The call for an uptick in development has been heard. After seeing very little industrial development throughout 2017 and 2018, Q1 2019 ended with six properties under construction, totaling 932,050 sq. ft. This is great news for a market with historically low vacancy and very little new product. The Norfolk market, however, is still in need of more spec (speculative) product, as the majority of this current construction is owner-occupied or build-to-suit product. Currently, existing market rents do not match up well with the cost-to-build, making developers extremely cautious to take the risk in developing spec product. In lieu of this lack of construction, it is likely that the infill redevelopment trend continues, especially within the submarkets containing the oldest inventory, such as West Norfolk, which has the oldest inventory in the market with the average property being built in 1951.
Norfolk’s vacancy remains historically low at 4.0%, 116 basis points (bps) lower than a year ago, as the quarter ended with 38,652 sq. ft. of negative net absorption and no deliveries. This negative net absorption was located within the Peninsula, which ended the quarter with 45,313 sq. ft. of negative net absorption, while the Southside finished the quarter with 6,661 sq. ft. of positive net absorption. The average asking rent (NNN) remained unchanged from last quarter at $4.82 per sq. ft. Most experts expect industrial vacancies and rents to remain stable throughout 2019.