Office fundamentals in Hampton Roads have recovered since vacancies peaked in 2012: The rate has fallen and now hovers below the metro's historical average as 18Q3 approached. Steady job growth of more than 5% in the professional and business services sector has benefited demand, with annual net absorption topping 700,000 SF as of June thanks to large move-ins from ADP and Movement Mortgage. Human-resources firm ADP has established its regional customer service at 2 Commercial Pl. in Downtown Norfolk, which netted almost 288,000 SF of positive absorption and up to 1,800 new jobs to downtown Norfolk. Further relief is likely, due to the scarcity of new completions – less than 2% of inventory is currently underway at the time of this report. Office rents have finally started to rise, but the slow rebound has fallen behind the national average by a wide margin.

Norfolk had a lot of ground to make up coming out of the recession and continues to post flat employment growth numbers. Job levels remain behind their pre-recession peak as of 18Q2, over fours years after the National Index achieved the same feat. Norfolk’s economy depends heavily on the military, as the largest Navy base in the world is located here, and could benefit from increases to military spending. However, Norfolk’s port handled record volume in 2017 and helped add jobs to the region. In fact, the Port of Virginia stated that cargo traffic in 2017 grew by 7% year-over-year, handling more than 2.8 million TEUs. The expanded Panama Canal opened in 16Q2, pushing more cargo to Norfolk, which has created a need for additional workers at the Port of Virginia. In addition to port activities, tourism, particularly food services and accommodations, has supported the recovery in recent years. In fact, tourism revenue for the metro has exceeded the growth rate for the state of Virginia.
Sales activity has been consistent this real estate cycle, with inventory turnover topping 3% since 2013. Pricing trended upwards in 2017, with the average price hitting a record high of $152/SF. This surge in pricing is primarily due to medical office space, with Kennestone Outpatient Pavillion and Physicians Center 1 trading for more than $400 per square foot. Year-to-date in 2018, volume approached $90 million in June, at an average price of around $103/SF.