Economy: Robust Demand Drivers
The Hampton Roads region continues to benefit from major federal investment and defense sector job growth. Recent Navy contract awards to HII and Newport News Shipbuilding, including a $76.6 billion submarine construction program and a $5.1 billion overhaul of the USS Harry S. Truman, point to long term employment stability and household income growth across the region, and the Navy’s acceptance of the future USS John F. Kennedy adds to an already robust shipbuilding pipeline. In addition, the Navy announced a $1.7 billion contract to renovate military housing across the region, including $450 million for two new 17-story residential towers in Downtown Newport News. The City of Norfolk has selected a master developer for the redevelopment of MacArthur Center mall with plans to begin demolition in late 2027 in order to restore the downtown street grid and create a walkable mixed-use environment with a combination of residential development and retail space.
Supply and Demand: Market Momentum Builds
Year-to-date (YTD) leasing activity topped 1.9 million square feet (msf) with YTD net absorption nearing 310,000 square feet (sf). Overall vacancy closed the quarter at 4.1%, a drop of 10 basis points (bps) quarter-over-quarter and an increase of 30 bps year-over-year (YOY). Sheetz opened its first market location in Suffolk during the third quarter, while Buc-ee’s extended the anticipated opening of its New Kent travel center to 2029. Target will open its new store in Norfolk’s Wards Corner early in the fourth quarter, and Costco’s Newport News location will during the same period. In Williamsburg, the Peninsula’s outlet hotspot, both Nordstrom Rack and Toys “R” Us have openings scheduled for the fourth quarter. Prospect activity remains steady with sustained interest from grocery flags, expanding QSR and fast casual restaurants, as well as coffee concepts.
Pricing: Sustained Rent Growth
Sustained demand and compressed vacancy have continued to apply upward pressure to quoted pricing with lease rates up 8.3% overall since the start of 2024. YTD sales volume topped $411 million, including the transfer of the 226,952-sf grocery-anchored Southern Shopping Center in Norfolk in the third quarter, trading from Hackney Real Estate Partners and Crosland Southeast to East Coast Acquisitions for $31.2 million. The 45,255-sf neighborhood center at The Villages at Kiln Creek in Yorktown also sold in the third quarter for $11.2 million, transferring from Liberty Investment Partners to Crow Holdings.
