The Hampton Roads industrial market was a late bloomer, but with the local economy completing its recovery from the recession in 2017 and a rebound in port traffic, fundamentals are on solid footing. Like many slow-growth, regionally oriented distribution hubs in the country, Hampton Roads is comprised of newer distribution properties that are performing well. Logistics oriented assets constructed after 2000 continue to capture outsized demand from increasing port activity, and annual net absorption as of July topped 950,000 SF. Improvements in local consumption, along with trade at the port, have translated into an upside for demand and have certainly benefited rent growth in the metro over the past 12 months.
Robust demand growth has pulled vacancies down, which stood at 4% in June, particularly in the big box segment of the market. The local job market is still improving, container traffic at the Port of Hampton Roads continues to climb, and some third-party logistics firms and industrial suppliers are beginning to expand in the metro. The Port of Virginia is the sixth-largest container port in the U.S., linked to more than 250 ports in overseas locations. While the New York/New Jersey conglomerate of ports is considerably larger (handling over five million TEUs annually versus Virgina’s slightly more than two million), minimal land in the New York region, coupled with expanding projects here, could bring more distribution centers to the area. The Panama Canal’s expansion should also benefit Norfolk, because East Coast ports will be able to capture more Asian trade. In terms of rail infrastructure, Norfolk Southern and CSX both serve the metro, and according to the Port of Virginia around a third of its cargo is transloaded onto rail cars for distribution outside the metro. Norfolk Southern’s Heartland Corridor project now allows double-stacked railcars to travel between the ports and Chicago, and the first phase (between Norfolk and Columbus, OH) has completed.
Norfolk has a history of supply outpacing demand, but developers have begun to respond, with demand and rent growth beginning to show signs of outperforming. As the economic recovery solidifies and vacancies fall, other large-scale speculative projects, such as the final phase of the 1.4-million-SF CenterPoint Intermodal Center, could get off the ground.
Hampton Roads Industrial Snapshot 2018 Q3
Date Published: 10/22/2018