties:

• Office-warehouse, industrial and shop facilities of 5,000 square feetor greater, although some facilities of less than 5,000 square feetmay be included.

• Properties must have less than 80% office space to be included inthe ODU survey.

• Both owner-occupied and leased properties are included. Owner-occupied is defined as a property that is 100% occupied by a busi-ness 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 re-gardless of whether they are occupied, unless they are strictlyavailable for sale as an investment property. For example, a prop-erty that is available for sale and is currently occupied on a short-term lease is included.

• All properties that have commenced construction (foundations in-stalled minimum).

The survey excludes the following types of properties:

• Land

• Warehouse or shop facilities on shipyard properties

• Warehouse or other industrial facilities on federal government property (e.g., military installations)

• Industrial facilities on government property (e.g. Norfolk International Terminal or Newport NewsMarine Terminal)

his report analyzes the 2008 industrial real estate conditions within the Virginia Beach-Norfolk-

Newport News, VA-NC Metropolitan Statistical Area (MSA) that is also known as Hampton Roads.

It provides inventory, vacancy, rent, sale and other data

for the MSA. The survey includes properties in the cities of Chesa-

peake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth,

Suffolk, Virginia Beach and Williamsburg, plus the counties of

Gloucester, James City, York and Isle of Wight.

METHODOLOGY

T

Functional submarket delineations are determined with some regard to city boundaries but boundaries are notdeterminative. The entire market is divided into 16 submarkets defined by industrial building concentrations, thetransportation network, and pertinent physical features. The area map included in this report provides a loca-tion key for reference.

The E.V. Williams Center for Real Estate and Economic Development (CREED) at Old Dominion University hasbeen tracking the inventory of the Hampton Roads industrial market since 1995. The results of this year’s survey(collected during the 4th quarter of 2008) indicate that the Hampton Roads industrial market currently encom-passes 104,319,410 square feet or space locatedin 2,741 buildings throughout the Region. This isan increase of 524,456 square feet, or 0.5% fromlast year’s survey. The increase is primarily due tonew construction.

HAMPTON ROADS OVERV I EWOn balance, 2008 was a good year for the industrial sector, at least for the first three quarters. Questions remainas to what direction 2009 will take. A few quick notes:

• Many of the submarkets throughout Hampton Roads remain healthy.

• Demand for warehouse space has softened, while demand for small-to-midsized space remains high; con-sequently, vacancy and rental rates reflect the dichotomy of the market between types of space.

• Rental rates did not experience a significant reduction in 2008, although warehouse rates are expected to drop.

• Absorption for 2008 was a negative 0.17% (-172,818 square feet).

• Warehousing and bulk distribution space is significantly overbuilt.

WAREHOUSE REV I EWDevelopers responded to the call for more high bay warehouse space from years past by building a significantnumber of new projects throughout the Region. The result has been new construction, with much of it still avail-able. The Virginia Port Authority reports that TEU (twenty-foot equivalent unit) volume decreased by 2.1 percentin 2008. This has contributed to additional second-generation space coming to market in core areas such as Nor-folk and Virginia Beach. Current warehouse availability throughout the region is close to 4.3 million square feetwith another 5.4 million square feet planned.

New projects looking for larger tenants include:

• Regional Commerce Center, Suffolk Submarket (390,000 square feet)

• Virginia Commerce Center, Suffolk Submarket (385,320 square feet)

• Northgate Logistics Center, Suffolk Submarket (260,000 square feet)

• Indian River Distribution Center, Bainbridge Submarket (230,000 square feet)

• Johnson Development, Isle of Wight Submarket (329,766 square feet)

• Enterchange at Hampton, Copeland Submarket (211,219 square feet)

29

Hampton Roads industrial market currently

encompasses 104,319,410 square feet or space

located in 2,741 buildings throughout the Region.

This is an increase of 524,456 square feet, or 0.5%

from last year’s survey.

302009 Hampton Roads Real Estate Market Review

2 0 0 9 I N D U S T R I A L

10.210.9

13.5

12.3

10.8

9.28.7 8.6

7.3 7.6

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 (As of the first month of the year.)

The following aberrations are worthy of note, since they skew an accurate view of the Hampton Roads Indus-trial market.

A. The Ford plant in Norfolk is carried as a vacancy of 2.3 million square feet. This represents 2.2% of the ag-gregate vacancy for the entire market. It is unlikely that the buildings will be used for another manufactur-ing prospect, however some of the buildings may be adapted for reuse.

B. Lillian Vernon has put 373,782 square feet on the market in the Lynnhaven Submarket, resulting in an im-mediate rise of almost 5% from a vacancy of 8.25% to the reported 13.03% for the Submarket.

C. The Lynnhaven Submarket has also suffered from a glut of construction in the small building and condo-minium market. The Taylor Farm industrial area saw amazing growth over the last few years in response topressures from small industrial users. Condominiums and small buildings provided an affordable entry intothe commercial building market. In the current downturn, these smaller properties are surfacing as ‘For Saleor For Lease’ in ever increasing numbers as electricians, plumbers, landscapers, and the like look to sheddebt to sustain their businesses. Twenty-nine (29) buildings of less than 5,000 square feet are currently onthe market in the Lynnhaven area.

D. Camp Morrison of the Copeland Submarket is offering 418,452 square feet of space in an eclectic group offunctionally obsolete buildings that do not directly compete with most of the market. This represents 1.5%of the Peninsula total market.

MARKET ABERRATIONS

There are a number of bright spots in the Hampton Roads Industrial market. The Old DominionUniversity E. V. Williams Center for Real Estate and Economic Development Market Report is de-fined by sixteen Submarkets. Out of those sixteen Submarkets:

A. Nine Submarkets (56.3%) have lowered vacancy rates since last years report.

B. Eight Submarkets (50%) have a vacancy rate of less than 8%.

C. Seven Submarkets (43.8%) have a vacancy rate of less than 6%.

D. Four Submarkets (25%) have a vacancy rate of less than 5%.

31

SUBMARKET OVERV I EW

Prices remained strong and stable through most of 2008. The financial uncertainty in the market put a significant damperon sales in the fourth quarter. Interest rate volatility, political change, along with more stringent underwriting require-ments moved most potential buyers to the sideline.

SALES AND F I NANC ING

Representative Building Sales

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

4600 Bainbridge Boulevard, Bainbridge Submarket October 2008 6,000 $495,000 $82.50

1129 West Olney Road, West Norfolk Midtown Submarket February 2008 8,215 $725,000 $88.25

830 Jupiter Crescent Road, Greenbrier Submarket March 2008 10,850 $1,300,000 $119.82

803 Blue Crab Road, Oyster Point Submarket July 2008 11,300 $715,000 $63.27

3737 Cook Boulevard, Cavalier Submarket February 2008 11,950 $965,000 $80.75

833 Principal Lane, Greenbrier Submarket 2008 12,175 $1,278,375 $105.00

814 Professional Place, Greenbrier Submarket June 2008 13,125 $1,450,000 $110.48

5803 Curlew Drive, Central Norfolk Submarket October 2008 19,000 $1,600,000 $84.21

210 Tintern Court, Greenbrier Submarket October 2008 19,200 $1,500,000 $78.13

2608 Indian River Road, Bainbridge Submarket May 2008 19,500 $1,750,000 $89.75

4571 Village Avenue, Norfolk Industrial Park Submarket July 2008 20,000 $1,230,000 $61.50

4550 Bainbridge Boulevard, Bainbridge Submarket June 2008 22,000 $1,325,000 $60.23

528 Viking Drive, Lynnhaven Submarket July 2008 24,138 $1,750,000 $72.50

3728 Profit Way, Cavalier Submarket August 2008 30,500 $1,700,000 $55.74

1242 Executive Boulevard, Greenbrier Submarket May 2008 32,763 $3,200,000 $97.67

3433 Inventors Road, Norfolk Industrial Park Submarket April 2008 50,094 $1,425,000 $61.96

1100 International Plaza, Cavalier Submarket June 2008 51,168 $4,450,000 $86.97

4025 Seaboard Court, Portsmouth Submarket May 2008 58,800 $5,325,000 $90.56

2505 Aviator Drive, Lynnhaven Submarket July 2008 81,400 $6,400,000 $78.62

1401 Kelland Drive, Greenbrier Submarket January 2008 92,611 $9,810,000 $105.93

322009 Hampton Roads Real Estate Market Review

2 0 0 9 I N D U S T R I A L

Submarket TotalsBldgs

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

Greenbrier Area Chesapeake 274 8,398,437 491,127 5.85%

Bainbridge/S. Elizabeth River Area Chesapeake 133 5,464,312 750,958 13.74%

Cavalier Industrial Park Area Chesapeake 179 5,847,360 483,434 8.27%

Norfolk Commerce Park/Central Norfolk Area Norfolk 142 7,079,668 2,604,208 36.78%

Norfolk Industrial Park Area Norfolk 340 10,281,534 594,600 5.78%

West Side/Midtown Norfolk Area Norfolk 265 6,401,209 286,673 4.48%

Lynnhaven Area Virginia Beach 269 7,810,165 1,015,365 13.00%

Greenwich/Cleveland Streets Area Virginia Beach 127 3,141,006 144,843 4.61%

Airport Industrial Park Area Virginia Beach 70 3,556,987 318,231 8.95%

City of Portsmouth Portsmouth 154 4,111,277 244,227 5.94%

City of Suffolk Suffolk 119 11,617,903 1,483,258 12.77%

Isle of Wight Isle of Wight 28 2,791,916 355,766 12.74%

Southside Totals 2,100 76,501,774 8,772,690 11.47%

Copeland/Lower Peninsula Area Peninsula 305 10,015,783 2,045,618 20.42%

Oyster Point/Middle Peninsula Area Peninsula 149 4,109,297 67,657 1.65%

Oakland/Upper Peninsula Area Peninsula 127 4,785,704 317,861 6.64%

Williamsburg Extended Area Peninsula 60 9,005,095 381,602 4.24%

Peninsula Totals 641 27,915,879 2,812,738 10.08%

Totals 2,741 104,417,653 11,585,428 11.10%

2008 ODU Hampton Roads Industrial Survey

Nine Submarkets (56.3%) have

lowered vacancy rates since last

years report.

Representative Lease Rates

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

4001C Holland Boulevard, Cavalier Submarket 10,000 $6.00 NNN

520 Woodlake Circle, Greenbrier Submarket 10,000 $7.25 NNN

803 Blue Crab Road, Oyster Point Submarket 11,300 $8.74 NNN

701 14th Street, West Norfolk Submarket 15,000 $4.24 NNN

1140 Azalea Garden Road, Norfolk Industrial Park Submarket 17,800 $5.20 NNN

1569 Diamond Spring Road, Airport Industrial Park 19,300 $5.65 NNN

Northgate Distribution Center, Suffolk Submarket 39,200 $5.00 NNN

1920 Campostella Road, Bainbridge Submarket 75,000 $4.60 NNN

33

Leasing remained strong in 2008, with no retreat in lease rates for most submarkets. The Lynnhaven, Greenbrier and somePeninsula Submarkets have seen rental rates commonly exceed $7.00 NNN per square foot per year for smaller space.

Warehouse rates, on the other hand, have been softening.

LEAS ING

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

> 5,000 $6.34 $7.16 $6.95 $7.30 $7.75 $7.85 $7.90 $7.95

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

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

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

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

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

> 5,000 30% 15% 32% 25% 30% 25% 20% 23%

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

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

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

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

Rents For Available Spaces By Size Range 2008

Percentage Of Available Spaces By Size Range 2008

34

35

SouthsideAirport Industrial Park

Bainbridge

Cavalier

Central Norfolk

Cleveland

Greenbrier

Lynnhaven

Norfolk Industrial Park

Portsmouth

Suffolk

West Norfolk

PeninsulaCopeland

Oakland

Oyster Point

Williamsburg Extended

Industrial Submarkets

362009 Hampton Roads Real Estate Market Review

2 0 0 9 I N D U S T R I A L

Sales slowed in 2008. Bright spots include two major purchases in the Suffolk Submarket.

1. CenterPoint Properties Trust completed their purchase of almost 900 acres for a planned distribution center inWestern Suffolk. They are currently in the planning process with the City along with improving the Rt. 58 corridor.CenterPoint is expected to bring up to 5 million square feet of warehouse space to the market at full build-out. Pur-chase price for the property is estimated at $29,000 per useable acre.

2. ProLogis purchased the first phase of a total 134-acre takedown in Northgate Business Park in Suffolk. ProLogisPark will provide 2.1 million square feet of Class A warehouse space in close proximity to the APM Terminal and ul-timately Craney Island. Purchase price was approximately $50,000 per acre for the initial 83 acres with an option foradditional acres.

Fewer smaller properties sold in 2008. Examples include:

• 9.5 acres sold in Northgate Industrial Park, SuffolkSubmarket, for $115,000 per useable acre.

• 4.4 aces purchased in Suffolk Industrial Park, SuffolkSubmarket, for $35,000 per useable acre.

• 1.8 acres on Bainbridge Boulevard, Bainbridge Submarket sold for $300,000 per acre.

• 1.8 acres on Holland Boulevard in the Cavalier Submarket sold for $120,000 per acre.

• 2 acres at Dominion Commerce Park, BainbridgeSubmarket sold for $200,000 per acre.

One new industrial park designed with large sites for developers or users was delivered in 2008. Waverton CommercePark, in the Suffolk Submarket, is a 350-acre high-end business park with industrial zoning and CSX rail service. Priceshave yet to be announced. Sites are available between 10-350 acres.

I N V ESTMENT SALESThe industrial investment market showed early signs of slowdown in 2008. This was due primarily to reaching bot-tom on cap rate compression. Investment buyers were no longer willing to sacrifice yield for the sake of just own-ership in real property. Institutional investors continued to struggle to find properties large enough to satisfy portfoliorequirements.

LAND

One new industrial park designed

with large sites for developers or users

was delivered in 2008. Waverton

Commerce Park, in the Suffolk

Submarket, is a 350-acre high-end

business park with industrial zoning

and CSX rail service.

FORECASTIt is expected that financing will drive the Hampton Roads market in 2009. Owners who must refinance under morechallenging terms may be forced to sell at a discount. New buyers will need more cash and/or use creative financing,perhaps from sellers, to make deals work.

On the other hand, there has been little abatement in appetite for small-to-medium sized properties to lease or pur-chase. Submarket vacancy rates for space between 10,000 and 20,000 square feet remain low, and rental rates have re-mained healthy. Sellers of industrial buildings may become tenants, further exacerbating a tight leasing market in mostsubmarkets. Multi-tenant industrial buildings in healthy submarkets may be good investment opportunities for buyerswith cash.

Larger distribution tenants will benefit the most in 2009. Existing distribution buildings will begin offering incentivesto tenants through either reduced rent or rent concessions. Locations closer to the Port should do better with oilprices expected to increase in early 2009.

With few new deliveries in the pipeline, and with leasing demand expected to maintain current levels, look for vacancyrates to fall below 10% in 2009. Rental rates for small to medium buildings may rise, while warehouse rents will fall.Building sales will show little movement in price, with low supply balanced by higher lending requirements for pur-chasers.

37

Submarket vacancy rates for space between 10,000 and 20,000

square feet remain low, and rental rates have remained healthy.

Sellers of industrial buildings may become tenants, further

exacerbating a tight leasing market in most submarkets.