R E A L E S T A T E M A R K E T R E V I E W & F O R E C A S THAMPTON ROADS

2018

David RingExecutive Vice PresidentCommercial BankingGroup Executive

John StallingsBank President

John AsburyChief Executive Officer

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R E A L E S T A T E M A R K E T R E V I E W & F O R E C A S THAMPTON ROADS

CONTENTS

Message From The Center...................5

Executive Committee...........................7

Advisory Board.....................................7

E.V. Williams Center for

Real Estate Members...........................8

Sponsors.............................................10

Economic Trends................................13

Office.................................................. 16

Industrial...........................................20

Retail.................................................24

Multifamily........................................28

Investment.......................................34

Residential........................................38

Sentiment.........................................42

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E.V. Williams Center for Real Estateand Economic Development

We thank you.

elcome to the 2018 Hampton Roads’ Real Estate Market Review & Forecast. For over two decades, the E.V. Williams Center for Real Estate has been working with Hampton Roads’ industry leaders to produce the Market Review. This year’s reports examine eight areas of interest in the Hampton Roads’ real estate markets: economic trends, office, industrial, retail, multifamily, investment properties, residential, and market sentiment. Thank you to this year’s speakers for sharing their industry expertise and contributing their valuable time and leadership to this event and to the Center.

As part of Old Dominion University’s Strome College of Business, the E.V. Williams Center for Real Estate strives to connect the Hampton Roads’ real estate community to the research, curriculum, and students at the University. Through our dedicated membership, comprised of community leaders and industry experts, we educate and empower the next generation of professionals and leaders. We would like to thank our growing membership for supporting the Center, and for assisting in the engagement and education of our students. 2017 was an exciting year for the Center as it announced the new B.S.B.A. in Real Estate and the hiring of new full-time Wendell C. Franklin Lecturer in Property Management, Richard Button. The Center would not be able to achieve its mission without the dedication of its Executive Committee, Advisory Board, and members.

Throughout the year, the E.V. Williams Center works to engage its members, the community and ODU students by hosting networking events and conducting research. To learn about our upcoming events or to become more engaged with the E.V. Williams Center please contact, Director, Andy Hansz, jhansz@odu.edu, or, Assistant Director, Natalie Boehm, nmcgaugh@odu.edu.

Thank you for attending the 2018 Market Review & Forecast and for supporting the E.V. Williams Center for Real Estate. We look forward to seeing you at future events.

J. Andrew Hansz, Ph.D., MAI, CFARobert M. Stanton Chair in Real Estate, Finance Department, Strome College of BusinessDirector, E.V. Williams Center for Real Estate

Lawrence J. Colorito, MAIChair, E.V. Williams Center for Real Estate Executive BoardSenior Managing Director, Valbridge Property Advisors

Natalie M. BoehmAssistant Director, E.V. Williams Center for Real EstateCopy Editor, Hampton Roads Real Estate Market Review & Forecast

W

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EXECUTIVE COMMITTEE

ADVISORY BOARD

Tom DillonUnion Bank & Trust

Jonathan S. GuionJonathan Commercial Properties

Bradley R. SanfordDominion Realty Advisors, Inc.

Stephanie SankerS.L. Nusbaum Realty Co. Board ChairLawrence J. Colorito, Jr. Valbridge Property Advisors

Ex Officio Natalie M. Boehm*Old Dominion University, E.V. Williams Center for Real Estate

Kyllie BullionOld Dominion University, Strome College of Business

J. Andrew HanszOld Dominion University, E.V. Williams Center for Real Estate

Thomas H. AthertonAtherton Real Estate Development

Richard CrouchVandeventer Black, LLP

Dawna L. EllisHarvey Lindsay Commercial Real Estate

Dewey JonesPond & Company

Evan KalfusKPMG LLP

Teresa PetersStanton Partners, Inc.

John M. ProfiletS.L. Nusbaum Realty Co.

Charles E. Rigney, Sr. Norfolk Department of Development

Jeremy R. StarkeyTowneBank

Deborah Stearns Jones Lang LaSalle

Christopher E. Todd*Colliers International, Norfolk

Jim VallosHarbor Group International, LLC

Erica ViolaBranch Civil, Inc.

*ODU Association of Real Estate Alumni (AREA) Committee

7

To obtain additional copies of this report, please visit our website: www.odu.edu/business/center/creed

Contact: J. Andrew Hansz, Ph.D., CFA, MAIDirector, E.V. Williams Center for Real EstateStrome College of BusinessOld Dominion University2154 Constant Hall, Norfolk, VA 23529jhansz@odu.edu • 757.683.3505

R E A L E S T A T E M A R K E T R E V I E W & F O R E C A S T

HAMPTON ROADS

2018

E.V. WILLIAMS CENTER f o r r e a l e s t a t e

The views expressed in this report do not represent the official position of Old Dominion University, E.V. Williams, or any generous sponsors or donors.

J. Scott AdamsCBRE Hampton Roads

Jeff AinslieAinslie Group

Christopher AmbrosioVandeventer Black LLP

Stephen ArmbrusterCherry Bekaert LLP

Matthew J. BaumgartenTidewater Community College

Anthony BeckCenterPoint Properties

Ann BolenLove Funding Corp.

Denise BrownBayPort Credit Union

M. Albert CarmichaelHarvey Lindsay Commercial Real Estate

Thomas ClemensWells Fargo Business Banking

Gail Coleman Howard Hanna Real Estate Services

Craig CopeCommonwealth Commercial Partners

Hahns L. Copeland*DARVA Group Construction LLC

Krista CostaDivaris Real Estate, Inc.

Ann K. CrenshawKaufman & Canoles, P.C.

John H. CrouseSaunders + Crouse Architects

Jon R. CrunkletonOld Dominion University

Kim CurtisTidewater Home Funding

Edward DentonDenton Realty Company

Michael B. DivarisDivaris Real Estate, Inc.

Nancy Dove*Valbridge Property Advisors

Helen E. DragasThe Dragas Companies

Pam Ellyson* Farmers Bank

Margaret R. FlibotteFrye Properties, Inc.

William GambrellRight Coast Consulting Corp. Julie GiffordBECO

Brian E. GordineerCity of Hampton, Office of the Real Estate Assessor

Howard E. GordonWilliams Mullen

Dennis Gruelle Appraisal Consultation Group

Janice M. HallRRMM Design Build LLC

Michael HallBelfor Property Restoration

8

MEMBERS

E.V. WILLIAMS CENTER f o r r e a l e s t a t e

Carl L. HardeeThe Lawson Companies

Catherine HarrisHarbor Tax Group

Jeffrey S. HarrisHarris Property Advisors

Warren D. HarrisVirginia Beach Economic Development

Aimee Hower

Kevin Hughes City of Suffolk

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

Lynn JernellFulton Financial Corporation

Jerry JonesAll Access Property Management

Robert KerrKerr Environmental Services

Frank KollmanspergerEntry Guard Systems

Larry Lombardi County of Currituck Economic Development

Janet Moore S.L. Nusbaum Realty Co.

Thomas O’GradyClancy & Theys Construction Company

Victor L. PickettGrandbridge Real Estate Capital

F. Craig ReadRead Commercial Properties, Inc.

Brenda Reid Howard Hanna Real Estate Services

Mark RichardsonThe Timmons Group, Inc.

J. Randy RoyalKimley-Horn and Associates, Inc.

Tara SaundersOld Dominion University Real Estate Foundation

John SosciaSoscia & Company, Inc.

Jeff StoneBECO

Robert M. StantonStanton Partners, Inc.

G. Stewart TylerRight of Way Acquisitions & Appraisals, Inc.

Samuel A. Walker, Jr. Pembroke Commercial Realty

Ed Ware, IIINorfolk Redevelopment & Housing Authority

Robert T. WilliamsTri-City Developers LLC

Eddie Winters CRE Appraiser

Steven WrightChesapeake Department of Economic Development

Michael P. ZarpasS.L. Nusbaum Realty Co

9

MEMBERS

E.V. WILLIAMS CENTER f o r r e a l e s t a t e

10

THANK YOU2 0 1 8 s p o n s o r s

STAGING MEDIA

11

THANK YOU2 0 1 8 s p o n s o r s

Provided by, Hampton Roads Planning District Commission.

ECONOMIC TRENDS

VINOD AGARWAL, PH.D.

Deputy Director, Dragas Center for Economic Analysis and PolicyStrome College of Business, Old Dominion University

ECONOMICTRENDS

13

The Hampton Roads economy is expected to grow at a much higher rate in 2018 (2.2%) than in 2017 (0.8%). But, regional growth in 2018 will, once again, be slower than the historical annual average of 2.4%, seen over the last thirty years, and slower than that of the nation. Whereas real (inflation-adjusted) U.S. Gross Domestic Product (GDP) grew annually at a compounded rate of 2.1% from 2009 to 2016, Hampton Roads real GDP actually fell by 0.2% over the same period.

The twin blows of the Great Recession (2008-2010) and stagnation in Department of Defense (DoD) spending since 2012 significantly contributed to the region’s lackluster economic performance. DoD spending in the region increased at a 5.9% annual rate from 2002 to 2012 and has not grown since 2012. Coupled with anemic private sector job growth, the Hampton Roads economy has simply limped along while the U.S. accelerated ahead.

ANNUAL GROWTH RATE IN REAL GDP: HAMPTON ROADS AND THE UNITED STATES, 2001 TO 2017

-2%

-1%

0%

1%

2%

3%

2001 to 2009 2009 to 2015 2015 to 2016 2016 to 2017e

United States Hampton Roads

Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Data on GDP incorporates latest BEA revisions in September 2017. For 2017, US GDP is advance BEA estimate, while Hampton Roads GDP is ODU estimate.

3%

2%

1%

0%

-1%

-2%2009 to 20152001 to 2009 2015 to 2016 2016 to 2017e

1.62%2.17%

1.49%

2.25%2.12%

-0.04% -1.09%

0.80%

n United States n Hampton Roads

ESTIMATED DIRECT DOD SPENDING HAMPTON ROADS, 2000 TO 2017

0.0

5.0

10.0

15.0

20.0

25.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Billi

ons o

f Dol

lars

Source: U.S. Department of Defense and the Old Dominion University Economic Forecasting Project. *Includes Federal Civilian and Military Personnel and Procurement. Data for 2016 are estimates and data for 2017 are forecasts.

25.0

20.0

15.0

10.0

5.0

0.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

10.0

19.919.7 19.3

Billi

ons

of D

olla

rs

14

ECONOMIC TRENDSCongress has yet to pass appropriations bills for Fiscal Year (FY) 2018, however, the most recent Continuing Resolution (CR) that expires on March 23, 2018 contains good news. The CR suspended the debt ceiling until March 2019, removing this potential stumbling block from Congressional negotiations. More importantly, the CR raised the discretionary spending caps introduced by the Budget Control Act of 2011 by $296 billion over the next two fiscal years. This is not a trivial amount as the national defense caps rose by $165 billion and the non-defense caps by $131 billion. With a large federal presence in Hampton Roads, to include over 80,000 active duty personnel and 40,000 federal employees, the rise in spending will lift economic activity in the second half of 2018 and into 2019. Depending on the final composition of the appropriations bills, real GDP growth may rise from an initial forecast of 1.2% to 2.2% (or more).

The Great Recession impacted job markets throughout the United States. Compared to peak employment prior to the recession, the U.S. and the Commonwealth lost 6.3% and 5.1% of jobs through February 2010. Since the trough in 2010, the U.S. and Virginia have steadily added jobs. In January 2018, the U.S. had 6.8% more jobs than prior to the Great Recession, Virginia 4.7%. Hampton Roads, on the other hand, lost 6.1% of jobs during the Great Recession and has not yet recovered all the lost jobs. At the end of December 2017, Hampton Roads was still 2.4% (17,600) jobs below peak employment observed in 2007.

Unlike the drawdown in defense spending in the 1990s, the private sector has yet to fill in the gap in Hampton Roads. The Quarterly Census of Employment and Wage reports that during First Quarter of 2017, total private sector jobs in Hampton Roads were about 13,500 below peak employment observed in first quarter of 2007. Efforts to spur private sector growth through innovation and entre-preneurship are crucial to building a robust, growing private sector in the region.

CAPS ON DEFENSE DISCRETIONARY SPENDING, FY 2012 TO 2021

Source: Budget Control Act of 2011, OMB Sequestration Reports (various years), Further Extension of Continuing Appropriations Act, 2018 (HR 1892), and the Old Dominion University Economic Forecasting Project.

450

500

550

600

650

700

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Bill

ions

of d

olla

rs

Sequestration ATRA2012 BBA 2013 BA 2015 forecast

Caps on Defense Discretionary Spending, FY 2012 to FY 2021

Source: BCA2011,Budget Requests for FY14, CBO Sequestration Update Report and the Old Dominion University Economic Forecasting Project.

700

650

600

550

500

450FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Billi

ons

of D

olla

rs

Sequestration ATRA2012 BBA 2013 BA 2015 forecast

RECOVERY FROM THE GREAT RECESSION: MEASURED IN TOTAL JOBS RESTORED UNITED STATES, VIRGINIA, AND HAMPTON ROADS SINCE 2007-2017

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101

106

111

116

121

126

United States Virginia Hampton Roads

Source: Bureau of Labor Statistics seasonally adjusted data and Old Dominion University Economic Forecasting Project. Peak Pre-Recession Dates are July 2007 (Hampton Roads), January 2008 (United States), and April 2008 (Virginia).

Data are through December 2017 for VA and HR, and January 2018 for U.S.

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8% 1 6 11 16 21 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101

106

1111 116

121

12626

Pre-Recession Peak Dates:U.S.: January, 2008Virginia: April, 2008

Hampton Roads: July, 2007

-2.44%

4.69%

6.78%

United States Virginia Hampton Roads

CHANGE IN PRIVATE SECTOR EMPLOYMENT: SELECTED INDUSTRIES IN HAMPTON ROADS, 2007 Q1 TO 2017 Q1 (IN THOUSANDS)

-15 -10 -5 0 5 10 15 20 25

ConstructionManufacturing

Retail TradeWholesale Trade

InformationReal Estate

Admin and SupportFinance and Insurance

UtilitiesManagement of Companies

Professional and ScientificTransportation and Warehousing

Accomodation and FoodHealth Care and Social Assistance

Change in Private Sector EmploymentSelected Industries in Hampton Roads, 2007 Q1 to 2017 Q1

Source: Virginia Employment Commission: Covered Employment and Wages by Private Ownership and the Old Dominion University Economic Forecasting Project.

-15 -10 -5 0 5 10 15 20 25

Health Care and Social Assistance

Accommodation and Food

Transportation and Warehousing

Professional and Scientific

Management of Companies

Utilities

Finance and Insurance

Admin and Support

Real Estate

Information

Wholesale Trade

Retail Trade

Manufacturing

Construction -11-7

194

111

-1-2-3

-4-5-5

-6

15

Even though the job situation in Hampton Road has been quite grim for the last ten years, an examination of data from Local Area Unemployment Statistics (LAUS) provides a slightly different (and rosier) picture of the labor force and number of individuals employed. About 10,000 more individuals are in the regional labor force today than in 2008. The number of individuals stating that they are actively employed has also risen by about 10,000 over the same period. The divergence between these two sets of information on the labor market could be explained partly by a possible reduction in the number of part time jobs and due to the emergence of the gig economy where more and more individuals simply prefer to be self-employed.

NUMBER OF INDIVIDUALS EMPLOYED HAMPTON ROADS, 1999 TO 2017

660

680

700

720

740

760

780

800

820

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Thou

sand

s of I

ndiv

idua

ls

Number of Individuals EmployedHampton Roads, 1999 to 2017

Source: U.S. Department of Labor LAUS data and the Old Dominion University Economic Forecasting Project. Not seasonally adjusted. Data will be revised in March/April 2018.

820

800

780

760

740

720

700

680

660

Thou

sand

s of

Indi

vidu

als

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

e

721

792797 802796

Unemployment rates at the national, state, and local level all rose in response to the Great Recession. Since the end of the recession, however, we have seen marked declines in unemployment rates. The U.S. economy is near full employment and we are seeing the beginnings of wage increases because of labor shortages. The anemic performance of the Hampton Roads economy can also be seen in the unemployment rate. Prior to the Great Recession, Hampton Roads unemployment was below that of Virginia. Recently, at the end of 2017, the Hampton Roads unemployment rate was the same as the U.S. and higher than Virginia.

UNEMPLOYMENT RATES IN THE UNITED STATES, VIRGINIA, AND HAMPTON ROADS, 2007 - 2017

0

2

4

6

8

10

12

Jan- Jul-0

7Ja

n-08

Jul-0

8Ja

n-09

Jul-0

9Ja

n-10

Jul-1

0Ja

n-11

Jul- 1

1Ja

n-12

Jul-1

2Ja

n-13

Jul-1

3Ja

n-14

Jul-1

4Ja

n-15

Jul-1

5Ja

n-16

Jul-1

6Ja

n-17

Jul-1

7

Unem

ploy

men

t Rat

e (%

)

Recession United States Virginia Hampton Roads

Source: Bureau of Labor Statistics seasonally adjusted data and the Old Dominion University Economic Forecasting Project. Data are through December 2017.

12

10

8

6

4

2

0

Unem

ploy

men

t Rat

e (%

)

Jan-

07

Jul-0

7Ja

n-08

Jul-0

8Ja

n-09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2Ja

n-13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15Ju

l-15

Jan-

16

Jul-1

6

Jan-

17Ju

l-17

Recession United States Virginia Hampton Roads

10.0%

7.9%

7.3% 4.1

4.1

3.7

KRISTA COSTA

Vice President, Divaris Real Estate, Inc.

16

OFFIcE

VACANCY LEVELS

KEY HAMPTON ROADS’ MARKET

STATISTICS

The Hampton Roads’ 2017 office market experienced leasing activity similar to the previous two years, with a vacancy rate of 9.2% at the end of the fourth quarter. This vacancy rate was down from 10.8% at the beginning of the year. Overall asking rents increased in the past 12 months by 1.7% in the region

– which remain 7% below their pre-recession peak. The year ended with positive absorption totaling 820,076 square feet in 2017. There is minimal new office construction on the horizon. Space available for sublease is just under 100,000 square feet, a little more than 2% of the total available space in the market. Sublease space available is down from 153,000 square feet at the beginning of the year.

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Total A B

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

Vacancy

Total A B

Source: CoStar Group

17

KEY HAMPTON ROADS’ TRANSACTIONS

There were several significant lease transactions in 2017 that went under the radar as most were renewals. New to the market, Wisconsin

Physicians Service Insurance Corporation removed a big block of sublease space at the beginning of 2017 and further committed to Hampton Roads by signing a direct lease.

Tenant Building Square Footage Lease TypeDate

US Coast Guard

WPS MVH

US Air Force

Amerigroup

Optima Health

Main Street Tower 300 E Main Street, Norfolk, VA

400 Butler Farm Road Hampton, VA

Research Quad III300 Exploration Way, Hampton, VA

Corporate Center V4425 Corporation Lane, Virginia Beach, VA

Military Circle824 N Military Highway, Norfolk, VA

4th Qtr

1st Qtr

4th Qtr

2nd Qtr

1st Qtr

129,968

100,632

97,490

70,760

45,000

Expansion/renewal

New to market, sublease/direct lease

Renewal

Renewal

New lease

2017 TOP LEASES

Building Square Footage Price Per Square FootSales Price

The ADP Building 2 Commercial Place, Norfolk, VA

Concourse at Northampton 5800 Northampton Blvd, Norfolk, VA

225 Clearfield Avenue229 Clearfield Avenue, Virginia Beach, VA

Smithfield Building6160 Kempsville Circle, Norfolk, VA

$57,000,000

Part of $1,300,000,000 Portfolio Sale

$18,352,000$20,048,000

$15,900,000

288,662

302,186

42,000 44,377

129,183

$197.46

$174.74 - Portfolio Price

$437.00 $452.00

$123.08

2017 TOP SALES TRANSACTIONS

Hampton Roads offered many office investment opportunities in 2017. With sales prices so high in primary and secondary markets, Hampton Roads has proved acceptable to national investors. Total office building sales activity was up 38% compared to 2016. The price per square foot

averaged $211.13. Capitalization rates were lower in 2017 thus making properties more expensive, averaging 7.48% compared to the same period in 2016 when they averaged 8.28%. The largest transaction that occurred was the acquisition of The ADP Building in Norfolk at a 7% cap rate.

HAMPTON ROADS’ MARKET OVERVIEW

The absorption of office space in suburban submarkets outpaced the central business districts. As vacancy tightened, rents in the suburban markets increased by an average of $0.50 per rentable square foot. Modest to limited new construction and strong absorption, led to very few large blocks of space available. As rents rise only slightly,

there is a lack of support for the cost to occupy new construction.

We entered 2018 with five projects, totaling 392,480 square feet, under construction. The largest of the five is the 256,000-square-foot Dollar Tree Office Tower on the company’s 60 acre campus on Volvo Parkway in Chesapeake. It will be 100% occupied by Dollar Tree. Building One @ Tech Center is an 80,000-square-foot speculative office building under construction in the Oyster Point submarket of Newport News.

As unemployment rates remain low, scarcity of qualified workers is taking its toll on the area’s growth. Hampton Roads businesses are now competing for workers who are being lured by big cities companies. Firms are indicating that office locations with the ideal “Live, Work, and Play” environments are critical in the recruitment and retention of employees.

Urban Land Institute reported that at 16.4%, Hampton Roads had the highest growth in millennial residents since 2010 compared to more than 50 urban areas (Time magazine, June 2017). The growth was attributed in significant part to the military, but no doubt can be credited to the lifestyle benefits of the region’s climate and proximity to beaches and major cities.

NATIONAL MARKET OVERVIEW

The nation’s office market continues to hover near business-cycle highs for occupied space. Nationally, rents grew at about 1.8% and were almost $3 per square foot higher than pre-recession peaks. 2017 office vacancy ended at 10.3% across the country. Overall job growth slowed in most markets. The unemployment rate fell to 4.1% in October, a rate not seen since December 2000.

Sales of office buildings were also down from a year earlier, although volume was still well above the historical average.

MARKET TRENDS TO WATCH

Older Class A buildings will renovate as there is a lack of new office inventory in the market and costs of new construction far

outweigh the costs of renovations. A prime example is 500 East Main Street in Downtown Norfolk. Office buildings will attack the concept of placemaking, adding seating areas to once sparse office lobbies to create more alternative shared workspaces.

Demand for medical office buildings remains high. The historical stability makes medical office buildings attractive to investors. Healthcare services will also move into nontraditional locations, including struggling retail centers, to reduce costs and make these services more readily accessible to patients.

Locally, executive suites are at capacity, and we could see other national shared office space companies and co-working facilities enter the Hampton Roads market.

2018 OUTLOOK

The pace of office leasing in Hampton Roads will slow in 2018 due to lack of available space. Expansion and relocation of professional services, healthcare, and defense/government contracting sectors should drive demand.

Office relocations are most likely to be fueled by lease expirations. Companies looking to capture and retain employees will expect to upgrade office premises. Amenities such as co-working spaces, nearby apartments, restaurants and shops within walking distance will be critical to tenants.

The effect of the transoceanic cables, transforming the region into a high-speed data hub, is beginning to show momentum. Data centers and other high-speed internet consumers will enter the market in 2018.

Aside from a few build-to-suits, new office construction will be limited, allowing fundamentals to continue to recover in the near term. The limited supply of new properties will favor landlords and lead to the renewal of current leases. With continued modest absorption, vacancy rates are expected to decline further. Average rents should increase slightly in 2018, but that does not mean it is a landlord’s market. Projected rent growth is approximately 1%. As we approach equilibrium, landlords will continue to offer free rent, hefty tenant improvement packages and other incentives to retain and attract tenants while trying to maintain face rate rentals. We welcome the new normal.

18

OFFICE

HISTORICAL DELIVERIES

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

s o

f SF

2

1.8

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

02005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ions

of S

F

Source: CoStar Group

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BUILDING LEGACIES FOR A THRIVING FUTURE.

Industrial market fundamentals improved across the board for Hampton Roads in 2017, as expanding businesses absorbed over 2.1 million square feet of industrial space. Since 2012, the vacancy rate has plummeted from 9.5% to 4.4%, the lowest industrial vacancy on record. During the last five years, net absorption totaled over 5.4 million square feet, averaging nearly 1.1 million square feet annually.

LANG WILLIAMS, SIOR

Senior Vice President, CBRE | Hampton Roads

INDUSTRIAL

20

2017 CONTINUES STRONG MARKET FUNDAMENTALS

Source: CBRE | Hampton Roads Research

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

220,000

440,000

660,000

880,000

1,100,000

1,320,000

1,540,000

1,760,000

1,980,000

2,200,000

2013 2014 2015 2016 2017

Net Absorption Square Footage (Left Axis)

Industrial Vacancy Rate- (Right Axis)

2,200,000

1,980,000

1,760,000

1,540,000

1,320,000

1,100,000

880,000

660,000

440,000

220,000

0

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%2013 2014 2015 2016 2017

Net Absorption Square Footage(Left Axis)

Industrial Vacancy Rate-(Right Axis)

VACANCY AND ABSORPTION

Source: CoStar & CBRE | Hampton Roads Research

# of Buildings >20,000 Square Feet

Total Square Footage (SF)

2017 Net Absorption (SF)

Vacancy Rate

Average Asking NNN Lease Rate

Completed New Construction (2017 SF)

HAMPTON ROADS 2017 INDUSTRIAL MARKET SNAPSHOT

Southside Industrial 717 56,277,297 1,654,915 4.9% $4.38 1,142,290

Peninsula Industrial 193 23,603,795 449,333 3.2% $5.92 150,000

Hampton Roads Total 910 79,881,092 2,104,248 4.4% $4.68 1,292,290

2017 LEASE & SALE TRANSACTION HIGHLIGHTS

Of Hampton Roads’ major transactions in 2017, several were expansions by current warehouse users, including CenterPoint Properties’ expansion of the Ace Hardware Import Redistribution Center by 138,060 square feet in Suffolk, and LifeNet Health’s 100,000 square foot lease of a portion of the two building 1440 London Bridge complex in Virginia Beach.

The 284,580 square foot Virginia Regional Commerce Park-B was the first pure speculative development in Hampton Roads in over 10 years, and landed a 200,880 square foot lease with India-based Welspun USA. Another foreign company, China-based U-Play Corporation, leased 200,000 square feet, also at 1440 London Bridge.

Overall, seven projects totaling 1.3 million square feet delivered in 2017, the most square footage completed since 1.7 million square feet opened in 2008.

Virginia Regional Commerce Park-B Developed by Panattoni Development Company

Sales activity in 2017 included value-add investors acquiring long-vacant buildings with plans to renovate and improve the assets, as well as numerous owner-users seeking to own and improve property in support of their operations. The table below highlights several investor and owner-user sales.

21

Company Name Location SF Comments

LEASES

Ace Hardware CenterPoint Intermodal Center - Suffolk 475,020 138,060 SF Expansion of Class A Single-Tenant Building

Welspun USA Virginia Regional Commerce Park-B - Suffolk 200,880 Indian company, new to market

U-Play Corporation 1440 London Bridge Rd. - Virginia Beach 200,000 Chinese company, new to market

Georgia Partners Commonwealth Commerce Center - Suffolk 120,800

Cold storage industry veteranCold Storage LLC new venture

LifeNet Health 1440 London Bridge Rd. - Virginia Beach 100,000 Expansion by Virginia Beach

based company

2017 NEW INDUSTRIAL CONSTRUCTION ACTIVITY

Nearly 1.3 million square feet of new industrial buildings were completed in 2017, the largest being CenterPoint Properties’ 401,066 square foot Class A distribution warehouse for Emser Tile, followed by Panattoni’s Virginia Regional Commerce Park-B (284,580 square feet), InterChange’s Portsmouth Logistics Center (199,584 square feet), Printpack’s 150,000 square foot expansion in Oakland Industrial Park in Newport News, the 138,060 square foot expansion of Ace Hardware by CenterPoint Properties, and the owner-occupied build-to-suit for INIT in Chesapeake (70,000 square feet).

Consistent with the long-term trend for industrial & logistics development in Hampton Roads, five of the seven 2017 completed projects were build-to-suit for a single user. The lion’s share of build-to-development over the last 10 years, 1.6 million square feet, was developed by CenterPoint Properties at the 900-acre Class A industrial park, CenterPoint Intermodal Center-Suffolk. Other than Panattoni Development, InterChange Group is the only developer to build a speculative building during the last ten years, delivering the 199,584 square foot InterChange Portsmouth Logistics Center in 2017. InterChange hedged development risk by leasing 25% of the building to a developer owned 3PL business.

2018 OUTLOOK

In December 2017, Global Technical Systems (GTS), a Virginia Beach-based advanced engineering solutions company, announced a planned $54.7 million investment for a new, 500,000 square foot manufacturing facility off Bird Neck Road in Virginia Beach. According to plans announced by GTS, the new plant, which will produce advanced batteries to power machinery, data centers, and other uses, is scheduled to open in March 2019 and will eventually employ 1,100 people.

22

INDUSTRIAL

ANNUAL INDUSTRIAL NEW CONSTRUCTION (BUILDING SQUARE FOOTAGE COMPLETED)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2,000,000

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

02008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Year BuiltProperty Bldg SF Sale Price S/SF Buyer Type

ORF BUILDING SALES

1440 London Bridge Rd. - 1996 400,000 $8,500,000 $21.25 InvestorVirginia Beach

300 & 400 Port Centre Parkway - 1997 76,781 $6,850,000 $89.21 InvestorPortsmouth

1569 Diamond Springs Rd. - 1980 100,000 $6,100,000 $61.00 InvestorVirginia Beach

1715 Merrimac Trl - 1978 146,710 $4,820,000 $32.85 User BuyerWilliamsburg

3801-03 E. Princess Anne Rd - 1971 83,275 $1,800,000 $21.62 User BuyerNorfolk

With only 4.4% of all industrial properties vacant, new and expanding businesses will have to invest in building new warehouse and manufacturing facilities, or on renovations and upgrades to their existing buildings. In order for 2017’s 2.1 million square feet of net absorption to be generated in 2018, the region’s leading developers, brokers, and stakeholders must partner with state, local, and Port of Virginia economic development teams to win more major new warehouse and manufacturing investments across Hampton Roads.

90 Miles of Shoreline. 360 Degrees of Opportunity.For a climate that promises success in every direction, Access the New Portsmouth to grow your business. Call today to discuss your needs and learn about our vast opportunities. All 360 degrees of them.

Email Robert.Moore@PorstmouthVa.Gov or call 757.393.8804

Source: The Port of Virginia, CBRE | Hampton Roads Research

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

150,000

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

2013 2014 2015 2016 2017

Port of Virginia Loaded Import TEUs

Industrial Vacancy Rate (Right Axis)

1,350,000

1,200,000

1,050,000

900,000

750,000

600,000

450,000

300,000

150,000

0

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

2013 2014 2015 2016 2017

Port of VirginiaLoaded ImportTEUs

Industrial Vacancy Rate (Right Axis)

24

MICHAEL P. ZARPAS

Vice President, S.L. Nusbaum Realty Co.

KEY HAMPTON ROADS MARKET

STATISTICS

The Hampton Roads retail market has continued to show positive trends during 2017. The end of year overall retail vacancy rate in the region was 4.8%. Shopping centers had a vacancy rate of 7.4%. Power centers had a vacancy rate of 4.4%. Specialty centers had a vacancy rate of 3.1%. Malls, contrary to popular belief, had a vacancy rate of 2.8%. General retail had the lowest vacancy rate at only 2.7%.

There is a total of 8,057 retail buildings and 923 centers with a total of 105,736,163 square feet in the Hampton Roads region. Of that total, there are 889 shopping centers containing 44,080,706 square feet with an average asking rate of $13.25

per square foot. The power center category is comprised of 17 centers containing 8,027,852 square feet with an asking rate of $18.02 per square foot. The specialty center category doubled to four centers with a total of 1,188,657 square feet of space. The mall category is comprised of 13 regional malls, super-regional malls, and lifestyle centers with an asking rate of $27.47 per square foot. General retail properties house 5,858 buildings totaling 43,891,212 square feet with an asking rate of $13.59 per square foot.

732,815 square feet of new retail product came online in 2017. The grocery sector has continued to develop at a rapid pace. Lidl, Aldi, Kroger, Wegmans, and Publix announced new stores in the region last year.

1.2

1.0

0.8

0.6

0.4

0.2

0.0

-0.2

-0.4

8.0%

7.5%

7.0%

6.5%

6.0%

5.5%

5.0%

4.5%

4.0%2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Abso

rptio

n &

Del

iver

ies

in M

illio

ns S

FVacancy

NET ABSORPTION, NET DELIVERIES & VACANCY

n Net Absorption n Net Deliveries n Vacancy n United States Vacancy

Forecast

retail

The Hampton Roads retail market peaked in 2017. There is significant discussion, both inside and outside of the market, that retail is a dying breed. This is anything but true. Retail investment sales activity fully blossomed in 2017. Capitalization rates, however, were inching up locally in 2017, averaging 7.48%. This rate rise was partly due to higher interest rates and partly due to category shifts in purchases made. Hampton Roads, as a tertiary market, became more desirable due to the lack of product and historically low cap rates in major markets.

25

KEY HAMPTON ROADS TRANSACTIONS

Top5RetailLeasesin2017 1) 130,000 square feet - Wegmans, Virginia Beach

2) 121,273 square feet - Walmart Hilltop Square, Virginia Beach

3) 80,000 square feet - One Life Fitness Dam Neck Crossing, Virginia Beach

4) 75,783 square feet - LeMans Karting Victory West, Portsmouth

5) 74,000 square feet - Floor & Décor Peninsula Town Center, Hampton

Top5RetailSales 1) $38,700,000 - Greenbrier Square, 267,102 square feet, Chesapeake

2) $35,500,000 - Harbour View Marketplace, 184,832 square feet, Suffolk

3) $30,480,000 - Kramer Tire Portfolio, 131,960 square feet, Hampton Roads

4) $24,200,000 - Mercury Plaza, 139,750 square feet, Hampton

5) $23,625,000 - Tidewater 7-11 Portfolio, 20,741 square feet, Hampton Roads

Top5RetailDevelopments 1) 350,000 square feet - Norfolk Premium Outlets Phase I, Norfolk

2) 130,000 square feet - Waterside District, Norfolk

3) 62,500 square feet - Fox Mill Centre Phase II, Gloucester

4) 35,000 square feet - Lidl, Hampton Roads multiple locations

5) 22,100 square feet - Shops at Centerbrooke Village, Suffolk

HAMPTON ROADS MARKET OVERVIEW

Store closings are nothing new in the retail arena. This trend continued in Hampton Roads last year. Mattress Firm, Farm Fresh, Toys R Us, HH Gregg, KMart, Joe’s Crab Shack, Family Christian Bookstores, Wet Seal, Radio Shack, Bebe, American Apparel, and Payless Shoe Source among others all announced store closings in the region.

New store opening announcements were made by IKEA, One Life Fitness, Big Lots, Floor & Décor, 5 Below, Tuesday Morning, Home Goods, Lidl, Aldi, Publix, and Wegmans among others. New stores outweighed closings in 2017, with a positive net absorption of 1,100,000 square feet.

NATIONAL MARKET OVERVIEW

According to Jack Kleinhenz, Chief Economist for the National Retail Federation, “the economy was in great shape going into the holiday season, and retailers had the right mix of inventory, pricing, and staffing to help them connect with shoppers very efficiently.” The stock market saw record highs. American consumer confidence hit a 17-year high in 2017. The unemployment rate was lowered to 4.1% at year-end, the lowest level since 2000. New tax cuts were announced and signed off on before year end. All are great attributes for the U.S. consumer and the retail real estate market as a whole.

MARKET TRENDS TO WATCH

Amazon’s purchase of Whole Foods last year was one of the most talked about financial news stories of 2017. Amazon joins the likes of Apple, Warby Parker, Bonobos (acquired by Walmart last year), Nasty Gal, Everlane and Birchbox, who have all found that physical retail stores are a must for continued success. Other online retailers will adopt this strategy. Many key Hampton Roads retailers have found that e-commerce is the perfect complement to their full line stores. Walmart, Staples, Macy’s, The Home Depot, Best Buy and Nordstrom are all among the top ten e-commerce retailers in the U.S.

Click and collect is a new driving force for retail sales. The addition of entertainment elements in retail settings is another trend that continues to gain momentum. Mobile platforms, artificial intelligence (AI), augmented reality (AR), and virtual reality (VR) are all elements that are showing up in retail settings as well. As technology continues to improve, retail sales will continue to rise. Retail landlords and tenants are nimble and can change to meet the ever-changing demands of the retail consumer.

RETAIL

26

2018 OUTLOOK

Retail apocalypse? I think not. However, we have entered the dawn of a new era in retail real estate due to unprecedented technological advancements. The use of AI, AR, VR, and computer-enhanced logistics is changing the face of retail in magnificent ways. Omni-channel retailers will be the clear leaders in 2018 and beyond. Customer service and engagement will return on a much larger scale.

The investment sales sector will see strong activity again this year with activity tapering off at the end of 2018 and into 2019. This expectation is due to rising interest rates, bank temperament, and lack of available product.

The traditional shopping center will continue to lag other retail segments. Medical, office, and entertainment tenants will be suited on a larger scale this year. Power centers will face the challenge of reduced box sizes. Specialty centers will continue to be a preference for many consumers. Bargain shopping has become much more than a cult phenomenon at this juncture. General retail will continue to expand as tenants seek freestanding buildings to meet the needs of today’s consumers quickly. The cap rates on these properties will continue to be market leaders. 2018 will see a continued evolution in retail environments to suit the needs of the ever-changing consumer.

27

28

CHRIS MCKEE

President of Operations, The Franklin Johnston Group

NATIONAL APARTMENT

FUNDAMENTALS REVERTING

TO LONG-TERM MEAN

Moderation was a recurring theme in nearly every national multifamily outlook for 2017. After a sustained period of historically strong apartment fundamentals, driven by a favorable supply/demand imbalance following the recession, construction activity ramped up and new deliveries began to outpace absorption beginning in 2015. The accretive effect of surplus demand became increasingly muted over several consecutive

years as the level of new deliveries substantially exceeded the long-term average and slightly outpaced the rate of absorption. Consequently, occupancy levels and effective rent growth are currently trending towards their respective historical averages. The favorable, but tempered, expectations of 2017 were largely realized, and 2018 promises more of the same. The sector as a whole should continue to see steady, albeit modest, growth while specific asset classes and locations have an opportunity to outperform due to strong demand from underserved, lower and middle-income renters.

MULTI-FAMILY

SUPPLY & DEMAND TRENDS - UNITED STATES

Source: CoStar Group - December 2017

(25,000)

25,000

75,000

125,000

175,000

225,000

275,000

325,000

375,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Un

its

Supply & Demand Trends - United States

Deliveries Net Absorption Hist Avg. Deliveries Hist. Avg. Net AbsorptionSource: CosStar Group - December 2017

375,000

325,000

275,000

225,000

175,000

125,000

75,000

25,000

(25,000)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Deliveries Net Absorption Hist Avg. Deliveries Hist. Avg. Net Absorption

Units

Forecast

HAMPTON ROADS’ MULTIFAMILY

PERFORMANCE IMPROVED IN 2017

DESPITE LINGERING CHALLENGES.

While flat occupancy and decelerating rent growth characterized the national market, Hampton Roads ticked up slightly in both categories between 2016 and 2017. Historically speaking, Hampton Roads has enjoyed very low volatility regarding apartment fundamentals. The region does not experience the double-digit rent growth occasionally seen in specific supply constrained core markets but it also rarely endures negative rent growth. The reality is that Hampton Roads often

underperforms when the national multifamily market is in an early to mid-expansion period, falls in line during late-expansion and outperforms through the recession and early-recovery phases. As the national market entered the later stages of the most recent expansion, it is not surprising to see apartment fundamentals in Hampton Roads begin to converge with the broader market. As we look towards 2018, the broader national market is experiencing mean reversion, which has traditionally set the stage for Hampton Roads to outperform. There is absolutely an opportunity to realize this scenario, but there are some genuine challenges to overcome.

NEW SUPPLY – DELIVERIES

AND CONSTRUCTION

The total inventory of apartments in Hampton Roads increased by approximately 10% since 2013. That is a significant increase but is substantially in line with growth at the national level over the same period. New deliveries each year from 2013 to 2016 surged to levels well in excess of the market’s historical average. Development activity decreased significantly in 2017, which contributed to improved fundamentals last year. However, new deliveries are expected to ramp up again in 2018 before a more protracted taper from 2019 to 2022.

29

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

91.0%

91.5%

92.0%

92.5%

93.0%

93.5%

94.0%

94.5%

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1

Effe

ctive

Re

nt

Gro

wth

Occ

up

ancy

Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth

Source: CoStar Group - December 31, 2017

94.5%

94.0%

93.5%

93.0%

92.5%

92.0%

91.5%

91.0%

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1

Occu

panc

y

Effe

ctiv

e Re

nt G

row

th

Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth

Forecast

MULTIFAMILY FUNDAMENTALS - TREND BY QUARTER - U.S.

Source: CoStar Group - December 31, 2017

Source: CoStar Group - December 2017

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Un

its

Delivery Trend - Hampton Roads

Deliveries Hist Avg. DeliveriesSource: CosStar Group - December 2017

3,500

3,000

2,500

2,000

1,500

1,000

500

Deliveries Hist Avg. Deliveries

Units

Forecast

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

DELIVERY TREND - HAMPTON ROADS

ECONOMIC AND DEMOGRAPHIC

DEMAND DRIVERS

There is perhaps no variable more directly correlated to multifamily performance than job growth. Consequently, it is significant that Moody’s Analytics currently estimates that Hampton Roads lost 1,500 jobs in 2017 – a 0.2% reduction versus the prior year. Since 2011, total employment in Hampton Roads grew at an average rate of 0.6% annually while the broader U.S. market gained 1.7% per year. For better or worse, the Hampton Roads economy is still highly sensitive to expansion and contraction in the size of the U.S. military and closely related levels of defense spending. Despite gradual diversification represented by gains in the areas of trade, professional and business services, education and health services and leisure and hospitality services, the area’s short-term employment outlook continues to be weak.

Before giving too much or too little import to the anticipated spike in 2018 deliveries, it is essential to bear in mind that the dilutive impact of new supply is experienced more at the micro, neighborhood level than it is at the macro submarket or market level. Multiple projects leasing up in relatively close proximity will invariably have an adverse effect on the communities in that immediate area and on similar product in adjoining neighborhoods. However, new supply, in and of itself, does not necessarily represent a deterioration of fundamentals at the market or submarket level. In addition to surplus demand, the appropriate distribution of new projects, both geographically within a market and by product type, can and will insulate the broader market/submarket against the deleterious effects of a hyper-supply environment.

Virginia Beach and Norfolk are prime examples of this. They were number one and two respectively in terms of gross units added over the last five years, but the relative change to each of their respective inventories was roughly in-line with the market average. The new supply was generally well-distributed across multiple submarkets with relatively strong demand. While there assuredly are pockets within those submarkets that have seen some short-term dilution as a result of the new supply, both submarkets currently have higher occupancy rates than the Hampton Roads average.

30

- 5,000 10,000 15,000 20,000 25,000 30,000

Gloucester Poquoson City

Isle of Wight Williamsburg

Suffolk York

James City Portsmouth Chesapeake

Hampton City Norfolk City

Newport NewsVirginia Beach

Inventory Growth 2013 to 2017

EOY 2012 Inventory Units Added 2013 to 2017Source: CoStar Group - December 2017

Virginia Beach

Newport News

Norfolk City

Hampton City

Chesapeake

Portsmouth

James City

York

Suffolk

Williamsburg

Isle of Wight

Poquoson City

Gloucester

5,000- 10,000 15,000 20,000 25,000 30,000

EOY 2012 Inventory Units Added 2013 to 2017

Source: CoStar Group - December 2017

INVENTORY GROWTH 2013 TO 2017

Source: Moody’s Analytics/ Precis Metro/ December 2017

MULTIFAMILY

MULTIFAMILY

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Annual Job Growth

Hampton Roads United StatesSource: Moody's Analytics/ Precis Metro / December 2017

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Forecast

Hampton Roads United States

ANNUAL JOB GROWTH

While the impact on multifamily is not quite as pronounced as employment growth, increases and decreases in population, household formation rate, and personal income will also have an impact on the multifamily demand. All else equal, more people seeking housing with more money to spend reduces vacancy and allows for rent growth. Hampton Roads has generated positive figures for each of these variables, but still, the rate of growth has materially lagged the United States average over the past six years.

It is important to note that the apparent convergence between the United States and Hampton Roads averages during the forecast period is a product of the metrics deteriorating at a national level rather than any marked improvement in Hampton Roads economic fundamentals. Some degree of uncertainty in regards to the effectiveness of current U.S. policy-making decisions is leading to muted expectations on growth. Bearing all of this in mind, Moody’s Analytics concludes that Hampton Roads’ “gap with the U.S. will shrink in 2018 and growth could surprise on the upside if Congress lifts the cap on defense spending. Consumer services will recover, and trade will be a pillar of strength. ...[However,] longer term, [Hampton Roads] will slightly lag the U.S. due to an overreliance on federal spending.”

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COMMERCIAL REAL ESTATE

TRANSACTIONS

Source: Moody’s Analytics/ Precis Metro/ December 2017

Hampton Roads United States

0.0%0.1%0.2%0.3%0.4%0.5%0.6%0.7%0.8%0.9%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Annual Population Growth

Hampton Roads United StatesSource: Moody's Analytics / Precis Metro / December 2017

0.9%

0.8%

0.7%

0.6%

0.5%

0.4%

0.3%

0.2%

0.1%

0.0%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Forecast

ANNUAL POPULATION GROWTH

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Annual Personal Income Growth

Hampton Roads United StatesSource: Moody's Analytics / Precis Metro / December 2017

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Forecast

Hampton Roads United States

ANNUAL PERSONAL INCOME GROWTH

Source: Moody’s Analytics/ Precis Metro/ December 2017

TRANSACTIONAL

As cap rates continue to tighten to historically low levels in the core national and regional multifamily markets, secondary regional markets like Hampton Roads have become an attractive alternative for many investors searching for yield. While the vast majority of transactions as recently as five years ago included mostly local and regional players, some large institutional groups have entered the market and are actively looking to acquire and expand. The increased demand over the last couple years has spurred higher deal volume and driven the average cap rate back under 5.5%.

32

MULTIFAMILY

NOTABLE 2017 TRANSACTIONS

Property Name # Units Built Location Price $/Unit Sale Date Buyer

Reflections at Virginia Beach 480 1987 Virginia Beach $60,750,000 $126,563 Dec-17 The Breeden Company

Banyan Grove 288 2003 Virginia Beach $46,000,000 $159,722 Aug-17 Bentall Kennedy/Croatan

Sterling Manor 207 2008 Williamsburg $33,600,000 $162,319 Aug-17 Chaucer Creek Capital

Steeplechase Apartments 220 1986 James City County $30,000,000 $136,364 Aug-17 Somerset Apartment Mgmt.

Cove Point at the Landings 122 2015 Norfolk $24,350,000 $199,590 Aug-17 Bonaventure Realty Group

The Reserves at Arboretum 143 2009 Newport News $21,900,000 $153,147 Sep-17 Lakeside Capital Advisors

Heather Lake 252 1971 Hampton $21,400,000 $84,921 Dec-17 Artcraft Management

The Courts at Yorkshire Downs 202 1987 York County $19,655,200 $97,303 Nov-17 Harbor Group International

Legacy Farms at Tech Center 156 1969 Newport News $19,200,000 $123,077 Oct-17 K2 Real Estate Partners

Luna Pointe Apartments 210 1986 Hampton $18,000,000 $85,714 Jul-17 Croatan Investments

Source: CoStar Group - December 2017

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000

2005200620072008200920102011201220132014201520162017

Sale

s V

olum

e (0

00s)

Sales Volume and Cap Rate Trend -Hampton Roads

Volume Hist. Avg Volume Cap RatesSource: CoStar Group - December 2017

$800,000

$700,000

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Volume Hist Avg. Volume Cap Rates

(Sal

es V

olum

e (0

00s)

SALES VOLUME AND CAP RATE TREND - HAMPTON ROADS

Despite underperforming the national average relative to several key economic and demographic indicators, the Hampton Roads multifamily market as a whole was still able to increase occupancy and effective rental rates in a year when it was expected to be flat to slightly down. The keys to the short-term success included a brief lull in new supply and a disproportionately large renter population – evidenced by a higher than average percentage of the Hampton Roads population being in the vital renter cohort of 20 to 34-year-olds. The latter is a positive byproduct of the heavy military presence in the area. Nonetheless, average occupancy levels in Hampton Roads continue to lag both the U.S. average and the long-term average for the market while the effective rental rate growth is in line with the national average but still below the historical average.

2018 is shaping up to be a remarkably average year for multifamily in Hampton Roads. Much like 2017, despite job, population, and income growth figures that lag U.S. averages, the market’s broad, existing renter pool should enable it to absorb the uptick in new supply while simultaneously generating effective rent growth that is roughly in line with the historical average for the market.

PROOF O.K. BY: __________________________________________________ O.K. WITH CORRECTIONS BY:_________________________________________

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PERFORMANCE FUNDAMENTALS

Source: CoStar Group - December 31, 2017

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

89.50%

90.00%

90.50%

91.00%

91.50%

92.00%

92.50%

93.00%

93.50%

94.00%

94.50%

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3

2017

Q1

2017

Q3

Multifamily Fundamentals - Trend by Quarter - Norfolk

Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth

Source: CoStar Group - December 31, 2017

94.50%

94.00%

93.50%

93.00%

92.50%

92.00%

91.50%

91.00%

90.50%

90.00%

89.5%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%

-1.00%

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3

2017

Q1

2017

Q3

Occupancy Hist Avg. Occ Effective Rent Growth Hist Avg. Eff Rent Growth

MULTIFAMILY FUNDAMENTALS - TREND BY QUARTER - NORFOLK

5.0%

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%1975-198059 months

1980-198113 months

1982-199093 months

1991-2001121 months

2001-200774 months

2009-September 2017101 months

4.5%

3.5%

4.0%4.3%

0.7%

3.6%

2.7%

0.7%

2.2%

0.7%

Annual real GDP growth

Annual total employment growth

2.4%

1.9%

34

JEREMY MCLENDON

President and Managing Partner CCP Commercial Real Estate

THE METAPHOR “WHAT INNING ARE

WE IN” NO LONGER APPLIES

2018 begins the eighth year of the current real estate cycle with many potential impacts on commercial real estate on the horizon. The passage of the new tax law, potential infrastructure legislation, capital spending, and a tight job market could all have profound impacts. According to the 2018 Emerging Trends in Real Estate Report published by PwC and the Urban Land Institute, most investors are not ready to proclaim that cyclical risk is no longer applicable, but most have

a sense that no particular timetable clearly defines the current market cycle. There is a growing belief that we are experiencing more of a secular cycle style pattern versus the boom and bust cycles we have become accustomed to with the S&L crises, the dot-com bust, and the Great Recession of 2008. The slow pace of GDP growth, wage stagnation, low worker productivity, market discipline with equity and debt, and supply and demand remaining in balance all continue to strengthen this outlook. However, a low unemployment rate, a policy shift toward Fed tightening, high asset prices in real estate, and stock market highs work to counterbalance the “soft landing” viewpoint.

investment

ANNUAL REAL GDP AND EMPLOYMENT GROWTH, CURRENT AND FIVE BUSINESS CYCLES

Source: U.S. Bureau of Economic Analysis.Note: Months = months of growth per cycle, through to peak, as identified by the National Bureau of Economic Research.

n For CRE businesses set up as pass-through entities, the 20% deduction will boost after tax-income.n The like-kind 1031 exchange remains in place.n For CRE private equity firms, the holding period of investments for carried interest is extended from one year to three years. n The Bill caps the business deduction for debt interest payments at 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA). n Most forecasts show a 50 -75 basis point increase in economic growth in 2018.

SNAPSHOT OF NEW TAX LAW IMPACTS ON CRE:

CAPITAL MARKETS

TheamountofavailablecapitalforU.S.realestateinvestmentremainsrobust,butfavorsamoreconservativedistributionofriskamongbothequityanddebtinvestors.Withtheriseinrealestateassetvaluationsoverthelastseveralyears,capitalizationrates are expected to remain flat for the foreseeable future.Investorswill continue to focusmore on property cash flows

to drive returnswith less emphasis on speculative returns ofcapitalthroughcapitalizationratecompression.Equityinvestorsareshowingmoreselectivityasrentrecoverieshavematuredinmanymarketsandpropertyvaluationshaverisenpastpreviouspeaklevels.Notethedecreaseinsalesvelocitysince2015.

US SALES OF LARGE COMMERCIAL PROPERTIES

Lenders remain reluctant to lendon speculativedevelopmentandLoan-to-Valueratiosarestillaveragingbetween55%-65%for most transactions. This phenomenon holds true even instrongsectors,suchasmultifamily,orfavoredregionsinsections,suchas the SoutheasternU.S.Withborrowers still seeking to

maximizeloanproceeds,thereisanincreasedopportunityinthemiddleofthecapitalstackformezzaninelendersandpreferredequity.Lowleverage,moderateassumption,andaccurateriskpricingwillcontinuetoshapecapitalmarketsforyearstocome.

35

$600

$500

$400

$300

$200

$100

$0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US$

billi

on

1H

Entity

Portfolio

Individual

Source: Real Capital Analytics.Note: Months = Based on independent reports of properties and portfolios $2.5 million and higher. Before 2005. RCA primarily captured sales valued at $5 million and above.

MARKETS TO WATCH

The search for yield is driving investors to seek better returns outside of primary markets where there is an adequate risk/return profile. For many investors, this means the continued trend of investing in the “18-hour” cities and robust secondary markets. Access to a talented labor pool is becoming more critical for companies when choosing their locations. MSA’s that offer a low-cost living, high quality of life, and amenities will

continually attract the educated work force that firms are looking for as demographics continue to shift and the overall labor pool tightens. Results of the 2017 Best-Performing Cities report by the Milken Institute, ranked the top 25 cities according to a fact-based set of metrics such as job creation, wage gains, and technology developments to evaluate relative growth of metropolitan areas. Virginia Beach/Norfolk was ranked 180 out of 200.

U.S. MARKETS TO WATCH: OVERALL REAL ESTATE PROSPECTS

36

Source: Milken Institute

TOP 25 BEST-PERFORMING LARGE CITIES RANK ACCORDING TO 2017 INDEXMetropolitan Statistical Area (MSA)/Metropolitan Division (MD) 2017 Rank 2016 Rank Change

Provo-Orem, UT (MSA) 1 2 +1

Raleigh, NC (MSA) 2 6 +4

Dallas-Plano-Irving, TX (MD) 3 5 +2

San Francisco-Redwood City-South San Francisco, CA (MD) 4 4 Steady

Fort Collins, CO (MSA) 5 8 +3

North Port-Sarasota-Bradenton, FL (MSA) 6 26 +20

Orlando-Kissimmee-Sanford, FL (MSA) 7 9 +2

Nashville-Davidson-Murfreesboro-Franklin, TN (MSA) 8 7 +1

Austin-Round Rock, TX (MSA) 9 3 -6

Salt Lake City, UT (MSA) 10 11 +1

San Jose-Sunnyvale-Santa Clara, CA (MSA) 11 1 -10

West Palm Beach-Boca Raton-Delray Beach, FL (MD) 12 36 +24

Charlotte-Concord-Gastonia, NC-SC (MSA) 13 12 -1

Atlanta-Sandy Springs-Roswell, GA (MSA) 14 21 +7

Tampa-St. Petersburg-Clearwater, FL (MSA) 15 33 +18

Oakland-Hayward-Berkeley, CA (MD) 16 18 +2

Seattle-Bellevue-Everett, WA (MD) 17 10 -7

Naples-Immokalee-Marco Island, FL (MSA) 18 17 -1

San Antonio-New Braunfels, TX (MSA) 19 24 +5

Riverside-San Bernardino-Ontario, CA (MSA) 20 44 +24

Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (MD) 21 28 +7

Charleston-North Charleston, SC (MSA) 22 16 -6

Denver-Aurora-Lakewood, CO (MSA) 23 13 -10

Portland-Vancouver-Hillsboro, OR-WA (MSA) 24 14 -10

Fayetteville-Springdale-Rogers, AR-MO (MSA) 25 30 +5

FOCUS ON HAMPTON ROADS

NORFOLK’S MOMENTUM CONTINUES IN 2018

TRANSPORTATION

RETAIL

MANUFACTURING

OFFICE

MULTIFAMILY

RESIDENTIAL

INDUSTRIAL

INVESTMENT

All this and more.

Contact: 999 Waterside Drive, Suite 2430Norfolk, VA 23510 • 757-664-4338 NorfolkDevelopment.com

NorDev IB Market Review 1/2pg ad.indd 1 1/24/18 12:41 PM

OFFICE: n TheADPBuildinginNorfolk(288,662SF)soldfor $57,000,000,or$197.46persquarefoot.

RETAIL: n GreenbrierSquareinChesapeake(267,102SF)sold for$38,700,000,or$144.89persquarefoot. n JANAFShoppingCenteranditsoutparcels(totaling 880,250SF)soldfor$85.65milliontoWheelerREIT.

MULTIFAMILY: n LatitudesApartmentsinVirginiaBeachsoldfor $55,880,000,or$124,730perunit.

INDUSTRIAL: n CavalierDistributionCenterinChesapeake(125,906 SF)soldfor$7,550,000,or$59.97persquarefoot. n Care-A-Lotpurchasedamanufacturingbuilding, adistributionbuilding,andtendevelopable acresonLondonBridgeRoadinVirginiaBeach. Thesalepricewas$8,500,000.

HOSPITALITY: n WatersideMarriottinNorfolksoldtoLingerfelt Commonwealthforanestimated$35million, or$86,420perkey.

Hampton Roads continued to experience positive momentum in investment sales across all property types in 2017. Key transactions included:

HamptonRoadssawsustainedeconomicgrowthin2017andcurrenttrendsinthemarketsupportanothergoodyearasrealestatefundamentalscontinuetoimproveacrosstheboard.Thereisapossibilityofbetterthanexpectedresultsifincreasesindefensespendingandinfrastructurespendingmaterializein2018.

37

THE YEAR IN REVIEW – 2017

ANOTHER GOOD YEAR FOR RESIDENTIAL...

It was another good year for residential for-sale real estate in 2017, marking the third straight year of gains. In Hampton Roads, overall closings were up 3.87%, following substantial increases in 2015 and 2016. Consumer confidence continued to grow thanks to low unemployment, rising wages, low interest rates and significant equity gains since the housing trough in 2008. This confidence helped feed the move-up market in new construction, while resale continued to fill the gap for many first-time buyers. Pricing power remained good, but at a slightly declining rate of growth with YoY gains in the median pricing of 2.4%. With little anticipation of significant shifts in the macro environment, and fueled by demographic changes, we foresee robust growth, but at a diminishing rate, into 2018. Last year we suggested that in response to rising prices, especially with new construction detached pricing hitting some high marks in Chesapeake and Virginia Beach, buyers would continue to migrate south to the greater Moyock market in search of affordability. That seems to have occurred and the shift was exacerbated by Ryan Homes entry into that submarket. While closings for Northeast North Carolina were only up 1.92% YoY, that number will significantly grow when Ryan starts to close their 2017 sales. Average closed sales prices rose a phenomenal 8.1% YoY but remained well over $100,000 below average closed sales prices in Chesapeake and Virginia Beach.

…BUT HEADWINDS ARE ALWAYS

BLOWING

While the picture is bright for housing, there are always potential limiters on the horizon. In 2017 continued declines in inventory put some real constraints on demand. Single-family housing inventory at the start of 2018 was the lowest it had been in ten years. Months to absorb inventory hit a low of 3.9 months at the end of December. New construction will bear much of the burden of solving this imbalance. However, land is scarce and expensive, keeping upward pressure on pricing and limiting builder’s abilities to serve the first-time buyer market. Rising median prices have already caused some shifts in buying habits as attached new construction closings were up 12.2% YoY while detached closings fell by 3.5%. Interest rates saw some gains, but stayed well below the 5.0% range that most economists had predicted we would see by the end of 2017. There seems to be the general consensus for rates to stabilize in 2018 in the 4.25% range. These rates should not have a significant impact on affordability and, when combined with an ongoing easing of underwriting standards, will continue to help many first time buyers jump onto the housing ladder.

VAN ROSE

Chief Operations Officer, Rose & Womble Realty

38

residential

Source: REIN MLS

4.20%

4.7%

5.1%

Avg. 30 Year Fixed Rate Mortgage 4.19%

4.5%

4.9%

4.10%

4.2%

4.6%

4.10%

4.0%

4.1%

4.02%

4.2%

4.1%

3.94%

4.4%

4.5%

3.96%

4.3%

4.6%

3.93%

4.3%

4.5%

3.78%

4.1%

4.1%

3.85%

4.0%

3.9%

3.94%

4.1%

3.9%

Local Unemployment Rate (Hpt Rds MSA)

National Unemployment Rate

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

3.94%

n/a

3.9%

12,000

11,000

10,000

9,000

8,000

7,000

6,000

5,000

5.5

5

4.5

4

Jan Feb Mar Apr May Jun Jul Aug Jan Oct Noc Dec

Inventory Mos. SupplyX

Mos

. Sup

ply

# Ho

mes

on

the

Mar

ket

MONTHS SUPPLY OF INVENTORY

4

4.5

5

5.5

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mo

s. S

up

ply

# H

om

es

on

th

e M

arke

t

Months Supply of Inventory

Inventory Mos. Supply Source REIN MLS

THE RESALE MARKET

Gains continued into 2017 in the resale market in Hampton Roads with closings, revenue, and median closed sales prices all rising YoY. Residential resale closings increased by 4.5% over 2016 to 22,924 closings. Revenues grew by 5.5% to $5,420,942,331 with overall median prices up by 2.4%. Detached homes carried 78.2% of all closings, with resale homes finding much traction with first-time buyers. Resale detached

home sales under $300,000 grabbed a 69.94% share on the Southside, contrasted by new construction which only carried a 37.04% share in that same price band. On the Peninsula, the numbers were 72.58% and 26.64% respectively. Rising prices seemed to be the catalyst for a slight shift to both resale (which grabbed 88.0% of the market for sales in 2017) and to attached product (which saw a 2.3% gain in market share YoY), trends that may well continue if inventory remains at such low levels and prices continue to trend up in new construction.

2017 VERSUS 2016 RESIDENTIAL RESALE

HIGHLIGHTS

Closings up 4.5% with 996 more closings totaling 22,924

Median Sales Price up 2.4%, a $2,075 increase to $197,075

Total Revenue up 5.5%, a $284.9 million increase to $5.42 billion

THE NEW CONSTRUCTION MARKET

Builders enjoyed upward movement across almost all metrics in 2017, albeit at a slightly moderated pace from 2016. There were gains in the number of closings, average sales price and revenue. As before, the Southside market accounted for just over 75%

of all closings in Hampton Roads. New construction’s share of all residential closings lost some ground in 2017, ending with a 12.0% share. Overall median closed home pricing took a slight dip of -1.9% YoY, but this was driven primarily by the shift from detached to attached sales as attached sales were up 12.2% YoY.

39

RESIDENTIAL

2017 VERSUS 2016 RESIDENTIAL NEW CONSTRUCTION HIGHLIGHTS

Closings were up 1.0% with 33 more closings totaling 3,247Median Sales Price was down 1.9% to $310,831, marking a shift to attached product

Total Revenue was up 1.06%, an increase of $11.7M to $1.114B

Source: REIN MLS

0

2000

4000

6000

8000

10000

12000

14000

SS Det SS Att Pen Det Pen ATT

Resale Sales by Year and Sector

2015 2016 2017

14000

12000

10000

8000

6000

4000

2000

0

2015 2016 2017

SS Det SS Att Pen Det Pen ATT

11046

12680

12003

32033337

3527

4394

5463

6149

880

1113

1191

RESALE SALES BY YEAR AND SECTOR

3,318

$483,874

$1,605

2,775

$432,232

$1,199

2,421

$368,752

$893

2,354

$329,035

$775

2,714

$268,269

$728

2,911

$320,767

$934

2,360

$333,402

$787

3,072

$333,262

$1,023

3,214

$342,983

$1,102

3,247

$343,105

$1,114

New Construction

Avg Sales Price

Total Revenue (millions)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

HAMPTON ROADS TOP SUBDIVISIONS

-- 2017

Again in 2017, the #1 position by closings was held by Spence Crossing in Virginia Beach, a Dragas Cos. community, with 160 closings (a gain of almost 26% YoY!). Spence Crossing is comprised of four active neighborhoods offering both attached and detached product. Dragas has a solid

foothold in the first time buyer market, with closed prices in the Fernhill neighborhood averaging $212,447 in 2017. Rounding out the Top 5 subdivisions were Culpepper Landing (Chesapeake), newcomer White Hall (James City County), Benn’s Grant (IOW Cty.) and Kings Pointe (Chesapeake). Ranking by revenues tracked pretty closely with closings, but Dominion Meadows (Chesapeake) grabbed the #5 spot thanks to their average closed sales price of $402,525.

40

1 SPENCECROSSING,V 160 $275,948 12 CULPEPPERLANDING,C 74 $374,296 33 WHITEHALL,J 68 $314,836 14 BENN’SGRANT,IOW 66 $331,939 15 KINGSPOINTEATWESTERNBRANCH,C 63 $194,213 16 REUNION,C 53 $228,463 17 THEVILLAGEATCANDLESTATION,J 52 $312,024 18 DOMINIONMEADOWS,C 51 $402,525 19 NEWPORT,P 50 $232,505 110 OCEANVIEW,N 49 $304,946 1111 EAGLEPOINTE,C 49 $345,103 112 OLAH’SLANDING,C 42 $470,319 213 NEWTOWN,J 41 $344,738 214 THERESERVEATWILLIAMSBURG,J 38 $281,452 115 NORFOLKHIGHLANDS,C 36 $270,705 9

1 SPENCECROSSING,V $44,151,670 12 CULPEPPERLANDING,C $27,697,897 33 BENN’SGRANT,IOW $21,907,968 14 WHITEHALL,J $21,408,860 15 DOMINIONMEADOWS,C $20,528,788 16 OLAH’SLANDING,C $19,753,383 27 NORTHEND,V $17,228,868 108 EAGLEPOINTE,C $16,910,056 19 THEVILLAGEATCANDLESTATION,J $16,225,239 110 LIBERTYRIDGE,J $15,561,342 111 OCEANVIEW,N $14,942,335 1112 FIELDSTONE,C $14,541,539 413 NEWTOWN,J $14,134,266 214 HANBURYWOODS,C $13,811,045 415 RIVERVIEWATTHEPRESERVE,C $12,800,384 1

TOP SUBDIVISIONS -- HAMPTON ROADSSubdivision ClosingsRecorded AveragePrice #Bldrs Subdivision TotalRevenue#Bldrs

HAMPTON ROADS - BY CITY

City/CountyClosings thru Q4 Median Sales Price thru Q4 Avg Sales Price thru Q4 Revenue thru Q4

2016 2017 2016 2017 2016 2017 2016 2017% Change % Change

994

114

279

107

286

644

2424

97

144

323

107

37

82

790

3214

978

104

303

151

399

504

2439

104

148

331

64

31

130

808

3247

-1.6%

-8.8%

8.6

41.1%

39.5%

-21.7%

0.6%

7.2%

2.8%

2.5%

-40.2%

-16.2%

58.5%

2.3%

1.0%

355,000

362,468

256,100

217,900

294,583

344,847

310,000

299,830

269,200

360,503

332,381

286,167

358,776

326,682

317,001

3.7%

-1.4%

5.0%

3.3%

1.8%

3.2%

0.9%

-7.6%

2.2%

-8.6%

-1.9%

-1.5%

-10.9%

-5.6%

-1.9%

368,051

357,566

268,900

225,000

300,024

356,000

312,900

276,957

275,000

329,555

326,155

281,990

319,650

308,388

310,831

344,730

364,128

303,672

216,401

312,988

389,506

343,403

294,806

276,751

380,093

335,740

296,182

388,281

341,697

342,983

358,363

350,418

296,953

224,172

306,315

413,267

344,918

282,544

293,451

373,382

329,499

300,990

353,705

337,630

343,105

342,661,440

41,510,638

84,724,478

23,154,921

89,514,503

250,841,991

832,407,971

28,596,185

39,852,136

122,770,120

35,924,145

10,958,716

31,839,061

269,940,363

1,102,348.334

CHES

I of W

NORF

PORT

SUFF

VBCH

Total Southside

GLOU

HAMP

JCC

NNEWS

WMSBG

YORK/POQ

Total Peninsula

Hampton Roads

350,479,023

36,443,471

89,976,816

33,849,963

122,219,717

208,286,369

841,255,359

29,384,595

43,430,793

132,589,278

21,087,964

9,330,680

45,981,685

272,804,995

1,114,060,354

4.0%

-3.8%

-2.2%

3.6%

-2.1%

6.1%

0.4%

-4.2%

6.0%

-1.8%

-1.9%

1.6%

-8.9%

-1.2%

0.0

2.3%

-12.2%

6.2%

46.2%

36.5%

-17.0%

1.1%

2.8%

9.0%

0.7%

-41.3%

-14.9%

44.4%

1.1%

1.1%

% Change % Change

HAMPTON ROADS TOP BUILDERS --

2017

Ryan Homes continued their dominance of the Hampton Roads market, booking 610 closings with $218,432,164 in revenues, 138% more than #2 Chesapeake Homes by unit count and 188% more by revenue. Ryan Homes is a portfolio builder who counted closings from thirty-seven active communities. Moreover, these numbers do not include their entree into the NE North Carolina market (whose closings were not tracked in 2017).

Chesapeake Homes jumped into the #2 spot. Like Ryan Homes, they have some nice regional balance, with 23.% of their closings coming from the Peninsula. Moreover, they showed some great strength at their Portsmouth community, New Port, with fifty closings there.

Dragas Companies was the #3 builder by closings and revenue. Moreover, what is even more impressive is that the Dragas Cos. operates only on the Southside. These closings came from their closeout of Hadley Park as well as from Kings Point and Spence Crossing.

Rounding out the Top Five builders were HH Hunt Homes and Eagle Construction. The Top 5 builders accounted for 40.6% of all closings in Hampton Roads. It is significant to note that the infill/spot lot builders continue to have a considerable market share in aggregate. After you leave the top twenty builders,

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387 builders contributed another 1,204 closings for an average of 3.1 closings/builder and a 37.1% share of the market. Notable among this group are EDC Homes, Wetherington Homes and DSF Development.

The market continues to grow, albeit at a somewhat slower pace. However, the outlook is positive for at least two more years of solid new construction performance!

41

1 RYANHOMES 610 $358,086 372 CHESAPEAKEHOMES 256 $295,787 103 DRAGASCOS 227 $252,428 34 HHHUNTHOMES 142 $323,802 85 EAGLECONSTRUCTION 84 $386,365 46 EDCHOMES 78 $310,452 347 HEARNDONCONST 77 $372,898 38 NAPOLITANOHOMES 76 $419,199 69 TERRYPETERSONRES 75 $289,696 410 WETHERINGTONHOMES 73 $269,529 2511 CORINTHRES 47 $256,495 212 BISHARDHOMES 46 $480,573 1513 DSFDEVELOPMENT 35 $303,297 914 PLATINUMHOMES 34 $526,483 615 HAVINC 34 $419,338 3

1 RYANHOMES $218,432,164 372 CHESAPEAKEHOMES $75,721,538 103 DRAGASCOS $57,301,169 34 HHHUNTHOMES $45,979,916 85 EAGLECONSTRUCTION $32,454,681 46 NAPOLITANOHOMES $31,859,144 67 HEARNDONCONST $28,713,167 38 EDCHOMES $24,215,222 349 BISHARDHOMES $22,106,369 1510 TERRYPETERSONRES $21,727,237 411 WETHERINGTONHOMES $19,675,625 2512 PLATINUMHOMES $17,900,418 613 STEPHENALEXANDERHOMES $16,636,576 914 HAVINC $14,257,497 315 ASHDONBUILDERS $13,039,687 6

TOP BUILDERS -- HAMPTON ROADSBuilder ClosingsRecorded AveragePrice #Sites Builder TotalRevenue#Sites

42

NATALIE M. BOEHM, Assistant Director, J. ANDREW HANSZ, Director,

E.V. Williams Center for Real Estate, Strome College of Business

The E.V. Williams Center for Real Estate created the Hampton Roads Real Estate Markets Sentiment Survey in fall 2015. This survey, conducted annually via email, intends to gather a greater understanding of the Hampton Roads real estate community’s attitude towards the current and the future real estate market sectors. The 2018 Sentiment Survey, collected in January, had 117 respondents. Survey questions 1 and 3 requested information on respondents and their Hampton Roads real estate market activities.

SENTIMENT

Q.1.

Please identify your primary Hampton Roads real estate

activity(select one).

Q.3.

Please identify your primary real estate market affiliation

(select one).

PRIMARY HAMPTON ROADS REAL ESTATE ACTIVITY: 2018 n = 117

PRIMARY MARKET AFFILIATION: 2018 n = 117

Professional - property management Professional - lawProfessional - consultantProfessional - civil engineerProfessional - broker/salesProfessional - architectProfessional - appraiserProfessional - accountantLendingInvestingGoverningEntrepreneurial (Developing)Consumer - homeowner or renterConsumer - commercial propertyNone of the above. Please explain below.

0% 5% 10% 15% 20% 25% 30%

None of the above. Please explain below.Consumer - commercial propertyConsumer - homeowner or renter

Entrepreneurial (Developing)Governing

InvestingLending

Professional - accountantProfessional - appraiserProfessional - architect

Professional - broker/salesProfessional - civil engineer

Professional - consultantProfessional - law

Professional - property management

Percentage or Participants

Rea

l Est

ate

Act

ivity

Primary Hampton Roads Real Estate Activity: Spring 2018n = 117

0% 5% 10% 15% 20% 25% 30%

Real

Est

ate

Activ

ity

Percentage of Participants

Office

Industrial

Retail

Multi-family residential

Single-family residential

Land

0% 5% 10% 15% 20% 25% 30%

Land

Single-family residential

Multi-family residential

Retail

Industrial

Office

Percentage of Participants

Ha

mp

ton

Roa

ds R

eal E

sta

te M

ark

ets

Primary Market Affiliation: Spring 2018 n= 117

0% 5% 10% 15% 20% 25% 30%

Ham

pton

Roa

ds R

eal E

stat

e M

arke

ts

Percentage of Participants

Questions 4 and 5 show high levels of sentiment (all sectors above ‘neutral’ and three of seven sectors above ‘mild positive’) for all Hampton Roads real estate market segments. Respondents show the most positivity for the industrial real estate market segment followed by the residential sectors. Six-month projections show a decrease in multi-family residential sentiment and sentiment increases to industrial, office, and retail. Respondents may be indicating a rotation from high levels of sentiment in multi-family residential to these other sectors. Retail had the lowest sentiment level but is expected to increase over the next six months.

Respondents suggested that the industrial real estate sector has the best investment potential looking forward. Interestingly, results show a significant decrease in the perceived investment potential of the Hampton Roads’ multi-family residential sector – even though responses in 2016 and 2017 showed that this sector had the best investment potential. Single-family residential also had a significant decrease from recent prior years.

43

Q.4 & 5.

Please rate current and anticipated

6 month sentiment levels for the follow-ing Hampton Roads real estate market

segments.

Sentiment Level

AVERAGE SENTIMENT - PRESENT AND 6 MONTH PROJECTION: 2018

Office

Industrial

Retail

Multi-family residential

Single-family residential

Land

1 2 3 4 5

Land

Single-family residential

Multi-family residential

Retail

Industrial

Office

Sentiment Level

Ha

mp

ton

Roa

ds R

eal E

sta

te M

ark

ets

Average Sentiment - Present and 6 Month Projection: Spring 2018 n = 117

Current Sentiment6 Month Sentiment

1 Negative

2 Mild-Negative

3 Neutral

4 Mild-Positive

5 Positive

Ham

pton

Roa

ds R

eal E

stat

e M

arke

ts

n 6 Month Sentiment

n Current Sentiment

Q.6.

Over the next 6 months, which

Hampton Roads real estate property sector has the best

investment potential?(select one)

BEST HAMPTON ROADS INVESTMENT POTENTIAL - NEXT 6 MONTHS: 2018, 2017, 2016

Ham

pton

Roa

ds M

arke

t Seg

men

ts

Percentage of Participants

Office

Industrial

Retail

Multi-family residential

Single-family residential

Land

No Opinion

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

No Opinion

Land

Single-family residential

Multi-family residential

Retail

Industrial

Office

Percentage of Participants

Rea

l Est

ate

Ma

rket

Seg

men

ts

Best Hampton Roads Investment Potential - Next 6 Months: Spring 2018, Spring 2017, Spring 2016

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

n 2018

n 2017

n 2016

Positive news is reflected in responses to Question 7, as more people intend to expand their real estate space usages rather than contract or reduce their space usage. However, retail is the one exception to this general finding.

Q.7.

We would like to understand your anticipated real

estate usage over the next 6 months.

Please indicate if you plan to expand or

contract your use or ownership of space

(please answer each row).

Q.8.

Over the next 6 months, what is your expectation for the change in general mortgage interest

rates?(select one).

44

SENTIMENT

EXPECTED CHANGES IN MORTGAGE INTEREST RATES - NEXT 6 MONTHS: 2018, 2017, 2016

Increasing

No Change

Decreasing

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Decreasing

No Change

Increasing

Percentage of Participants

Exp

ecte

d C

hang

e

Expected Changes in Mortgage Interest Rates - Next 6 Month: Spring 2018, Spring 2017, Spring 2016

n = 117

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Expe

cted

Cha

nge

Percentage of Participants

n 2018

n 2017

n 2016

ANTICIPATED REAL ESTATE USAGE CHANGES - NEXT 6 MONTHS: 2018

Ham

pton

Roa

ds R

eal E

stat

e M

arke

ts

Office

Industrial

Retail

Multi-family residential

Single-family residential

Land

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Percentage of Participants

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Percentage of Participants

Land

Single-family residential

Multi-family residential

Retail

Industrial

Office

Ha

mp

ton

Roa

ds R

eal E

sta

te M

ark

ets

Anticipated Real Estate Usage Changes - 6 Months: Spring 2018 n= 117

n No Change

n Contract

n Expand

Although Hampton Roads’ communities have begun planning for the impending effects of sea-level rise, most survey respondents indicate that sea-level rise currently has generally ‘moderate’ to ‘no impact’ on their Hampton Roads real estate interests.

Q.9.

Please choose the statement below

that best reflects the impact of sea-level

rise on your Hampton Roads real estate

interests (select one).

IMPACT OF SEA-LEVEL RISE ON PERSONAL REAL ESTATE INTEREST: 2018, 2017, 2016

Severe Impact

Moderate Impact

Minimal Impact

No Impact

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

No Impact

Minimal Impact

Moderate Impact

Severe Impact

Percentage of Participants

Leve

l of I

mp

act

Impact of Sea-level Rise on Personal Real Estate Interest:Spring 2018, Spring 2017, Spring 2016

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Leve

l of I

mpa

ct

Percentage of Participants

n 2018

n 2017

n 2016

Thank you, Valbridge Property Advisors for sponsoring the 2018 Hampton Roads

Real Estate Markets Sentiment Survey.

If you would like to participate in this survey, please contact E.V. Williams Center for Real Estate Director,

Andy Hansz at jhansz@odu.edu.

45

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Think Currituck!

How can you be in two states at the same time?

Currituck County, North Carolina is actually part of Hampton Roads, Virginia’s Metropolitan Statistical Area. So when you expand your business here, you’ll get all the benefits of the economically robust, infrastructure-rich Southeastern Virginia corridor, plus extra advantages—including the lowest tax rate (.48 per $100 valuation) of all the Hampton Roads localities, and workforce incentives—offered only in North Carolina. It’s the best of both worlds; like being in two states at once. And that is one great state for your business to be in.

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Larry.Lombardi@CurrituckCountyNC.gov 153 Courthouse Road, Currituck, North Carolina 27929

ThinkCurrituck.com

Download your free 2018 Hampton RoadsBusiness Resource Guide:

www.thinkcurrituck.com/hrbizguide

MISSION of the

E.V. Williams Center for Real Estate

The E.V. Williams Center for Real Estate strives to

connect those engaged or interested in real estate and economic development to the research, curriculum and students at Old Dominion University

(ODU). Through programming, research initiatives and publications the Center partners with its members, ODU

alumni and business leaders to educate the community and provide ODU students with enrichment experiences that

facilitate their professional development.

For membership or programming inquiries, please

contact Andy Hansz (jhansz@odu.edu) or Natalie

Boehm (nmcgaugh@odu.edu).

E. V. WILLIAMS CENTER FOR REAL ESTATE

odu.edu/creed