2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

2014

HAMPTON ROADS REAL ESTATE MARKET REVIEW

E. V. WILLIAMS CENTER FOR REAL ESTATE AND ECONOMIC DEVELOPMENT

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ASSOCIATE PUBLISHER Mike Herron Inside Business 757.222.3991 SPECIAL PUBLISHING MANAGER Sara Anderson GRAPHIC DESIGN Arjen Rumpel DIRECTOR OF SALES Bill Blake 757.222.3165 ADVERTISING SALES Robin Simmons John Kinsley BUSINESS MANAGER Debbi Wilson Inside Business 150 W Brambleton Avenue Norfolk, Virginia 23510 757.222.5353

E. V. Williams Center for Real Estate & Economic Development www.odu.edu/creed Data for Old Dominion University E. V. Williams Center for Real Estate and Economic Development Market Survey was collected in the fourth quarter — 2013

HAMPTON ROADS R E A L E S TAT E MARKET REVIEW CONTENTS

4 CREED Executive Committee ............................... 7 CREED IPAC Members ............................................. 8 CREED Council Members ..................................... 10 Hampton Roads Retail Market Survey ............. 13 Hampton Roads Industrial Market Survey ...... 27 Hampton Roads Office Market Survey ............. 43 Hampton Roads Residential Market Survey ....57 Hampton Roads Multifamily Market Survey ....69 Message From The Director ................................

Hampton Roads Real Estate Commercial Investment Review .................................................

81

M E S S A G E

F R O M

elcome and thank you for joining us for the 2014 Old Dominion University E.V. Williams Center for elcom Real Estate and Economic Development (CREED) Hampton Roads Real Estate Market Review & Forecast. This is our 19th annual market report and review and we sincerely appreciate your continued support.

Our mission is to connect the multi-disciplinary analyses, innovative curriculum and research underway at ODU with students, industry, and the public sector interested and engaged in the real estate and economic development communities. Our membership of industry professionals believe in the importance of linking practice to scholarship and in fostering opportunities for interested students. This high degree of support and involvement by our membership is directly linked to the expansion of CREED programs and services.

Our report this year features perspectives from real estate insiders across the spectrum of commercial and residential markets. While many readers are familiar with forecasts based on econometric models, the trends presented in this report are based on current data and the insights of industry practitioners. CREED is pleased to have the participation of a select group of real estate professionals in data collection for the report. These professionals work in each Hampton Roads submarket and are in tune to the development trends and activities that shape them.

The fusion of scholarship and practice is the scope of CREED’s mission to enrich and to engage the real estate student community at Old Dominion University. Our membership takes an active role in the classroom, on campus, and in external capacities as mentors and advisors.

In 2013, CREED welcomed numerous Hampton Roads industry leaders to the College of Business and Public Administration to strengthen students’ understanding of the roles economic development and commercial real estate development and investment play in driving our regional economy. During the past year, CREED saw the realization of its CREED Real Estate Student Council (CRESC). This organizational resource for students provides learning and networking opportunities with exposure to the region’s leading industry employers and to real time planning and development underway in Hampton Roads. Special thanks to the Wells Fargo Center and S.L. Nusbaum Realty Co. for hosting the CREED Real Estate Student Council’s inaugural site visit in the fall.

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2014 Hampton Roads Real Estate Market Review

T H E

D I R E C T O R

Bridging the student and real estate and development communities is an effective channel for positioning rising graduates and undergraduate students in the marketplace. CREED’s programming, including its annual CREED Real Estate Scholarship Tennis Pro-Am, is committed to providing students with the resources and academic enrichment necessary to succeed as full time employees in our industry. I would like to extend my sincere thanks to the local employers that have provided such opportunities for our students over the course of the last year.

All of CREED’s activities and events make your membership in CREED one of the most cost effective networking organizations you can ever support. Not only do you receive complimentary registration for our major events, but you also have the opportunity to participate in research seminars presented by Old Dominion University featuring national experts on such topics as the impact of sea level rise on commercial real estate. With your input, we plan to offer more research seminars in the near future and look forward to your participation.

In closing, I want to thank the members of the Executive Committee, past and present, for their devotion to making CREED a center of excellence. Lastly, a very special thanks to Kyllie Bullion and Stephanie Sanker for their tireless support and vision of CREED’s future.

John R. Lombard, Ph.D. Associate Professor and Chair Department of Urban Studies and Public Administration Director, E. V. Williams Center for Real Estate and Economic Development Old Dominion University College of Business and Public Administration Norfolk, VA 23529-0218 Direct line: (757) 683-4809 Center line: (757) 683-5352

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CREED partners with its members, alumni and business leaders to facilitate the advancement of land planning and development initiatives. As an endowed center of study in the College of Business and Public Administration at ODU, CREED is committed to providing students enrichment experiences and to facilitating their professional development.

For membership or programming inquiries, please contact Kyllie Bullion 757.683.5352 or kbrinkle@odu.edu

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2014 Hampton Roads Real Estate Market Review

2014 CREED OFFICERS AND COMMITTEES Executive Committee Chair................................................ Stephanie Sanker Director............................................ John Lombard Sponsorship Chair........................... Candi James Membership Chair............................ Brian Devlin By-Laws Chair................................. Andrew Keeney Past Chair........................................ Brad Sanford At-Large.......................................... Larry Colorito ........................................................ Tom Dillon ........................................................ Tom Elder ........................................................ Worth Remick ........................................................ Steven Wright CREED Program Manager................ Kyllie Bullion

Market Review Committee Industrial............................... William C. Throne ............................................. Stephanie Sanker Office.................................... Maureen Rooks ............................................. Deborah Stearns Retail.................................... David Machupa ............................................. Kyllie Bullion ............................................. David Chapman Multifamily............................. Charles Dalton/Real Data Residential............................ Blair Hardesty Belliveau ............................................. Ron Wildermuth ............................................. Cameron Brown ............................................. Van Rose Real Estate Investment ......... Scott Adams

Research/Editorial Committee Kyllie Bullion, Editor David Chapman Albert Duncan Brian Dundon Nancy Gossett Dove

Elizabeth Hancock Janice Hurley Joy Learn John Lombard Maureen Rooks

Brad Sanford Lane Shea Kristi Sutphin

To obtain additional copies of this report, please go to our website: www.odu.edu/creed Send to: Kyllie Bullion Program Manager E. V. Williams Center for Real Estate and Economic Development Old Dominion University 2088 Constant Hall Norfolk, VA 23529 Telephone: (757) 683.5352 E-Mail: kbrinkle@odu.edu

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INDUSTRY PROFESSIONAL ADVI Honorary Member Robert M. Stanton, CSM and CPM Stanton Partners, Inc

Cecil V. Cutchins Olympia Development Corporation

John L. Gibson, III Ellis-Gibson Development Group

Jeff Ainslie Ainslie Group

Robert L. Dewey Willcox & Savage, PC

Warren Harris City of Virginia Beach Economic Development

G. Robert Aston, Jr. TowneBank

N. Joseph Dreps BB&T

Ramon W. Breeden, Jr. The Breeden Company

Pamela J. Faber BridgeTrust Title

Sanford (Sandy) M. Cohen Divaris Real Estate, Inc.

Joel T. Flax, CPA Dixon Hughes Goodman LLP

Craig Cope Liberty Property Trust

David M. Gianascoli Gee’s Group Real Estate Development

Miles B. Leon S. L. Nusbaum Realty Company Michael W. McCabe Harvey Lindsay Commercial Real Estate

THANK YOU 2014 SPONSORS PRESENTING SPONSOR

RECEPTION SPONSOR

MONARCH SPONSORS

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MEDIA SPONSOR

SORS TO THE CENTER (IPAC) Michael Newsome Clark Whitehill Enterprises, Inc

Reese Smith Reese Smith & Associates

Robert T. Williams Tri-City Developers, LLC

Harrison J. Perrine Perrine Investments

Tony Smith Robinson Development Group

Steven Wright City of Chesapeake Economic Development

Don Perry Continental Development

Deborah K. Stearns, CPM, SIOR Jones Lang LaSalle

Victor L. Pickett Grandbridge Real Estate Capital, LLC Thomas E. Robinson Robinson Development Group

Richard Thurmond William E. Wood & Associates Jon S. Wheeler Wheeler Interests

Bradley R. Sanford, MAI Dominion Realty Advisors

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CREED COUNCIL MEMBERS J. Scott Adams CB Richard Ellis|Hampton Roads Tom Atherton Atherton Real Estate Development Judy Boone Judy Boone Realty Stewart Buckle, II The Morgan Real Estate Group M. Albert Carmichael Harvey Lindsay Commercial Real Estate Jamie Clark Colliers International W. Page Cockrell Hurt & Proffitt David Collier First Atlantic Restoration Lawrence J. Colorito, Jr , MAI Valbridge Property Advisors | Axial Advisory Group Hahns L. Copeland DARVA Group LLC Ann K. Crenshaw Kaufman & Canoles, P.C. Don Crigger, CCIM CB Richard Ellis of Virginia, Inc. Jon R. Crunkleton, Ph. D. Old Dominion University, Emeritus Kim Curtis Tidewater Home Funding William G. Darden Hearndon Construction Co.

Laura B. de Graaf Bank of America Merrill Lynch Tom Dillon StellarOne Bank Michael Divaris Divaris Real Estate, Inc.

Charles Hutchison Vanasse Hangen Brustlin, Inc. Michael A. Inman Inman & Strickler, P.L.C.

Helen Dragas The Dragas Companies

Candi James CREATIVE

Brian Dundon Dundon & Associates

Cherie James Cherie James, CPA

Tom Elder Hampton Roads Economic Development Alliance

Terry Johnson Abbitt Realty

Sandra Ferebee GSH Residential Sales

Mallory Kahler City of Portsmouth Economic Development

Bart Frye, Jr. Frye Properties, Inc

E. Andrew Keeney Kaufman & Canoles, P.C.

Bill Gambrell Right Coast Consulting

Angela R. Kerns, CPA Wall, Einhorn, Chernitzer, P.C.

Brian E. Gordineer, A.A.S. City of Hampton, Office of the Assessor

R. I. King, II Cushman & Wakefield | THALHIMER

Howard E. Gordon Williams Mullen

William E. King, SIOR Harvey Lindsay Commercial Real Estate

Dennis W. Gruelle Appraisal Consultation Group Elizabeth O. Hancock Office of Real Estate Assessor, Norfolk Russell G. Hanson, Jr. Hanson Capital, LLC

April Koleszar Koleszar Properties, Inc. Barry M. Kornblau Summit Realty Group, Inc. Joy Learn Fulton Bank

Carl Hardee Lawson Realty Corporation John Harry John C. Harry, Inc.

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Dorcas T Helfant-Browning DTH Properties, LLC

Tyler Leinbach Meredith Construction Company

2014 Hampton Roads Real Estate Market Review

John R. (Jack) Lewis, II ECS Mid-Atlantic, LLC

Charles E. Rigney, Sr. City of Norfolk Department of Development

Robert M. Thornton, CRE, CCIM, SIOR Cushman & Wakefield|THALHIMER

Harvey Lindsay, Jr. Harvey Lindsay Commercial Real Estate

Maureen G. Rooks Jones Lang LaSalle

William C. Throne, SIOR, CCIM, ALC Cushman & Wakefield|THALHIMER

Jeffrey R. Mack The CIM Group

J. Randy Royal Kimley-Horn and Associates

Jacob Mart Harbor Group International, LLC

Robert J. Ruhl City of Virginia Beach Economic Development

M. B. Mike Mausteller, Jr. Harvey Lindsay Commercial Real Estate G. Cliff Moore Virtexco Corporation Michael Nice George Nice and Sons, Inc. Thomas O’Grady Clancy & Theys Construction

Stephanie Sanker, SIOR, CCIM S.L. Nusbaum Realty Co. Tara Saunders Old Dominion University Real Estate Foundation Robert M. Sherman III, CPM Harrison & Lear, Inc. Kenneth Sisk, P.E. Bowman Consulting Group

James N. Owens, CCIM Harvey Lindsay Commercial Real Estate

Anthony W. Smith Robinson Development Group

Robert L. Philips, Jr. Cushman & Wakefield|THALHIMER

Robert M. Stanton Stanton Partners, Inc.

Chris Read CB Richard Ellis|Hampton Roads

Jeremy R. Starkey Monarch Bank Commercial Real Estate Finance/Monarch Capital, LLC

F. Craig Read Read Commercial Properties Worth Remick CB Richard Ellis|Hampton Roads John C. Richards, Jr. CB Richard Ellis/Melody & Co. Rennie Richardson Richardson Real Estate Corporation

Daniel R. Stegall Daniel Richard Stegall, A Professional Law Corporation Leo Sutton EXIT Realty Central Commercial

Jamie Tollenaere McKenzie Construction Corporation Stewart Tyler, ASA Right of Way Acquisitions & Appraisals George D. Vick, III Harvey Lindsay Commercial Real Estate Edward W. Ware Norfolk Redevelopment and Housing H. Mac Weaver, II Wells Fargo Real Estate Group Edward M. Williams William E. Wood & Associates F. Blair Wimbush Norfolk Southern Corporation Chris Wood JD & W John P. Wright Waverton Associates Russell Young Virginia Port Authority Michael P. Zarpas S.L. Nusbaum Realty Co.

Michael Sykes Bank of Hampton Roads

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12

2014 Hampton Roads Real Estate Market Review

RETAIL 2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

Author

David Machupa Cushman & Wakefield | THALHIMER

Survey Collection

Kyllie Bullion E.V. Williams Center for Real Estate and Economic Development Old Dominion University

Data Analysis/ Layout

David Chapman, Ph.D. Old Dominion University

Financial Support

The E. V. Williams Center for Real Estate and Economic Development (CREED) functions and reports are funded by donations from the CREED membership, organizations, and individuals.

Disclosure

The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals make any representation or warranty as to its accuracy.

2014 RETAIL 13

2 0 1 4 R E TA I L

General Overview his report analyzes the 2013 retail real estate conditions within the Virginia Beach-Norfolk-Newport News, Virginia Metropolitan Statistical Area (MSA) which is commonly referred to as Hampton Roads. The report examines supply, vacancy, construction, absorption, and rent data to provide a comparison of data for the specific submarkets and product types located within the Southside and Peninsula regions of the Hampton Roads MSA. Southside properties surveyed for the purpose of this report included those located in the cities of Chesapeake, Norfolk, Portsmouth, Smithfield, Suffolk and Virginia Beach. Peninsula properties surveyed are located in the cities of Gloucester, Hampton, Newport News, Poquoson, Williamsburg, and York County.

This survey is recognized as the most comprehensive analysis of retail real estate trends in the Hampton Roads MSA. The report includes information on all retail property types including regional malls, freestanding buildings and strip centers of various classifications. The scope of the report also includes a summary of new retail construction activity, an analysis of absorption, and a review of selected retail investment sales that have occurred in the region in 2013.

METHODOLOGY This survey gathered information about strip shopping centers and regional malls located in the Hampton Roads MSA that were generally 30,000 square feet in size or larger. Additionally, information on retail-oriented freestanding buildings at least 23,000 square feet and freestanding buildings that contained furniture stores, discounters, grocery stores or category killer retailers that met the established size criteria were included in the survey.

Automotive uses and buildings containing “downtown storefronts� were not included. Although available retail space in many submarkets (e.g. Ghent) is best described as a collection of small specialty shops, storefronts or freestanding buildings, practical limitations dictated that the focus of the survey be on larger product types.

The survey data was collected between October 2013 and January 2014. Questionnaires were mailed to owners, leasing agents and property managers responsible for retail properties meeting the selection criteria. Direct contact was utilized as a follow-up to the mailing to encourage participation. Information on square footage for freestanding buildings was obtained from building owners, tax records, store managers and retail real estate representatives.

Sales information was obtained from property owners, real estate agents, appraisers and real estate assessors.

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2014 Hampton Roads Real Estate Market Review

DEFINITIONS OF TERMS Asking Rates: The market rate per square foot of a retail property (excluding freestanding buildings and malls), exclusive of additional rents that may be paid under a triple net lease. Interpretation of average retail rates in different product types and submarkets should be viewed cautiously given the tremendous variability in rates for like products and for properties located within the same submarket. Factors such as visibility, co-tenancy, and accessibility, are some of the many sources of variation in market rates which should be considered.

Big Boxes: Contiguous retail space that is at least 23,000 square feet and located in any one of the identified product types. Retailers occupying big boxes include, but are not limited to, the following: category killers, specialty stores, discounters, furniture stores, grocery stores and theaters. Bowling alleys, automotive uses, roller rinks and ice-skating rinks were not included.

CAM: Common Area Maintenance.

Product Types: Properties were classified according to one of the following nine retail product types. The International Council of Shopping Centers defined the first six categories. Three additional categories were included to accurately categorize the remaining properties.

30,000 to 150,000 square feet; supermarket anchored

Community Center

100,000 to 350,000 square feet; discount department store, supermarket or drug store anchored

Fashion/Specialty Center

80,000 to 250,000 square feet; fashion anchored

Power Center

250,000 to 600,000 square feet; category killer, home improvement and discount department store anchored

Theme Festival Center

80,000 to 250,000 square feet; restaurants, entertainment anchored

Outlet Center

50,000 to 400,000 square feet; manufacturer’s outlet store anchored

Freestanding

Individual building not considered a shopping center

Mall

Shopping center with area designed for pedestrian use only

Other

Any center that does not fit into a typical category

Regional Mall Node: Submarket anchored by regional mall.

Small Shop: In-line retail space usually less than 10,000 square feet located in a multi-tenanted shopping center.

2014 RETAIL

Neighborhood Center

Submarkets: Hampton Roads is divided into 35 retail submarkets (25 Southside submarkets and 10 Peninsula submarkets) which reflected general concentrations, pockets or corridors of retail product type. Geographical boundaries of the retail submarkets were influenced by density of existing retail product, physical or geographical obstacles, existing transportation networks, municipal boundaries, population concentrations and retailers’ perceptions of the MSA. Final determination of specific boundaries of each submarket was made by a subcommittee of retail real estate professionals who are actively involved in the MSA. Also highlighted were specific submarkets that are anchored by regional malls. A map which identifies the general location of each submarket is included in the centerfold of this report.

Triple Net Lease: Type of lease under which a tenant pays its pro-rata share of real estate taxes, insurance and common area maintenance.

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2 0 1 4 R E TA I L

YEAR IN REVIEW 2013 The Hampton Roads market appears to have stabilized. 2013 saw the re-emergence of grocery stores to the market as Walmart and Kroger continued to expand their presence. On a national level, the retail market remained stable and, as such, remained stable here in Hampton Roads. 2013 did not bring a mass exodus of retailers; however, a few large box brands did limp into 2014 and we expect a thinning of the herd as these retailers attempt to remain viable. The financing market is stable with lenders actively seeking opportunities. A disconnect remains on product valuation between buyers, sellers and lenders of retail centers and, as such, we did not see a great deal of investment sales in Hampton Roads this past year.

2013 brought increased activity from grocery stores. Kroger, Walmart Neighborhood Market, and Harris Teeter were very active. Harris Teeter was purchased by Kroger and we will pause to see how this will curtail expansion by both retailers. Walmart opened on Jefferson Avenue and is under construction in the Pembroke area of Virginia Beach with a Super Center. Five of the smaller Neighborhood Market concepts are under construction in Hampton Roads. Harris Teeter will open in the Red Mill area of Virginia Beach and in the Wards Corner area of Norfolk.

Kroger opened its 124,000 square foot Marketplace concept on Holland Road in Virginia Beach and is under construction with two more in Portsmouth and Northern Suffolk respectively. Additionally, Whole Foods has announced they will anchor Tech Center at Oyster Point in Newport News and The Fresh Market will open in the Ghent section of Norfolk. Dave and Buster’s opened at Lynnhaven Mall and West Marine opened in Loehman’s Plaza in Virginia Beach. Starbucks opened a drive thru only location in Virginia Beach; this was the first in Virginia and only the seventh in the country. CVS and 7-11 both continued aggressive expansion within the market. Simon Properties has Lake Wright under contract and is working to bring an outlet mall to the Norfolk site. We saw two small redevelopment projects along Lynnhaven Parkway near the mall with Noodles, Five Guys and Mattress Firm anchoring those developments. Lynnhaven Convenience, a mostly vacant property along Virginia Beach Boulevard anchored by Farm Fresh, is being redeveloped. Farm Fresh closed and has been replaced by Walmart Neighborhood Market, One Life Fitness, and Hobby Lobby. Bahama Breeze and Old Navy opened at the entrance of Pembroke Mall.

Settler’s Market in Williamsburg came full circle. After starting off slowly, going through foreclosure, and sitting partially constructed, the new ownership was able to re-energize the project and Home Goods, Stein Mart, Michaels, Ulta, Shoe Carnival and 5 Below opened in March occupying roughly 200,000 sf of a 250,000 sf project.

There is concern for certain retailers as they continue to struggle on a national level. K-Mart and Sears are closing stores on both a local and national level. K-mart closed the Chesapeake Square and Tidewater Drive locations with many more being offered for lease with or without K-Mart. J.C. Penney’s announced the closing of the Military Highway location, while Ruby Tuesday shuttered thirty stores across the country and one here in Virginia Beach.

Blockbuster finally threw in the towel and closed the last of its stores across the country, Radio Shack is closing 500 stores, Best Buy tried to go private, but could not obtain financing and Barnes and Noble placed themselves for sale, but did not find any suitors. The retail landscape is constantly changing and those tenants that do not change with it will be closing their doors.

Hampton Roads is stable, new tenants are looking for locations within the market, and we are seeing new development. We do expect the vacancy rate to increase because of the amount of big box space that will come to the market, but we also expect rental rates to increases as quality retail product is limited at this time.

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2014 Hampton Roads Real Estate Market Review

HAMPTON ROADS MARKET SURVEY The Hampton Roads retail market contained approximately 54,222,598 square feet of gross leasable area (“GLA”) in 422 properties with an average asking rental rate of $15.97 with triple net charges (Common Area Maintenance, Real Estate Taxes and Insurance) running $2.87 per square foot. The US Census Bureau indicates the population of Hampton Roads is approximately 1.7 Million resulting in a 31.90 square feet of retail supply per person. Certain methodological differences (e.g., the inclusion of freestanding buildings and malls in this survey) make it difficult to compare per capita supply in the MSA to a national average statistic.

Hampton Roads consist of two markets, the Southside and Peninsula. The Southside market has approximately 35,835,277 square feet, roughly 66% of the total square footage in the market, in 288 properties. The average asking rent for small shop space increased $.20 over 2012 numbers to $16.56 triple net. The increase in rental rates can be attributed to consistent demand as vacancy rates remained low at 6.74% in 2013. While 89,200 square feet of new construction came on line in 2013, Hampton Roads has significant amounts of new construction in the pipeline for 2014.

In 2013, the Hampton Roads market did see a slight increase in the vacancy rate as 2012’s overall 7.85% vacancy rate gave way to 2013’s 8.37%. This increase is largely due to more Big Box space coming onto the market. While landlords and tenants continue to get creative in the deal making process and retailers are repositioning themselves within the market creating new developments, as well as second generation opportunities, local tenants are not as abundant as in years past. Landlords are approaching these second generation spaces with both traditional and non-traditional retailers to back fill the space. Unlike years past, the market was not saturated with retail product due to mass store closings; however, we expect a fair amount of big box retail space to enter in 2014. Specifically, K-mart and Sears present large blocks that may enter the market.

2014 RETAIL

The Peninsula also experienced some mixed change this past year. The 134 properties on the Peninsula that were surveyed combined for 18,387,321 square feet of product. The average asking price of small shop space was $14.61 per square foot with $2.69 in triple net charges. The vacancy rate for the greater Peninsula was 11.55%; however, activity and interest in the Peninsula market is strong in the first quarter of 2014. The Williamsburg submarket rebounded as new ownerships were able to reposition previously faltering projects.

We move forward acknowledging 2014 is off to a strong start. We will see the size of the overall market increase due to grocery store expansion as multiple new centers are currently under construction and will be opening this year. We will approach the older second generation space for re-use and redevelopment. It should be noted some of the larger vacant space highest and best use may no longer be retail. These spaces will continue to negatively impact the overall Hampton Roads numbers until such time as they are redeveloped.

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2 0 1 4 R E TA I L Market Overview Table Number of Properties

2014 Southside 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

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Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total Southside Peninsula Total

288 134 422 286 138 424 279 138 417 274 138 412 273 136 409 265 133 398 263 133 396 259 131 390 246 129 375 243 125 368 243 127 370 245 126 371 239 123 362 230 121 351 220 118 338 208 112 320

GLA in SF

Vacant SF

% Vacant

35,835,277 18,387,321 54,222,598 34,924,153 18,532,649 53,456,802 34,150,108 18,494,461 52,644,569 34,019,555 18,548,407 52,567,962 33,535,280 18,160,963 51,696,243 33,265,028 17,112,012 50,377,040 33,086,160 17,133,079 50,219,239 32,407,761 16,895,155 49,302,916 30,852,210 16,337,458 47,189,668 30,184,395 15,799,778 45,984,173 30,336,266 16,094,161 46,430,427 30,180,691 15,546,085 45,726,776 29,760,443 14,906,530 44,666,973 29,436,515 14,477,970 43,914,485 28,816,383 15,249,617 44,066,000 27,089,939 14,548,482 41,638,421

2,416,346 2,123,718 4,540,064 2,206,614 1,989,028 4,195,642 2,534,765 1,944,109 4,478,874 2,523,754 2,175,793 4,699,547 2,714,514 2,392,710 5,107,224 2,155,822 1,706,536 3,862,358 2,215,479 1,617,705 3,833,184 1,876,676 1,480,266 3,356,942 2,063,087 1,499,357 3,562,444 2,676,141 1,648,774 4,324,915 3,169,748 2,027,477 5,197,225 3,433,311 1,891,419 5,324,730 3,548,230 2,183,872 5,732,102 3,760,087 1,997,875 5,757,962 2,933,294 2,012,637 4,945,931 2,551,059 1,604,287 4,155,346

6.74% 11.55% 8.37% 6.32% 10.73% 7.85% 7.42% 10.51% 8.51% 7.42% 11.73% 8.94% 8.09% 13.18% 9.88% 6.48% 9.97% 7.67% 6.70% 9.44% 7.63% 5.79% 8.76% 6.81% 6.69% 9.18% 7.55% 8.87% 10.44% 9.41% 10.45% 12.60% 11.19% 11.38% 12.17% 11.64% 11.92% 14.65% 12.83% 12.77% 13.80% 13.11% 10.18% 13.20% 11.22% 9.42% 11.03% 9.98%

New Construction in SF 89,200 21,411 110,611 57,442 6,576 64,018 103,380 999,389 1,102,769 18,880 18,880 302,352 981,463 1,283,815 275,252 275,252 1,038,291 1,009,000 2,047,291 1,552,392 1,042,451 2,594,843 593,520 618,179 1,211,699 271,610 185,000 456,610 419,458 330,000 749,458 574,400 676,000 1,250,400 828,800 202,750 1,031,550 918,100 212,229 1,130,329 2,064,727 758,370 2,823,097 1,414,805 1,253,342 2,668,147

Occupied in SF 33,418,931 16,263,603 49,682,534 32,717,539 16,543,621 49,261,160 31,615,343 16,550,352 48,165,695 31,495,801 16,372,614 47,868,415 30,820,766 15,768,253 46,589,019 31,109,206 15,405,476 46,514,682 30,870,681 15,515,374 46,386,055 30,531,085 15,414,889 45,945,974 28,789,123 14,838,101 43,627,224 27,508,254 14,151,004 41,659,258 27,166,518 14,066,684 41,233,202 26,747,380 13,654,666 40,402,046 26,212,213 12,722,658 38,934,871 25,676,428 12,480,095 38,156,523 25,883,089 13,236,980 39,120,069 24,538,880 12,944,195 37,483,075

Absorption in SF 701,392 (280,018) 421,374 1,896,773 775,368 2,672,141 794,577 782,099 1,576,676 675,035 604,361 1,279,396 (288,440) 362,777 74,337 238,525 (109,898) 128,627 339,596 100,485 440,081 1,741,962 576,788 2,318,750 1,280,869 687,097 1,967,966 341,736 496,338 838,074 419,138 412,018 831,156 535,167 932,008 1,467,175 1,185,818 242,563 1,428,381 (158,181) 147,115 (11,066) 1,344,209 292,785 1,636,994 1,961,927 1,592,805 3,554,732

2014 Hampton Roads Real Estate Market Review

SOUTHSIDE SUBMARKETS There were 25 retail submarkets on the Southside in 2013. The average size of the submarkets was 1,433,411 square feet. The Hilltop submarket had a strong 2013 with vacancy decreasing from 3.27% in 2012 to 2.76% this past year and average small shop rents increasing from $21.14 to $21.83 per square foot, which is the highest asking rent of all Southside suburban submarkets.

The range of vacancy rates in the Southside submarkets can be seen in the table below.

GLA in SF

Vacant SF

% Vacant

Small Shop Rate PSF

BAY FRONT 6 BIRDNECK/OCEANFRONT 6 CAMPOSTELLA 6 CHESAPEAKE SQUARE 12 CHURCHLAND-PORTSMOUTH/HARBORVIEW 16 DAM NECK 8 DOWNTOWN 5 DOWNTOWN NORFOLK 1 GHENT 9 GREAT BRIDGE 18 GREENBRIER/BATTLEFIELD BOULEVARD 25 HILLTOP/GREAT NECK 13 HOLLAND/GREEN RUN 10 INDIAN RIVER/COLLEGE PARK( including Chesapeake) 3 KEMPSVILLE 12 LITTLE CREEK ROAD /WARDS CORNER/OCEAN VIEW 17 LITTLE NECK 12 LYNNHAVEN ROAD (Virginia Beach Boulevard to Holland Road) 8 MIDDLE PORTSMOUTH 15 MILITARY HIGHWAY/JANAF 17 NEWTOWN 11 ODU 1 PEMBROKE 23 PORTSMOUTH 1 PRINCESS ANNE ROAD (from Kempsville Road to Holland Road) 14 SMITHFIELD 5 SUFFOLK 14 Total 288

304,258 225,350 332,921 2,294,809 1,747,401 1,520,256 2,429,283 50,000 396,454 1,371,042 4,134,369 1,600,943 879,800 433,643 1,246,748 1,765,581 1,459,402 1,822,511 1,770,272 3,356,493 607,596 49,875 2,824,995 45,800 1,731,761 279,756 1,153,958 35,835,277

25,654 85,015 90,839 82,625 42,640 49,675 10,466 25,722 118,592 225,041 44,221 46,468 83,575 128,377 302,958 17,375 205,452 192,106 96,577 82,714 279,369 2,700 72,252 12,656 93,277 2,416,346

8.43% 0.00% 25.54% 3.96% 4.73% 2.80% 2.04% 20.93% 6.49% 8.65% 5.44% 2.76% 5.28% 19.27% 10.30% 17.16% 1.19% 11.27% 10.85% 2.88% 13.61% 0.00% 9.89% 5.90% 4.17% 4.52% 8.08% 6.74%

$18.20 $15.30 $12.39 $17.33 $17.13 $20.00 $14.17 $28.00 $17.44 $16.06 $19.82 $21.83 $13.93 $12.00 $15.59 $16.23 $17.06 $16.20 $12.00 $13.24 $12.90 $21.00 $17.88 $12.00 $17.23 $16.00 $17.00 $16.56

2014 RETAIL

Average Number of Properties

SOUTHSIDE BY SUBMARKET

19

2 0 1 4 R E TA I L

PENINSULA SUBMARKETS There were 10 retail submarkets on the Peninsula with an average size of 1,671,574 square feet. The two largest Peninsula submarkets are now Patrick Henry and Williamsburg. The Patrick Henry submarket is anchored by a regional mall and has the lowest vacancy rate on the Peninsula.

The Patrick Henry submarket continues to be one of the most highly desired submarkets in Hampton Roads having 4,374,256 square feet and a vacancy rate of just 3.75%. The Williamsburg market continues to have good retail activity along the Monticello corridor.

PENINSULA BY SUBMARKET COLISEUM CENTRAL DENBIGH FOXHILL/BUCKROE/EAST MERCURY GLOUCESTER HAMPTON MISC NEWMARKET/MAIN (TO INCLUDE HAMPTON) NEWPORT NEWS PATRICK HENRY/OYSTER POINT/KILN CREEK POQUOSON WILLIAMSBURG YORK COUNTY Total

Number of properties

GLA in SF

Vacant SF

% Vacant

Average Small Shop Rate PSF

16 15 7 8 1 12 1 30 2 30 12 134

4,051,110 1,785,033 708,425 894,676 64,327 974,957 21,240 4,200,077 108,521 4,745,579 833,376 18,387,321

496,819 451,642 91,796 68,664 10,910 198,407 1,400 157,415 5,250 570,487 70,928 2,123,718

12.26% 25.30% 12.96% 7.67% 16.96% 20.35% 6.59% 3.75% 4.84% 12.02% 8.51% 11.55%

$15.40 $11.25 $13.17 $14.38 $10.00 $9.48 $14.00 $16.31 $13.50 $18.64 $14.41 $14.61

RETAIL PRODUCT TYPE The Neighborhood Center remains the predominant product type with 173 properties with over 12 million square feet of GLA. The Community Centers comprised almost 10 million square feet with both product types showing a decrease in vacancy rate and an increase in rental rate. We do anticipate new Neighborhood Centers in 2014 and expect they will contain less small shop space than traditionally developed.

20

2014 Hampton Roads Real Estate Market Review

Total Retail Product By Type

Neighborhood Center Community Center Fashion/Specialty Center Power Center Theme Festival Center Outlet Center Other Freestanding Mall Total

GLA in SF

New Construction in SF

Vacant SF

% Vacant

12,448,491 9,442,322 1,551,243 10,851,642 100,000 349,927 2,177,439 8,482,893 8,818,641 54,222,598

36,000 26,800 26,400 21,411 110,611

1,473,678 1,097,952 134,993 786,746 235,642 358,318 452,735 4,540,064

11.84% 11.63% 8.70% 7.25% No data No data 10.82% 4.22% 5.13% 8.37%

Number of Properties

GLA in SF

New Construction in SF

Vacant SF

% Vacant

125 36 8 21 1 40 49 8 288

9,150,514 5,721,904 1,068,243 6,616,525 100,000 1,433,737 4,994,709 6,749,645 35,835,277

36,000 26,800 26,400 89,200

1,084,314 491,022 80,026 271,371 121,324 35,225 333,064 2,416,346

11.85% 8.58% 7.49% 4.10% No data No data 8.46% 0.71% 4.93% 6.74%

Number of Properties

GLA in SF

New Construction in SF

Vacant SF

% Vacant

48 20 2 10 1 17 33 3 134

3,297,977 3,720,418 483,000 4,235,117 349,927 743,702 3,488,184 2,068,996 18,387,321

21,411 21,411

389,364 606,930 54,967 515,375 114,318 323,093 119,671 2,123,718

11.81% 16.31% 11.38% 12.17% No data No data 15.37% 9.26% 5.78% 11.55%

Number of Properties 173 56 10 31 1 1 57 82 11 422

Average Small Shop Average Rate PSF CAM PSF $14.95 $15.62 $24.89 $19.67 No data No data $16.19 $14.87 $20.50 $15.97

$2.71 $2.41 $4.03 $3.58 No data No data $3.02 $3.31 $17.75 $2.87

Southside By Type

Neighborhood Center Community Center Fashion/Specialty Center Power Center Theme Festival Center Outlet Center Other Freestanding Mall Total

Average Small Shop Average Rate PSF CAM PSF $15.50 $16.17 $24.75 $19.53 No data No data $16.59 $17.12 $20.50 $16.56

$2.73 $2.41 $4.03 $3.58 No data No data $3.03 $3.31 $18.86 $2.95

Neighborhood Center Community Center Fashion/Specialty Center Power Center Theme Festival Center Outlet Center Other Freestanding Mall Total

Average Small Shop Average Rate PSF CAM PSF $13.54 $14.68 $26.00 $19.95 No data No data $15.32 $10.00 #DIV/0! $14.61

2014 RETAIL

Peninsula By Type

$2.33 $2.54 $5.40 $3.00 No data No data $2.53 $2.50 $17.75 $2.69

21

2 0 1 4 R E TA I L

BIG BOX VACANCY Big box vacancy increased in 2013 and is expected to climb again in 2014. The thought being several big box retailers limped into 2014. Additionally, a few small shop retailers are struggling as well. We will see tenants right size their units as they modify their footprints to stay current to what the market dictates. The boxes that we believe will bring the most product to market are K-Mart, Sears, and J.C. Penney. The 1,825,202 square feet of vacant space represents 40% of the total retail vacancy in the market. It is important to note some of the vacant boxes are now functionally or practically obsolete for today’s retailer. They will remain on the report as retail product until such time as they are demolished, converted to a non-retail use, or redeveloped.

Big Box Vacancy 4,000,000 Southside Peninsula TOTAL

3,500,000 3,000,000 2,500,000

Vacant Square Feet

2,000,000 1,500,000 1,000,000 500,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Big Box Vacancy Southside 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2,073,115 2,207,416 2,220,935 1,906,391 1,513,523 1,142,319 957,887 948,288 907,688 1,102,093 880,568 855,979 821,993 929,713 Peninsula 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1,328,841 1,435,489 1,407,021 1,556,029 1,141,207 982,263 819,163 827,360 880,805 989,305 837,025 794,484 767,637 895,489 TOTAL 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3,401,956 3,642,905 3,627,956 3,462,420 2,654,730 2,124,582 1,777,050 1,775,648 1,788,493 2,091,398 1,717,593 1,650,463 1,589,630 1,825,202

22

2014 Hampton Roads Real Estate Market Review

Southside 1 Bayfront 2 Birdneck/Oceanfront 3 Campostella 4 Chesapeake Square 5 Churchland/Harbourview 6 Dam Neck 7 Downtown Norfolk 8 Ghent 9 Great Bridge 10 Greenbrier/Battlefield Boulevard

Peninsula 11 12 13 14 15 16 17 18 19 20

Hilltop/Great Neck Holland/Green Run Indian River/College Park Kempsville Little Creek Road/ Wards Corner Little Neck Lynnhaven Middle Portsmouth Military Highway/Janaf Newtown

21 22 23 24 25

ODU Pembroke Princess Anne Smithfield Suffolk

26 27 28 29 30 31 32 33 34 35

Coliseum Central Denbigh Foxhill/Buckroe Gloucester Hampton Miscellaneous Patrick Henry Poquoson Newmarket/Main Williamsburg York County

2014 RETAIL

Retail Submarkets

23

The following is a list of the properties included in this year’s survey listed by submarket with a code representing the type of property The GLA of the property is also listed A Neighborhood Center B Community Center C Fashion/Specialty Center D Power Center E Theme Festival

F Outlet Center G Other H Freestanding I Mall

southside BAY FRONT Cape Henry Plaza

A Chic’s Beach Shopping Center A Kroger

H Kroger Shops

A Lake Shores Plaza Shopping Center A Marina Shores

G

BIRDNECK/OCEANFRONT

Birdneck SC

A Birdneck Shoppes

B Farm Fresh

H Harris Teeter

H Linkhorn Shops

A Pacific Plaza

H

CAMPOSTELLA

Atlantic Commons

A Bainbridge Marketplace A Campostella Corner

A George Washington Commons A Holly Point SC

A Southgate Plaza

A

CHESAPEAKE SQUARE BJ’s

H Castle Shops

H Chesapeake Center

B Chesapeake Square Mall I Chesapeake Square Shops H Crossroads Center at Chesapeake Square D Food Lion @ Chesp. Sq. H Home Depot

H Lowes

H Shops at Chesapeake Square H Taylor Road Plaza

A Wal-Mart Supercenter/Sam’s Club H

CHURCHLAND-PORTSMOUTH/HARBORVIEW Churchland Place Shoppes G Churchland SC

A Churchland Square

A College Pkwy Crossing at Harbour View A Grand

H Harbor View Shoppes

A Harbour View East

D Harbour View Marketplace H Harbourview Station East D Harbourview Station West D Marketplace Square

A

24

58,424 79,397 47,000 13,540 58,230 47,667

65,460 24,000 29,296 48,000 48,899 9,695

63,393 46,444 43,375 44,942 65,338 69,429

115,660 37,464 270,602 800,000 13,559 332,464 45,000 130,060 115,000 25,000 60,000 350,000

21,000 149,741 72,189 86,130 30,000 17,000 172,000 96,624 217,308 83,007 12,461

Planet Fitness Plaza A 52,966 Poplar Hill Plaza B 102,326 Sterling Creek A 75,660 Town Point Square A 58,989 Victory Crossing H 500,000

DAM NECK 2236 General Booth Blvd. A 11,500 Dam Neck Crossing B 138,571 Dam Neck Square A 67,917 General Booth Plaza A 71,639 Red Mill Commons D 750,000 Red Mill Walk D 240,000 Sandbridge SC A 66,800 Strawbridge Marketplace A 173,829

DOWNTOWN

Berkley Center A 47,945 Church Street Crossing A 51,000 MacArthur Center Mall I 2,200,000 Waterside Festival Marketplace I 130,338

DOWNTOWN NORFOLK Wells Fargo Retail G 50,000

GHENT

201 Twenty One A 15,616 21st Street Pavilion G 21,000 Center Shops A 139,081 Colley Village A 44,585 Ghent Place G 13,000 Harris Teeter H 27,000 Palace Shops I, II C 78,669 Palace Station G 37,503 The Corner Shops G 20,000

GREAT BRIDGE

Cahoon Commons D 278,023 Cedar Lakes Center A 35,659 Centerville Crossing A 46,000 Country Club Shoppes H 17,700 Crossings at Deep Creek A 68,970 Dominion Marketplace A 73,103 Dominion Plaza SC A 63,733 Glenwood Square A 73,859 Great Bridge SC A 156,937 Hanbury Village A 100,560 Harbor Watch Shoppes G 21,505 Las Gaviotas A 82,000 Millwood Plaza G 16,930 Mt. Pleasant Shopping Center A 100,000 Mt. Pleasant Village A 34,180 Wilson Village A 52,500 Woodford Shoppes B 9,760 Woodford Square B 139,623

GREENBRIER/BATTLEFIELD BOULEVARD Battlefield Marketplace G 30,000 Chesapeake Crossing B 287,679 Country Club Square H 12,600 Crossways Cntr I & Eden Way Shops D 438,725 Edinburgh Commons D 184,232

Edinburgh East D 133,000 Gainsborough Square A 88,862 Greenbrier Mall I 899,665 Greenbrier Market Center D 487,580 Greenbrier Shops A 37,500 Greenbrier South SC A 97,500 Home Depot H 130,060 K-Mart/OfficeMax H 165,000 Knell’s Ridge Square G 40,000 Lowes

H 114,000 Orchard Square A 88,728 Parkview @ Greenbrier A 83,711 Plantation Woods A 16,800 Regal Cinemas H 60,763 The Shoppes at Greenbrier G 40,000 Thn

G 80,160 Towne Place at Greenbrier C 127,109 Village Square G 15,000 Volvo Parkway SC G 41,874 Wal-Mart/Sam’s Club/Kohl’s D 433,821

HILLTOP/GREAT NECK Great Neck Square A 94,587 Great Neck Village A 73,736 Hilltop East C 144,100 Hilltop North A 202,346 Hilltop Plaza B 152,025 Hilltop Square B 270,093 Hilltop West G 55,784 La Promenade C 63,280 Marketplace at Hilltop C 113,000 Mill Dam Crossing A 25,776 Regency Hilltop B 236,549 Renaissance Place G 47,667 Target

H 122,000

HOLLAND/GREEN RUN Auburn Place A 42,709 Chimney Hill B 207,175 Green Run Square A 75,000 Holland Plaza SC A 155,000 Holland Windsor Crossing B 74,200 Lowes

H 125,323 Lynnhaven Green A 50,838 Rosemont Center A 12,700 Shipps Corner A 63,355 Timberlake SC A 73,500

INDIAN RIVER/COLLEGE PARK( including Chesapeake) College Park I & II B 183,874 Indian River Plaza B 126,017 Indian River SC A 123,752

KEMPSVILLE Arrowhead Plaza Fairfield SC Kemps Corner Shoppes Kemps River Center Kemps River Crossing Kempsville Crossing Kempsville Plaza Parkway Marketplace Providence Square SC University Shoppes Witchduck Exchange Woods Corner LITTLE CREEK ROAD/ WARDS CORNER/OCEAN VIEW Ames/Kroger Dollar Tree Shopping Center East Beach Marketplace East Beach Shoppes Farm Fresh - Little Creek Glenwood Shoppes Little Creek and Tidewater Shops Little Creek Square Meadowbrook S C Mid-Town Mid-Way SC Ocean View SC Roosevelt Gardens SC Southern Shopping Center Super Wal-Mart Wards Corner Strip Wedgewood SC LITTLE NECK Birchwood SC Colony Building Home Depot Kroger London Bridge Plaza Lowes Lynnhaven 2600 Lynnhaven Convenience Lynnhaven Shopping Center Princess Anne Plaza West Regatta Bay Shops Sam’s Club Plaza

A B G A B A A A A A A A

B A B A H A B A G A G A A B H A A

A A H H B H H G B C G D

LYNNHAVEN ROAD (Virginia Beach Boulevard to Holland Road) Lynnhaven Crossing G Lynnhaven East B Lynnhaven Mall I Lynnhaven North B Lynnshores Shopping Center G Lynnway Place G Parkway Plaza A Wal-Mart H MIDDLE PORTSMOUTH Afton SC Airline Marketplace Airline Plaza

A A A

97,006 239,763 25,929 62,507 245,268 94,477 60,778 26,602 144,904 47,200 50,000 152,314

140,568 51,415 202,000 63,000 66,120 53,255 119,820 82,300 27,260 75,768 31,000 73,658 109,175 245,868 225,000 61,540 137,834

358,635 23,625 130,060 45,000 114,584 160,000 13,300 36,900 191,136 77,558 60,000 248,604

55,550 97,303 1,293,100 176,254 12,692 30,213 44,287 113,112

106,500 69,000 99,549

Alexander’s Corner Shopping Center Elmhurst Square Gilmerton Square Manor Commerce Center Manor Shops Old Towne Marketplace Rodman SC Super Wal-Mart Triangle SC Victory Crossing Victory West Shopping Center Williams Court

A A A G G A A H A D A B

50,826 66,250 43,236 67,060 14,573 42,000 45,000 200,000 84,437 500,000 167,102 214,739

Loehmann’s Plaza Northern Super Center Pembroke East Pembroke Mall Pembroke Meadows SC Pembroke Place Pembroke Plaza Roomstore The Town Center of Virginia Beach Town Center Station PORTSMOUTH Academy Crossing

MILITARY HIGHWAY/JANAF 3455 Azalea Garden Road Best Square Broad Creek Crossing Phase 1 and Phase 2 Broad Creek SC Bromley SC CostCo Dump/Mega Office Farm Fresh Food Lion #170 Grand Outlet Janaf Lowes Military Crossing Military Triangle Super K-Mart & Shoppes Super Wal-Mart The Gallery @ Military Circle

A B D D A H G H H H D H D G B H I

1,024 140,030 100,000 205,417 67,790 110,000 115,854 60,000 41,000 35,000 882,262 115,000 192,000 10,061 200,000 224,513 856,542

NEWTOWN Cypress Point Diamond Springs North (Shopping Center) Diamond Springs Shoppes Mattress Discounters Plaza Newpointe SC Newtown Baker Crossing Newtown Center Newtown Convenience Center Northampton Business Center Thomas Corner SC Wesleyan Commons Shopping Center

A A H A A A H G G G A

117,958 23,880 18,840 59,892 92,978 91,687 19,800 19,800 85,000 23,557 54,204

ODU First Floor Retail Shops at University Village Apartments

G

49,875

PEMBROKE Aragona SC Best Buy Collins Square Columbus Village East Columbus Village Entertainment Center Dean Plaza (Former HQ) Former Bloom Brothers Giant Square Goodwill Haverty’s Haygood SC Haynes Hunter’s Mill Shoppes

A H A A E D H B H H B H G

69,700 45,000 123,870 63,000 100,000 140,000 165,000 150,000 34,000 55,000 165,000 228,000 22,827

C G B I A B G H

139,380 36,588 24,806 570,000 81,592 165,000 34,900 50,000

C B

325,147 36,185

A

45,800

PRINCESS ANNE ROAD (from Kempsville Road to Holland Road) Brenneman Farm SC A Courthouse Marketplace A Home Depot H Kempsville Marketplace A Landstown Commons D Lynnhaven Square S C G Parkway SC A Pleasant Valley Marketplace A Princess Anne Marketplace B Princess One SC A Salem Crossing D Salem Lakes Marketplace A Salem Lakes SC A Woodtide SC A

254,197 103,263 130,000 71,460 505,766 22,933 64,820 88,107 209,500 84,725 92,316 42,087 37,087 25,500

SMITHFIELD Cypress Run SC Eagle Harbor Shoppes at Eagle Harbor Smithfield Plaza Smithfield Square

G A A B A

25,000 77,049 23,343 89,120 65,244

SUFFOLK Bennetts Creek Crossing Bennetts Creek Food Lion Centerbrooke Village Creekside Village Holland Plaza Kensington Square Lowes Oak Ridge Plaza Suffolk Plaza Suffolk Plaza West Suffolk Shopping Center Suffolk Specialty Shops Suffolk Village SC Wal-Mart Super Center

A A A A A A H A B A B G G H

119,812 64,544 12,600 18,835 69,345 66,421 150,000 38,700 176,733 60,000 155,733 15,200 11,875 194,160

25

PENINSULA COLISEUM CENTRAL Coliseum Corner Coliseum Crossing Coliseum Marketplace Coliseum Specialty Shops Coliseum Square Hampton Towne Centre Hampton Woods Home Depot Newmarket South Peninsula Towncenter Riverdale Plaza Sports Authority Target The Power Plant Todd Center & Todd Lane Shops Wal-Mart Super Center DENBIGH Beaconsdale SC Denbigh Speciality Shops Denbigh Village Centre Denbigh Village Shopping Center Ferguson Center Former Hills Denbigh Jefferson Crossing (formerly Denbigh Crossing) Kmart Lee Hall Plaza Newport Crossing Richneck Shopping Center Stoneybrook Shopping Center Turnberry Crossing Village Square Warwick Denbigh SC

A B A G G D A H D I D H H D B H

A G B H G H

28,000 24,504 334,299 327,322 118,000 86,589

A H A B A A A A B

145,000 115,854 36,000 200,000 63,425 74,340 53,775 40,000 137,925

FOXHILL/BUCKROE/EAST MERCURY Buckroe SC A Farm Fresh Phoebus H Kmart H Langley Square A Marketplace @ Nickerson A Nickerson Plaza A Willow Oaks Village Square S.C. B

76,000 60,411 94,500 120,646 75,850 83,849 197,169

GLOUCESTER Food Lion Hayes Plaza SC Hayes SC Home Depot Lowe’s Shoppes at Gloucester Wal-Mart Super Center York River Crossing

H A A H H B H B

40,000 52,651 100,000 100,000 125,000 82,025 220,000 175,000

HAMPTON MISC Kecoughtan SC

A

64,327

NEWMARKET/MAIN (TO INCLUDE HAMPTON) 4113 W Mercury Blvd.

H 4205 W. Mercury Blvd.

H

26

49,267 221,004 105,998 15,026 43,307 376,100 89,092 130,060 368,085 1,174,389 260,316 40,000 122,000 621,150 242,000 193,316

49,770 28,080

Brentwood SC Dresden SC Forest Park Square Fransisco Village Hampton Plaza Hilton SC Midway Shopping Center Plaza @ Newmarket Warwick Center Warwick Village

A G B A B A G B A A

53,600 35,000 150,000 55,865 173,199 74,000 58,780 117,377 103,886 75,400

NEWPORT NEWS Jefferson Shoppes

A

21,240

PATRICK HENRY/OYSTER POINT/KILN CREEK Bayberry Village A 72,883 Best Buy Building H 135,000 City Center C 230,000 Commonweatlh Center G 30,279 Fairway Plaza G 37,950 Glendale SC G 30,000 Grand Furniture H 35,000 Harris Teeter H 52,334 Haverty’s H 45,000 Haynes H 85,000 Hidenwood SC A 100,000 Jefferson Commons D 400,000 Jefferson Greene G 57,430 Kroger H 55,000 Lowes H 120,000 Market Place @ Oyster Point A 69,660 Newport Marketplace D 450,000 Newport Square B 184,126 Office Depot H 30,122 Oyster Point Plaza A 73,197 Oyster Point Square A 83,089 Patrick Henry Mall I 714,607 Patrick Henry Place A 17,000 Sam’s Club H 133,880 The Shoppes at Oyster Point G 30,000 Victory Center @ Kiln Creek A 78,000 Village Square @ Kiln Creek B 267,021 Villages of Kiln Creek G 45,300 Wal-Mart Super Center H 201,146 Yoder Plaza SC D 337,053 POQUOSON Poquoson SC Wythe Creek Plaza SC

A A

57,458 51,063

WILLIAMSBURG Colony Square A Governor’s Green SC A Home Depot H James York Plaza B Kingsgate Green B Lowes H Marketplace Shoppes G Marketplace Shopping Center A Monticello Marketplace B Monticello SC A New Town Shops on Main C Norge Crossing H

66,806 100,000 130,000 137,708 138,348 163,000 32,026 36,000 299,792 82,000 253,000 52,000

Olde Towne SC G Prime Outlets F Quarterpath Crossing A Settlers Market at New Town D Staples H The Marquis (Phase I) D The Shops at High Street B Village Shops at Kingsmill G Wal-Mart SuperCenter H Williamsburg Crossing A Williamsburg Farm Fresh A Williamsburg Marketcenter B Williamsburg Outlet Mall I Williamsburg Pavillion Shops G Williamsburg SC I & II B Williamsburg Towne and Cnty A WindsorMeade Marketplace D Yankee Candle H YORK COUNTY Grafton SC Heritage Square Kiln Creek Center Lakeside 17 Marketplace @ Yorktown Patriots Square Pavilion at Kiln Creek Shady Banks SC Wal-Mart SuperCenter Washington Square Shopping Center York Square Yorkshire Downs

30,000 349,927 85,600 232,808 37,400 1,000,000 114,449 82,200 210,000 150,000 79,188 120,920 180,000 50,000 251,000 49,802 189,605 42,000

A A A H A A A A H

32,000 73,865 45,700 8,400 73,050 47,231 26,820 56,634 220,000

B A G

177,056 48,720 23,900

INDUSTRIAL 2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

William C. Throne, SIOR, CCIM, ALC First Vice President Cushman & Wakefield I THALHIMER

Data Preparation

Stephanie Sanker, SIOR, CCIM Vice President S.L. Nusbaum Realty Co.

Survey Coordination

Stephanie Sanker, SIOR, CCIM

Reporters

Greenbrier.............................................................Christine Kaempfe Bainbridge/S. Elizabeth River Area........................Chip Worley Cavalier Industrial Park..........................................Pat Mumey Norfolk Commerce Park/Central Norfolk Area....... Worth Remick Norfolk Industrial Park...........................................Charles Dickinson West Side/MidTown Norfolk Area..........................Billy King Lynnhaven............................................................ Brian Baker Greenwich/Cleveland Streets Area........................Bobby Beasley/Eric Throne Airport Industrial Area............................................Bobby Beasley Portsmouth...........................................................Sam Walker Suffolk...................................................................Bill Throne Isle of Wight..........................................................Billy King Copeland/Lower Peninsula................................... Clay Culbreth Oyster Point/Middle Peninsula Area...................... Bobby Philips Oakland/Upper Peninsula Area..............................Clay Culbreth Williamsburg Extended Area..................................Bobby Phillips

2014 INDUSTRIAL

Author

27

2014 INDUSTRIAL

General Overview his report analyzes the 2013 industrial real estate conditions within the Virginia Beach-NorfolkNewport News, VA-NC Metropolitan Statistical Area (the MSA) that is also known as Hampton Roads.

It provides inventory, vacancy, rent, sale and other data for the MSA. The survey includes properties in the cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg, plus the counties of Gloucester, James City, York and Isle of Wight.

METHODOLOGY This survey includes the following types of properties: • Office-warehouse, industrial and shop facilities of 5,000 square feet or greater, although some facilities of less than 5,000 may be included.

• Properties must have less than 80% office space to be included in the ODU industrial survey.

• Both owner-occupied and leased properties are included. Owner-occupied is defined as property that is 100% occupied by a business that is the same and/or is related to the owner of the building.

• All properties that are available and are listed for sale or lease regardless of whether they are occupied are included, unless they are strictly available for sale as an investment property. For example, a property that is available for sale and is currently occupied on a short term lease is included.

• All properties that have commenced construction (foundations installed as a minimum).

The Survey excludes the following types of properties: • Land • Warehouse or shop facilities on shipyard properties.

• Warehouse or industrial facilities on federal government property (e.g. military installations).

• Industrial facilities on government property (e.g. Norfolk International Terminal or Newport News Marine Terminal).

Functional submarket delineations are determined with some regard to city boundaries, but boundaries are not determinative. The entire market is divided into 16 submarkets defined by industrial building concentrations, the transportation network, and pertinent physical features. The area map included in this report provides a location for key reference.

28

2014 Hampton Roads Real Estate Market Review

The E.V. Williams Center for Real Estate and Economic Development (CREED) at Old Dominion University has been tracking the inventory of the Hampton Roads industrial market since 1995. The results of this year’s survey (collected during the 4th quarter of 2013) indicate that the Hampton Roads industrial market currently encompasses 107,695,634 square feet of space located in 2,878 buildings throughout the Region. Totals may differ from other market surveys due to the self-imposed limitations established by the ODU CREED methodology described above.

EXECUTIVE SUMMARY Overall vacancy in the Hampton Roads industrial market showed a dramatic improvement in 2013. Vacancy fell by 2.16%, and finished the year under 10%. This marks the fourth straight year of decline, and this trend appears to be accelerating.

2010 2011 2012 2013

12.48% 12.12% 11.47% 9.88%

0.46% decline 0.36% decline 1.01% decline 2.24% decline

Looking deeper, there are a few items that warrant caution: 1. Most of the Hampton Roads absorption for 2013 was credited to the Peninsula.

2. The Copeland/Lower Peninsula submarket absorbed 1,308,472 square feet, 77% of the total Hampton Roads absorption for 2013. A number of major lease transactions occurred in this submarket, and 490,071 square feet were demolished to drive vacancy to 8.42%, an 11.47% improvement over 2012.

3. Eight out of 12 Southside submarkets showed improved occupancy: however, overall Southside absorption totaled only 183,934 square feet or .23% of existing industrial inventory. By comparison, the national average for leasing activity as a percentage of total inventory is 4.0%.

4. Three out of four Peninsula submarkets showed improved occupancy.

Suffolk enjoyed 533,485 square feet of absorption and a 4.6% decrease in vacancy to its lowest level in the last seven years: 8.45%.

Airport Industrial Park was the highlight submarket for Virginia Beach, with 4.39% decrease in vacancy over 2012. Unfortunately, the Lynnhaven submarket increased vacancy to an all-time high of 22.88% with 2600 International Parkway coming on the market (870,000 square feet), as well as a number of larger properties in the South Oceana area also available.

2014 INDUSTRIAL

Many submarkets continued to be stable, and in many cases improved. Chesapeake had a turn-around year, with decreasing vacancy in Greenbrier, Cavalier and the Bainbridge submarkets. Total absorption for the City of Chesapeake: 578,712 square feet.

Norfolk’s three submarkets are stable, and average a very healthy 8.56% vacancy. In contrast, Portsmouth continues to suffer. Vacancy rose to a historical high of 16.11%.

In summary, the market continues to trend in a positive direction. Slow and steady improvement in most submarkets is lowering vacancy rates and absorbing quality product. It is expected that 2014 will continue this trend.

29

2014 INDUSTRIAL

13.00% 100,010,000

11.00% 9.00%

80,010,000

7.00%

60,010,000

5.00%

40,010,000

3.00%

20,010,000

1.00%

0

2007

2008

Vacancy Rate

2009

2010

Total Sq Ft

2011

2012

Vacant Sq Ft

2013 Occupied Sq Ft

For 2013, Cushman and Wakefield compared differing metropolitan areas by analyzing absorption as a percentage of total inventory. Hampton Roads finished the year on par with the national average. The Region lagged the Nation in new construction as a percentage of total inventory: 0.1% locally to the national average of 0.8%. This makes it a fairly easy prediction that 2014 total vacancy will continue to decline, while it is estimated that absorption will be better than 2013 by a narrow margin.

In the coming year, the expansion of the Panama Canal appears to be the only identifiable driver of growth for the Hampton Roads industrial market. Employment and gross regional product growth is expected to be modest.

Military spending and sequestration impact will be mixed.

VACANCIES AND ABSORPTION There are two unique features of the ODU/CREED Survey. The first one is the use of SIOR real estate professionals to collect and collate the data from each submarket. These individuals are more than researchers; they are a select group of professionals that work in each submarket on a daily basis. They are in tune to the nuances of market, the trends and forces that shape them. Second, the data is collected in December of the reporting year, yielding a accurate year-to-year summary of market performance.

Absorption is calculated as a simple increase or decrease in occupied space, while incorporating factors such as changes increases (new product) or decreases (demolition) in market square footages.

30

2014 Hampton Roads Real Estate Market Review

SUBMARKET TOTALS Submarket

City

Greenbrier Area Bainbridge/S. Elizabeth River Area Cavalier Industrial Park Area Norfolk Commerce Park/ Central Norfolk Area Norfolk Industrial Park Area West Side/Midtown Norfolk Area Lynnhaven Area Greenwich/Cleveland Streets Area Airport Industrial Park Area City of Portsmouth City of Suffolk Isle of Wight Southside Totals

Chesapeake Chesapeake Chesapeake Norfolk

Copeland/Lower Peninsula Area Oyster Point/Middle Peninsula Area Oakland/Upper Peninsula Area Williamsburg Extended Area Peninsula Totals

Peninsula Peninsula Peninsula Peninsula

Norfolk Norfolk Virginia Beach Virginia Beach Virginia Beach Portsmouth Suffolk Isle of Wight

Bldgs Surveyed

Reporter

286 143 203 143

Kaempfe Worley Mumey Remick

358 286 308 165 73 173 127 34 2,229 330 128 116 63 637 2,936

Totals

Total Sq Ft

Vacancy Sq Ft Vacancy %

8,747,398 5,793,609 6,725,727 5,191,198

644,486 407,464 802,337 488,949

7.37% 7.03% 11.93% 9.42%

Dickinson King Baker Beasley/Throne Beasley Walker Throne King

10,179,865 6,850,529 9,002,535 3,372,441 3,722,427 4,404,849 11,611,580 3,703,887 79,306,045

746,172 612,544 2,059,918 377,220 306,158 709,490 981,499 513,764 8,650,001

7.33% 8.94% 22.88% 11.19% 8.22% 16.11% 8.45% 13.87% 10.91%

Culbreth Phillips Culbreth Phillips

10,551,398 4,360,127 4,959,707 9,108,064 28,979,296

888,017 131,769 518,125 600,547 2,138,458

8.42% 3.02% 10.45% 6.59% 7.38%

Sanker

108,285,341

10,788,459

9.96%

Greenbrier Area # of Buildings

8,747,398 8,747,532 8,593,530 8,587,634 8,469,468 8,398,437

Vacant SF Vacancy Rate Year

644,486 717,269 718,667 956,633 749,882 491,127

7.37% 8.20% 8.36% 11.14% 8.85% 5.85%

2013 2012 2011 2010 2009 2008

% change

-0.83% -0.16% -2.78% 2.29% 3.00% 2.15%

Absorption

72,783 1,398 237,966 (206,751) (258,755) (182,841)

Bainbridge/S. Elizabeth River Area # of Buildings

143 143 143 143 142 133

Total SF

5,793,609 5,829,489 5,829,489 5,835,039 5,877,538 5,464,312

Vacant SF Vacancy Rate Year

407,464 669,572 447,921 659,621 489,508 750,958

7.03% 11.49% 7.68% 11.30% 8.33% 13.74%

2013 2012 2011 2010 2009 2008

% change

-4.46% 3.81% -3.62% 2.97% -5.41% 6.68%

Greenbrier continued to improve in 2013. At the center of Hampton Roads, this location offers a great blend of warehouse, general, industrial, and flex space. Surrounding affordable housing, retail, food and hospitality make for a desirable business location.Highlights of 2013 include a rezoning of Dollar Tree’s corporate campus from industrial to PUD-U, allowing future mixed-use development.

The multi-phased development could total over five million square feet. Construction could begin in 2014. The City of Chesapeake announced the delivery of a new industrial park on 100 acres north of I-64 at Greenbrier. Formerly state owned, the project will kick-off with a 150,000 square foot build-to-suit for Oceaneering by Armada Hoffler Properties.

2014 INDUSTRIAL

286 286 283 283 282 274

Total SF

Absorption

262,108 (221,651) 211,700 (170,113) 261,450 (365,175)

Two industrial buildings sold in 2013 in this submarket and it saw positive absorption. The market vacancy rate saw a healthy decline of 4.46%, one of the best for the Southside. A number of large distribution facilities were leased.

31

2014 INDUSTRIAL Cavalier Industrial Park Area # of Buildings

203 194 189 189 188 179

Total SF

Vacant SF Vacancy Rate Year

6,725,727 802,337 6,235,240 1,046,158 6,138,520 884,537 6,075,045 813,532 6,045,061 555,686 5,847,360 483,434

11.93% 16.78% 14.41% 13.39% 9.19% 8.27%

2013 2012 2011 2010 2009 2008

% change

-4.85% 2.37% 1.02% 4.20% 0.92% -1.74%

Absorption

243,821 (161,621) (71,005) (257,846) (72,252) 112,946

Cavalier also improved significantly in 2013 with 243,821 square feet being absorbed. A number of larger properties have leased, but there still remain a number of properties over 50,000 square feet that keep the vacancy rate above 10%.

Norfolk Commerce Park/Central Norfolk Area # of Buildings

143 142 143 144 144 142

Total SF

Vacant SF Vacancy Rate Year

5,191,198 488,949 5,104,077 521,658 5,492,451 622,279 5,442,588 887,018 7,080,388 2,719,450 7,079,668 2,604,208

9.42% 10.22% 11.33% 16.30% 38.41% 36.78%

2013 2012 2011 2010 2009 2008

% change

-0.80% -1.11% -4.97% -22.11% 1.63% -0.09%

Absorption

32,709 100,621 264,739 1,832,432 (115,242) 4,882

Incremental improvement for the last three years has brought this submarket to below 10%. It has one of the highest percentages of flex space in Hampton Roads, similar to Greenbrier. This blend provides balance compared to more industrial parks such a Norfolk Industrial Park.

Norfolk Industrial Park Area # of Buildings

358 357 352 352 348 340

Total SF

Vacant SF Vacancy Rate Year

10,179,865 746,172 10,268,991 833,173 10,408,152 788,433 10,196,224 1,201,596 10,372,544 1,399,257 10,281,534 594,600

7.33% 8.11% 7.58% 11.78% 13.49% 5.78%

2013 2012 2011 2010 2009 2008

% change

-0.78% 0.53% -4.20% -1.71% 7.71% -0.65%

Absorption

87,001 (44,740) 413,163 197,661 (804,657) 61,362

West Side/Midtown Norfolk Area # of Buildings

286 281 277 271 271 265

Total SF

Vacant SF Vacancy Rate Year

6,850,529 6,839,429 6,780,759 6,418,873 6,463,281 6,401,209

612,544 589,946 546,271 576,482 443,771 286,673

8.94% 8.63% 8.06% 8.98% 6.87% 4.48%

2013 2012 2011 2010 2009 2008

% change

0.31% 0.57% -0.92% 2.11% 2.39% -0.04%

With a vacancy of 7.33%, Norfolk Industrial Park is performing well. It is one of the largest submarkets in Hampton Roads, and has some of the oldest buildings in Hampton Roads. It has a strategic location advantage over many industrial submarkets, and offers a wide range of functional buildings to prospective tenants/buyers. While showing an absorption of 87,001 square feet, a number of industrial buildings did sell within the park in 2013, further testifying to the strength of the market.

Absorption

(22,598) (43,675) 30,211 (132,711) (157,098) 4,172

This submarket is truly a ‘local’ submarket and traditionally is occupied by companies that service the surrounding community or are owned by folks that live in the area. Vacancy rates have remained at 8% for the last 4 years. It is not expected to change appreciably in 2014.

Lynnhaven Area # of Buildings

308 306 283 283 278 269

32

Total SF

9,002,535 8,842,216 8,618,677 8,132,331 7,994,242 7,810,165

Vacant SF Vacancy Rate Year

2,059,918 977,106 1,648,242 1,141,225 1,015,633 1,015,365

22.88% 11.05% 19.12% 14.03% 12.70% 13.00%

2013 2012 2011 2010 2009 2008

% change

11.83% -8.07% 5.09% 1.33% -0.30% 3.19%

Absorption

1,082,812 671,136 (507,017) (125,592) (268) (284,404)

The Lynnhaven submarket continues to suffer.

A large part of the increase in vacancy is due to 2600 International Parkway (868,506 square feet) being brought to market for sale or lease. There are other large manufacturing, warehouse, and distribution facilities on the market as well (1440 London Bridge Road: 400,000 square feet; 2345 Taylor Farm Road: 75,900 square feet; 1357 Taylor Farm Road: 65,000 square feet). Navy and City of Virginia Beach restrictions on use are hampering marketing of these facilities, and limiting prospective occupiers.

2014 Hampton Roads Real Estate Market Review

Greenwich/Cleveland Streets Area # of Buildings

Total SF

125 125 125 125 125 127

3,031,458 3,031,458 3,057,300 3,063,856 3,089,916 3,141,006

Vacant SF Vacancy Rate Year

249,180 299,594 300,717 203,304 184,214 144,843

8.22% 9.88% 9.84% 6.64% 5.96% 4.61%

2013 2012 2011 2010 2009 2008

% change

-1.66% 0.04% 3.20% 0.68% 1.35% 2.70%

Absorption

50,414 1,123 (97,413) (19,090) (39,371) (84,741)

Airport Industrial Park Area # of Buildings

Total SF

3,722,427 3,641,362 3,641,362 3,637,737 3,611,776 3,556,987

73 72 72 72 71 70

Vacant SF Vacancy Rate Year

306,158 459,215 445,215 667,375 349,086 318,231

8.22% 12.61% 12.23% 18.35% 9.67% 8.95%

2013 2012 2011 2010 2009 2008

% change

-4.39% 0.38% -6.12% 8.68% 0.72% -0.03%

This is one of the submarkets available for businesses looking to serve the general industrial needs of Virginia Beach. Smaller, multi-tenanted buildings dominate and vacancy has historically remained low.

Just about half the vacant space is found in four buildings, each over 20,000 square feet. This submarket is land-constrained, and can’t accommodate much substantial new development. Located within one of Virginia Beach’s Strategic Growth Areas, expect this submarket to see substantial evolution over the coming years.

Absorption

153,057 (14,000) 222,160 (318,289) (30,855) 12,650

Demand for space close to the center of the Hampton Roads industrial market has boosted absorption in Airport Industrial Park. With a modest 3.7 million square feet of space, and only 300,000 square feet available, expect this submarket to show continued improvement in 2014.

City of Portsmouth # of Buildings

173 162 158 161 154 154

Total SF

Vacant SF Vacancy Rate Year

4,404,849 4,280,345 4,228,501 4,221,156 4,775,530 4,111,277

709,490 596,570 478,849 303,145 262,595 244,227

16.11% 13.94% 11.32% 7.18% 5.50% 5.94%

2013 2012 2011 2010 2009 2008

% change

2.17% 2.62% 4.14% 1.68% -0.44% -1.50%

Absorption

(112,920) (117,721) (175,704) (40,550) (18,368) 53,578

Portsmouth is poised for a renaissance in 2014. Two major redevelopment projects sold in 2013: 3050-3100 Elmhurst Lane (200,000 square feet) and the former Smithfield Foods plant at 2175 Elmhurst Lane (131,553 square feet). The buildings at 3050-3100 Elmhurst Lane will be retrofitted and brought to market as a Class A/B distribution building and should lease quickly due to proximity to the Port of Virginia. Expect a sharp reduction in vacancy for Portsmouth in 2014.

City of Suffolk 127 127 126 124 123 119

Total SF

11,611,580 11,612,335 11,637,163 11,578,012 11,762,676 11,617,903

Vacant SF Vacancy Rate Year

981,499 1,514,984 1,638,902 2,115,318 2,249,644 1,492,301

8.45% 13.05% 14.08% 18.27% 19.13% 12.84%

2013 2012 2011 2010 2009 2008

% change

-4.60% -1.03% -4.19% -0.86% 6.29% 0.03%

Absorption

533,485 123,918 476,416 134,326 (757,343) (14,944)

Suffolk remains the primary expansion market for Hampton Roads. No new construction occurred in 2013 and Class A vacancy is less than 2%. There is some remaining Class B warehouse space.

For 2013, it is interesting to note that much of the absorption was in Class C warehouse and distribution product. Expect the overall vacancy rate to drop further in 2014.

Isle of Wight # of Buildings

34 34 34 30 28 28

Total SF

Vacant SF Vacancy Rate Year

3,703,887 3,807,023 2,807,023 2,970,400 2,658,340 2,791,916

513,764 480,650 980,650 556,276 756,216 355,766

13.87% 12.63% 25.76% 18.73% 28.45% 12.74%

2013 2012 2011 2010 2009 2008

% change

1.24% -13.13% 7.03% -9.72% 15.71% 0.00%

2014 INDUSTRIAL

# of Buildings

Absorption

(33,114) 500,000 (424,374) 199,940 (400,450) -

Industrial activity in the Isle of Wight submarket is primarily focused on the large tracts of land available at Shirley T. Holland Intermodal Park. The park is well positioned to benefit from the Panama Canal expansion in coming years as it offers competitive land for warehousing and distribution companies looking to build in Hampton Roads. Its rural location and small population base limits speculative industrial development.

33

2014 INDUSTRIAL Copeland/Lower Peninsula # of Buildings

330 339 346 370 400 305

Total SF

10,551,398 11,041,469 11,218,810 12,139,266 12,213,348 10,015,783

Vacant SF Vacancy Rate Year

888,017 2,196,489 1,989,149 2,038,564 2,041,608 2,045,618

8.42% 19.89% 17.73% 16.79% 16.72% 20.42%

2013 2012 2011 2010 2009 2008

% change

-11.47% 2.16% 0.94% 0.07% -3.70% -0.65%

Absorption

1,308,472 (207,340) 49,415 3,044 4,010 57,779

During 2013, this submarket saw significant absorption in Class B space specifically the former Spiegel facility. Newport News Ship yard and several of its contractors took 372,000 square feet of space in 2013. The Camp Morrison warehouses were removed from the market survey as here to fore they skewed the vacancy rate and the warehouses are slated for demolition in the near future. The availability of good functional warehouse space is difficult to find, but the rental rates do not justify new development as of yet. Small incubator type space will fare well this year and in the near term as startups begin to germinate in the market.

Oyster Point/Middle Peninsula Area # of Buildings

128 130 129 123 128 149

Total SF

4,360,127 4,417,127 4,395,259 4,330,663 4,430,793 4,109,297

Vacant SF Vacancy Rate Year

131,769 102,829 284,829 157,203 192,957 67,657

3.02% 2.33% 6.48% 3.63% 4.35% 1.65%

2013 2012 2011 2010 2009 2008

% change

0.69% -4.15% 2.85% -0.72% 2.70% 0.00%

Absorption

(28,940) 182,000 (127,626) 35,754 (125,300) -

Oyster Point is a high quality business environment with office, hospitality, lodging and industrial space. There are not many large industrial facilities, and the smaller industrial buildings are leased quickly. Oyster Point represents a healthy market with a good track record.

Oakland/Upper Peninsula Area # of Buildings

116 118 116 134 133 127

Total SF

Vacant SF Vacancy Rate Year

4,959,707 4,866,068 4,829,759 4,940,030 4,872,279 4,785,704

518,125 710,266 669,549 571,891 303,221 317,861

10.45% 14.60% 13.86% 11.58% 6.22% 6.64%

2013 2012 2011 2010 2009 2008

% change

-4.15% 0.74% 2.28% 5.36% -0.42% 1.12%

Absorption

192,141 (40,717) (97,658) (268,670) 14,640 (63,128)

Williamsburg Extended Area # of Buildings

63 62 62 62 60 60

34

Total SF

Vacant SF Vacancy Rate Year

9,108,064 9,131,473 9,128,673 9,123,000 9,004,935 9,005,095

600,547 642,201 625,487 464,653 359,143 381,602

6.59% 7.03% 6.85% 5.09% 3.99% 4.24%

2013 2012 2011 2010 2009 2008

% change

-0.44% 0.18% 1.76% 1.10% -0.25% 0.00%

The Oakland Upper Peninsula is a very thin market with only 5 million square feet of space in small pockets such as Victory Industrial Park, Greene Industrial Park, and Peninsula Industrial Park.

Thus, the majority of the buildings in these parks are typically less than 10,000 square feet. These are popular buildings for lease or purchase. The availability of Shorewood Packaging is of significant note to this submarket for it represents half of the vacant space in this submarket. Shorewood Packaging has been on the market for almost two years. Finally, Oakland Park is home to several local, national and international firms.

It is also home to the Army Air Force Exchange distribution facility which compromises 30% of the entire Oakland Upper Peninsula submarket.

Absorption

41,654 (16,714) (160,834) (105,510) 22,459 -

Walmart is located in this submarket and occupies three million square feet. InBev (Anheuser Busch) also occupies a substantial amount of space. The remaining market is smaller and generally stable.

2014 Hampton Roads Real Estate Market Review

SOUTHSIDE TOTALS: # of Buildings

2,259 2229 2185 2177 2074 2100

Total SF

Vacant SF Vacancy Rate Year

78,965,062 8,521,961 78,239,497 8,705,895 78,232,927 9,500,683 76,158,895 10,181,525 78,200,760 11,174,942 76,501,774 8,781,733

10.79% 11.13% 12.14% 13.24% 14.29% 11.48%

2013 2012 2011 2010 2009 2008

% change

-0.34% -1.01% -1.10% -1.05% 2.81% 0.84%

Absorption

183,934 794,788 680,842 993,417 (2,393,209) (682,515)

PENINSULA TOTALS: # of Buildings

637 649 653 689 721 641

Total SF

28,979,296 29,456,137 29,572,501 30,532,962 30,521,355 27,915,879

Vacant SF Vacancy Rate Year

2,138,458 3,651,785 3,569,014 3,232,311 2,896,929 2,812,738

7.38% 12.40% 12.07% 10.59% 9.49% 10.08%

2013 2012 2011 2010 2009 2008

% change

-5.02% 0.33% 1.48% 1.10% -0.59% -0.05%

Absorption

1,513,327 (82,771) (336,703) (335,382) (84,191) (5,349)

HAMPTON ROADS TOTALS: # of Buildings

Total SF

2896 2878 2838 2866 2795 2741

107,944,358 107,695,634 107,805,428 106,691,857 108,722,115 104,417,653

Vacant SF Vacancy Rate Year

10,660,419 12,357,680 13,069,697 13,313,836 14,071,871 11,594,471

9.88% 11.47% 12.12% 12.48% 12.94% 11.10%

2013 2012 2011 2010 2009 2008

% change

-2.24% -1.01% -0.36% -0.46% 1.84% 0.59%

Absorption

1,697,261 712,017 244,139 758,035 (2,477,400) (687,864)

2014 INDUSTRIAL 35

2014 INDUSTRIAL

BUILDING SALES Number of Industrial Properties Sold: Hampton Roads 80

$100.00

70

Number of Deals

Total sales volume and total transactions for 2013 continued to decline and reflect a downward trajectory. Two very important industrial transactions were not included in the reported numbers: IndCor Properties purchase of the First Potomac Realty Trust industrial portfolio (total of 4.3 million square feet in the Mid- Atlantic) for $259 million and the Cabot Properties sale to Liberty Property Trust of their nationwide industrial portfolio of 23 million square feet for an estimated $1.5 billion. Both transactions involved local investment grade properties in Hampton Roads totaling over 1.1 million square feet of industrial space, but do not reflect local pricing or demand.

$80.00

60 50

$60.00

40 $40.00

30 20

$20.00

10 $0.00

0

2007

2008

2009

2010

Number of Deals Median Price per Square Foot

2011

2012

2013

Average Price per Square Foot

A few more analytical notes: 1. Average Price per square foot dropped to the lowest level in the last six years: a. 2013: b. 2012: c. 2011: d. 2007 is the recorded high:

$28.62 per square foot $36.83 per square foot $38.02 per square foot $73.26 per square foot

This number was skewed by a few larger industrial transactions deeply discounted to market or sold for land value. Still, overall pricing continues to ‘bounce along the bottom’.

2. Median Price per square foot trended slightly downward: a. 2013: b. 2012: c. 2011: d. 2007 was the recorded high: e. 2010 was the recorded low:

36

$50.21 per square foot $52.33 per square foot $59.65 per square foot $94.54 per square foot $56.21 per square foot

3. Wow, this looks tough…but While this report did not include the institutional purchases of IndCor Properties and Liberty Property Trust, it is worthwhile to note that Hampton Roads has seen an increase in investment interest in 2013. REIT’s and investors are considering second tier markets like Hampton Roads for a number of reasons, including: less competition with larger institutional funds; opportunity for higher upside potential in a market associated with a world class port. One example is the purchase of 3050-3100 Elmhurst Lane in Portsmouth to an investment group with occupancy at only 20%. The new owners will bring the property to Class A standards and expect to capture tenants looking for quality warehouse space. Expect more ‘value add’ investment purchase in 2014.

2014 Hampton Roads Real Estate Market Review

REPRESENTATIVE BUILDING SALES Greenbrier, 929 Professional Place, Chesapeake March 2013

14,160 square feet

$1,416,000

$100.00 per square foot

$1,701,000

$46.72 per square foot

$1,300,000

$47.93 per square foot

Bainbridge, 4801 Pods Way, Chesapeake June 2013

36,406 square feet

Cavalier, 3809-3811 Cook Boulevard, Chesapeake March 2013

27,122 square feet

Norfolk Commerce Park/Central Norfolk Area, 2733 Ayliff Road, Norfolk January 2013

12,480 square feet

$825,000

$66.11 per square foot

Norfolk Industrial Park, 3700 Progress Road, Norfolk August 2013

20,300 square feet

$1,010,000

$49.75 per square foot

$425,000

$36.96 per square foot

$5,500,000

$35.26 per square foot

West Side/Midtown, 924 West 25th Street, Norfolk 11,500 square feet

Lynnhaven, 2820 Crusader Court, Virginia Beach 156,000 square feet

Greenwich/Cleveland Street, 5801 Arrowhead Drive, Virginia Beach February 2013

13,652 square feet

$675,000

$49.44 per square foot

Portsmouth, 3050-3100 Elmhurst Lane, Portsmouth December 2013

200,000 square feet

$3,288,000

$16.44 per square foot

Copeland Lower Peninsula, 119/121 Old Aberdeen Road, Hampton 10,385 square feet

$480,000

$46.22 per square foot

Williamsburg Extended, 323 Alexander Lee Parkway, Williamsburg July 2013

12,800 square feet

$1,100,000

$85.94 per square foot

LEASING

2014 INDUSTRIAL

April 2013

Leasing activity was sluggish in 2013. Few major transactions occurred, with most leases being either renewals or move-to-quality relocations. With a pick-up in absorption, mostly in high quality properties, it is expected that overall vacancies will decline slightly in 2014. Tenants seeking better facilities in the 10,000-20,000 square foot range can expect to find few options available as the best buildings are leased.

This trend will continue in high cube warehouse space, where many tenants are demanding higher clear height, greater sprinkler capacities, and superior loading/trailer storage. New fire/life safety demands are also moving tenants away from older buildings with wet or dry systems that severely hamper the ability to manufacture or store product.

37

2014 INDUSTRIAL

REPRESENTATIVE INDUSTRIAL LEASING Warehouse and Distribution 5201 City Line Road, Hampton 5820 Ward Court, Virginia Beach 3050 Elmhurst Lane, Portsmouth

202,004 square feet 63,350 square feet 40,000 square feet

$3.04 NNN $4.35 NNN $2.40 NNN

37,000 square feet 22,600 square feet 20,000 square feet

$3.35 NNN $5.95 NNN $6.40 NNN

General Industrial 1119 Cavalier Boulevard, Chesapeake 1424 Baker Road, Virginia Beach 161 Enterprise Drive, Newport News

Flex, Sales and Service 311 Ed Wright Lane, Newport News 9,000 square feet 500 Woodlake Drive, Chesapeake 6,430 square feet 528 So. Military Highway, Virginia Beach 5,000 square feet

$8.22 NNN $8.16 NNN $6.90 NNN

RENTS FOR AVAILABLE SPACES BY SIZE RANGE 2013 <5,000 square feet

Warehouse General Industrial Flex, Sales and Service General Average:

$5.50-$7.50 $6.00-$7.25 $7.50-$12.00 $8.11 NNN

5,000 to 20,000 square feet

Warehouse General Industrial Flex, Sales and Service General Average:

$4.00-$6.50 $5.50-$7.00 $6.50-$10.00 $6.23 NNN

20,000-40,000 square feet

Warehouse General Industrial Flex, Sales and Service General Average:

$3.85-$5.95 $6.00-$7.25 $7.50-$8.00 $5.46 NNN

40,000-60,000 square feet

Warehouse General Industrial Flex, Sales and Service General Average:

$3.25-$5.00 $5.00-$6.00 $ n/a $3.77 NNN

>60,000 square feet

Warehouse General Industrial Flex, Sales and Service General Average:

$2.75-$4.35 $ n/a $ n/a $3.41 NNN

Lease rates throughout Hampton Roads saw very little change in 2013. Overall leasing activity finished at 3.5 million square feet, an improvement over the five year average of 3.1 million square feet. Unfortunately, this activity did not translate to significant increases in absorption, reflecting a high level of lease renewal or lateral (no net gain in square footage) moves to new facilities. The remaining influence on rates will be demand in high quality properties and the market continues to incrementally improve.

38

2014 Hampton Roads Real Estate Market Review

MAJOR MARKET ACTIVITY Aside from normal market transactions, there have been a number of significant industrial market developments worthy of note.

â&#x20AC;˘ 2600 International Parkway, Virginia Beach. 870,000 square feet warehouse facility.

Back on the market, for sale or for lease. This property was purchased in February 2013 and was reintroduced to the market by the owner. It is the largest block of space available in Hampton Roads.

â&#x20AC;˘ Lumber Liquidators: 1.2 million square feet may be coming to the market in 2014.

Lumber Liquidators has chosen to consolidate into a larger 1 million square foot facility in Eastern Henrico County. They are expected to vacate all or part of 1.2 million square feet upon completion, expected in 2014.

â&#x20AC;˘ Huntington Ingalls leased 202,000 square feet at 5201 City Line Road in Hampton.

This deal reflects the continued positive influence of government spending and marine contracting in the Region.

13.6 MSF 8.0 MSF $1.5 B LEASED

SOLD

TOTAL VOLUME

1HĹżEG +PFWUVTKCN 4GVCKN 1T +PXGUVOGPV 9JCVGXGT [QWT PGGF KU %WUJOCP 9CMGĹżGNF ^ 6JCNJKOGT RTQXKFGU UVTCVGIKE TGCN GUVCVG UQNWVKQPU 9G VJCPM CNN QWT ENKGPVU HQT JGNRKPI WU ĹżPKUJ QWV UVTQPI YKVJ C VQVCN VTCPUCEVKQPCN XQNWOG QH CNOQUV 9LUJLQLD %HDFK _ 1HZSRUW 1HZV _ WKDOKLPHU FRP

39

2014 INDUSTRIAL

REGIONAL INFLUENCES ON THE LOCAL MARKET Beyond real estate transactions, the following events occurred in 2013 and will influence the Hampton Roads industrial market for years to come.

The Port of Virginia • Port of Virginia’s 2013 TEU Volume was the highest in history.

• In February 2014, The Port of Virginia welcomed John Reinhart as the new executive director and chief executive officer. Reinhart brings more than 20 years of diverse maritime experience to the Virginia Port Authority.

The Port of Virginia had a record-setting 2013; handling more containers and rail cargo than any other time in history.

The Port experienced six consecutive months of best container and TEU volumes from May through October 2013.

November and December of 2013 were the second best November and December in history after the record volumes were handled in the same months in 2012 due to diversions from Hurricane Sandy. The Port experienced double-digit rail growth, year-over-year, in 11 of the last 14 months. The Port finished 2013 with rail cargo representing 34% of the port’s total container traffic, which is the highest in the port’s history on a calendar year basis; truck and barge cargo represent 62% and 4% respectively of total port traffic.

The 2013 cargo totals and the percentage of increase over 2012 are as follows: • TEUs: 2,223,532, up 5.6% • Containers: 1,274,911, up 5.4% • General Cargo Tonnage: 18,840,303, up 7.5% • Total Rail Containers: 430,894, up 11.7% Note that container traffic by rail showed the largest increase, up 11.7%. This increase in rail traffic may be good for the Port, yet bad for the local industrial market. Every lift from ship-to-rail results in no net demand for local warehousing as each container is shipped to destinations outside of Hampton Roads. This trend is expected to continue with the drive towards greater fuel efficiencies associated with rail, reducing local road congestion, and the costs associated with maintenance.

• The Tolls and Route 460 improvements: With tunnel tolls in place to improve routing from east to west under the Elizabeth River, the cost of moving product from Norfolk International Terminal and warehousing on the east side of the river will increase. Will this increase in transportation cost be enough to move product to the APM Terminal in Portsmouth?

While the Rt. 460 improvement project was a transportation priority for Governor McDonnell, it is yet to be seen if the new administration supports the roadway expansion. Army Corp wetlands issues along the proposed route also cloud the future of this project. Will the lack of a third major artery out of Hampton Roads deter shipping companies from using the Port of Virginia?

CONCLUSION 2013 showed signs of an improving market for Hampton Roads. Unemployment declined to below 6%, and the national and local economy is showing modest improvement. The effect of military spending cuts and sequestration were not as dramatic as feared. On the other hand, the Port of Virginia appears to be the remaining economic driver for industrial demand in the Region. We have yet to see the influence of the new Panama Canal expansion.

It is expected that 2014 will show modest, continued improvement in both occupancy and rent growth.

40

2014 Hampton Roads Real Estate Market Review

Southside Airport Industrial Park Bainbridge Cavalier Central Norfolk Cleveland Greenbrier

Peninsula Isle of Wight Lynnhaven Norfolk Industrial Park Portsmouth Suffolk West Norfolk

Copeland Oakland Oyster Point Williamsburg Extended Hampton Newport News

2014 INDUSTRIAL

Industrial Submarkets

41

CROSSWAYS BOULEVARD I & II Located in a Class ‘A’ Business Campus RECENT LOBBY RENOVATION Two-story office building, with up to 44,200 square feet of contiguous space available Exterior building signage available with interstate visability Conveniently located in the Greenbrier-Crossways submarket Minutes to downtown Norfolk’s restaurants, hotels and shops

Hampton Roads For Leasing Information Contact: PERRY FRAZER perry.frazer@cbre.com I 757.228.1833 MATT WILBRICHT matt.wilbricht@cbre.com I 757.228.1815

42

OFFICE 2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

Author

Maureen G. Rooks Vice President Jones Lang LaSalle

Data Analysis

Geoff Thomas and Nicole Pitts Jones Lang LaSalle

Reporters

SOUTHSIDE Airport/Northampton.............................................Wes Edwards Central Norfolk......................................................Ricky Anderson Chesapeake/Greenbrier........................................Matt Wilbricht Corporate Landing................................................Katherine Campbell Downtown Norfolk................................................Perry Frazer/Deborah Stearns Hilltop/Oceanfront.................................................Katherine Campbell Kempsville............................................................John Duffy Little Neck............................................................ Vivian Turok Lynnhaven............................................................Deborah Stearns/Pope Hackney Military Circle........................................................John Profilet Newtown/Witchduck............................................John Profilet Pembroke/Central Business District......................Vivian Turok Portsmouth...........................................................Elizabeth Paasch Suffolk..................................................................Don Crigger

PENINSULA

Financial Support

The E. V. Williams Center for Real Estate and Economic Development (CREED) functions and reports are funded by donations from individuals, organizations and the CREED membership.

Disclosure

The data used for this report are deemed reliable; however, neither Old Dominion University, the E. V. Williams Center for Real Estate and Economic Development, nor sponsoring companies including Jones Lang LaSalle and/or individuals, make any representation or warranty to its accuracy.

2014 OFFICE

Coliseum Central.................................................. Matt Leffler Downtown Hampton............................................ Maureen Rooks Downtown Newport News....................................Maureen Rooks Hampton Roads Center........................................Matt Leffler Newmarket...........................................................Maureen Rooks Oyster Point..........................................................Alex Stern Suburban Newport News..................................... Maureen Rooks Williamsburg/James City/York County...................Maureen Rooks

43

2014 OFFICE

General Overview he Hampton Roads office market ended 2013 offering proof of steady, but conservative activity in the marketplace. This was characterized by slight decreases in vacancy and minor adjustments to absorption and rental rates year-over-year. As for economic growth, let’s just say there have been better years for the Hampton Roads MSA as 2013 left us wanting more.

Much of the problem for 2013 and its inability to create significant job growth and bolster the economy was due highly to fiscal uncertainty as a result of Washington’s partisanship. Unemployment in the region stood at 5.9%, while the Gross Regional Product expanded at a mere rate of 1.73%. Hampton Roads was directly impacted by sequestration that prompted billions of cuts from the defense budget that, in turn, trickled down to defense and government contracting companies in Hampton Roads realizing a decline in military spending of an estimated $330 million or 1.71 % in 2013. As a result, one of the region’s larger communities of office users has now experienced major downsizing and rightsizing exercises due to these influences.

There was a very large dip in absorption in 2013. Some of this is due to sequestration and some is due to right-sizing in general. However, on the bright side, Class A and B office rental rates did increase quite nicely. Class A rates increased overall by an average of $0.62 per square foot and Class B rates increased overall by an average of $1.08 per square foot.

This is a strong indication that landlords are slowly gaining leverage over office market conditions after five years; however, not all markets have reached this mark. Some suburban submarkets will still need to offer incentives and concessions to inch down their vacancy percentages focusing largely on tenant retention.

The 4th quarter of 2013 ended with a slight decrease in the overall vacancy rate at 11.8%, down from 12.1% in 2012. This slight decrease is due to a lack of major new construction projects and a few new office growth deals such as USAA, which absorbed over 80,000 square feet in Chesapeake, Liberty Live’s occupation of over 20,000 square feet in Suffolk, and growth of the old faithful medical sector on the Peninsula, CHKD’s occupancy of 20,000 square feet at Butler Farm, and Riverside Healthcare Associates occupation of over 16,000 square feet in Oyster Point.

METHODOLOGY The information in this report relies on market reports from CHMURA Economics and Analytics website, Governor Announces New Chmura Economics Report Finding New Spending on Construction Will Annually Sustain 13,058 Jobs and Have $9.5 Billion in Economic Impact; www. whitehouse.gov, Impacts and Costs of the 2013 Federal Government Shutdown, Sequestration, It’s Impact on Virginia 2013-2014; www.thomasjefferson.org, Sequestration, It’s Impact on Virginia; www.joneslanglasalle.com, for regional office market conditions. Other references include www.pilotonline.com, Hospitals Asses How to Deal with Cuts; www.virginiabusiness.com New East Tower at Norfolk’s Sentara Leigh’s Hospital is Complete; www.costar.com to reference sale and lease comparables; www.bshr.com, the Bon Secours website was utilized to refer to the new DePaul Medical Office Building; Old Dominion University, Economic Forecasting Project, College of Business and Public Administration Press, 2/5/2014. The parameters of size referenced in this report for the Class A and Class B office market buildings in the Hampton Roads MSA as a whole were 15,000 SF or higher for largest completed lease transactions in 2013; $5 million and higher in sales price for top completed office building sales transactions; and 20,000 SF and greater for top new construction office deliveries. The information in this report is not reflective of CoStar nor is the data derived and delivered in the same format or meant for the same audience. A select group of commercial real estate professionals assisted in data collection and collation for each submarket. The data is collected in December of the reporting year, yielding an accurate year-to-year summary of market performance.

44

2014 Hampton Roads Real Estate Market Review

12-month forecast

Key Market Indicators Supply

A Window of Transparency Offers Some Rebound Potential for Hampton Roads

Supply (A,B,C Office

27,556,514 sf

Direct vacancy rate

11.8%

Projected vacancy rate

11.8% 234,000 sf (45.6%)

Leasing activity 12 mo. change

-31.2%

YTD net absorption

Pricing

Some resolution to federal spending was determined late in the fourth quarter of 2013 which prompted a fragment of confidence in the Hampton Roads workforce by funding the areaâ&#x20AC;&#x2122;s military installations and manufacturing for the next two years. The National Defense Authorization Act of 2014 and the Bipartisan Budget Act of 2013 will give back $63 billion in defense cuts in FY 2014 and FY 2015 created by the 2013 sequester. The legislation will also fund shipbuilding and repair contracts through the 2015 fiscal year ending on September 30.

Demand

Under construction (% prereleased)

EMPLOYMENT AND ECONOMY

190,147 sf

12-month overall rent % change A

2.9%

12-month overall rent % change B

6.9%

Class A overall asking rent

$21.88 psf

Class B overall asking rent

$16.83 psf

Class A rates increased overall by an average of $0.62 per square foot and Class B rates increased overall by an average of $1.08 per square foot. This is strong indication that landlords are slowly gaining leverage over office market conditions after five years.

Net new supply, net absorption and total vacancy Net new supply

Net absorption

Total vacancy

sf

20%

800,000

15% 400,000

10% 5%

2012

2011

2010

2009

-400,000

2013 Q4

0

0%

The 4th quarter of 2013, ended with a slight decrease in the overall vacancy rate at 11.8%, down from 12.1% in 2012. This slight decrease is due to a lack of major new construction

Leasing activity vs. sublease vacant space Leasing activity

Sublease space

sf 2,000,000

2014 OFFICE

Despite the most significant government shut down in U.S. history, as well as extended furloughs, lay-offs and the ongoing impact of sequestration throughout 2013, all of which slowed the local economic recovery, Virginia was still able to add almost 31,500 new jobs from the prior year (3,745,800 in 2012 to 3,777,300 in 2013). Although this is a weak uptick in employment growth as sequestration cost Hampton Roads 4,000 jobs, the resolution in Washington offered welcomed hope that the future may foster substantial employment growth, specifically from the government contractor sector, at least for the next two years. It is forecasted that unemployment will decline to a rate of 5.3% in 2014 and the Hampton Roads MSA will grow at a rate of 2%. While slower than the national average and the regionâ&#x20AC;&#x2122;s historical rate of 3.1%, this measure is ahead of the GSP growth of 1%.

1,500,000 1,000,000 500,000 0

2009 2010 2011 2012 Q4 2013 Sublease space includes vacant space

45

2014 OFFICE

MARKET CONDITIONS Slow and stable progress maintained across the office market as right-sizing triggered by space efficiency decelerated space absorption. Relocations and renewals drove overall leasing volume, contributing to a below yearly average of 190,147 square feet of positive net absorption for 2013; a 68.6% difference from total net absorption recorded in 2012, of 606,000 square feet. A large contributor to the vast difference in absorption volume is due to the completion of the Amerigroup/Wellpoint lease in 2012 located at the remodeled Concourse Building in Central Norfolk.

Static leasing activity attributed to very little new Class A or Class B construction in the market; however, Armada Hoffler did break ground on the new 4525 Main Street building located in the Town Center of Virginia Beach.

Clark Nexsen will maintain exterior building signage as the anchor tenant in the building by occupying 80,000 SF. Additional office construction was led by tenant-owned build-to-suits or highly-specialized government buildings.

These two additions gradually tightened office market conditions, specifically in the Class A inventory. Large ClassA blocks have diminished in numbers, particularly in Downtown Norfolk, where no vacant contiguous Class A blocks exist over 25,000 square feet.

46

2014 Hampton Roads Real Estate Market Review

The healthcare industry throughout the U.S. has also seen considerable hardships from the automatic budget cuts activated by sequestration. In March 2013, budget cuts automatically modified all health systemsâ&#x20AC;&#x2122; revenues.

These cuts equate to approximately $9.9 billion in government insurance subsidies for seniors and disabled Americans.

In Hampton Roads, it was reported that our largest local health system received roughly $1 million less per month for its operations. Our second largest system loses about $300,000 monthly, and one of our regional health centers is losing close to $200,000 every month.

These budget cuts have caused some health systems to hold off on new hires. In addition to the sequester cuts, the Affordable Care Act is projected by some to cause healthcare layoffs. For the first time in over a decade, the United States saw an increase in job loss in the healthcare industry. While the job loss was below 10,000, the healthcare sector generally averages an increase of 27,000 to 30,000 in jobs per month in the healthcare sector.

Witnessing a loss is a shock particularly at a time when an increasing number of seniors will require more health care. Industry analysts hope that the job loss in the medical sector is just a result of the initial shock of the Affordable Care Act taking effect and working through growing pains.

Conversely, the medical sector is one constant in the Hampton Roads office marketplace that has demonstrated employment growth year over year. This industry continues to show growth as the need to expand increases due to new medical breakthroughs and the Baby Boomer generation reaching retirement and nurturing years. As noted in Old Dominion Universityâ&#x20AC;&#x2122;s 2013 State of the Region for Hampton Roads, from 2011 to 2012, 3,000 jobs in healthcare alone were added to the overall increase in employment growth. There were also considerable new medical office buildings that opened or broke ground in 2013 that are elaborated under 2013 New Construction.

Growth of the healthcare industry is one of three major contributors which assist in the area. Healthcare, Port activity, and the increase in tourism spending all raise regional income and will drive growth in 2014 for the Hampton Roads MSA.

2014 OFFICE 47

2014 OFFICE

2013 NEW CONSTRUCTION • CHESAPEAKE - The Federal Bureau of Investigation (FBI) built a 150,000 square foot Class A office building (509 Resource Row) in the Oakbrooke section of Chesapeake. Construction commenced late 2012 and completed October 2013. The agency occupied the new facility in early November 2013.

• NEWPORT NEWS – Newport News Shipbuilding - The Apprentice School. Armada Hoffler partnered with the City of Newport News and the Commonwealth of Virginia to develop the 150,000 square foot facility of which Armada Hoffler built a 90,000 square foot apprentice school. Also included in the project: workforce housing; retail space; and a parking garage. The building was delivered in November of 2013.

• NORFOLK - Ghent Station - Robinson Development Group broke ground on Ghent Station in January 2014.

The project will consist of a 26,400 square foot two-story medical office building that will be fully occupied by Bon Secours. Fresh Market will anchor as the retail component to the mixed-use development offering over 22,000 square foot of grocery store. The site is located on 21st Street in the Ghent section of Norfolk.

• NORFOLK – DePaul Medical Center – Lend Lease Group broke ground on a new four-story 105,000 square foot Class A medical office building. The building will be occupied by Bon Secours Primary Care practice groups and Specialists and will refer and feed off of the ancillary services offered by DePaul Hospital. The building is expected to deliver in spring of 2014.

• NORFOLK – Sentara Leigh Medical Center – The East Tower opened in November 2013. It is a five-story Class A medical building which features an Ortho-Joint center and ICU Center among several other medical facilities and beds. This building is part of a development that began in 2011. Completion of the atrium entry, outpatient center, outpatient pharmacy, and other accommodations will be completed by spring 2016.

• VIRGINIA BEACH - Operation Smile built a 73,000 square foot Class A building at 3641 Faculty Drive in Virginia Beach. The land was donated by the City of Virginia Beach. Operation Smile moved into the facility in early October 2013.

• VIRGINIA BEACH – Stratford University built a 63,000 square foot Class A building located at 555 S. Independence Blvd. in Virginia Beach. The school opened in November 2013 offering undergraduate and graduate programs for the South Hampton Roads area.

• VIRGINIA BEACH - 4525 Main Street at Town Center holds a 221,600 square foot office component within the tower which also offers retail on the first floor, 288 apartments, and almost 1000 covered parking bays. The building is slated to open in July of 2014. The building will be anchored by Clark Nexsen, occupying 80,000 square feet of office space.

• VIRGINIA BEACH - The Sidney Kellam Office Building at the Virginia Beach Oceanfront is a 70,000 square foot Class A office building developed by GoldKey/PHR. It was delivered first quarter of 2013 and is located along Pacific Avenue at 31 Ocean; in the center of mixed-use development. The building is named in honor of the late visionary and well-known leader in the City of Virginia Beach, Sidney Kellam, and is 100% leased.

48

2014 Hampton Roads Real Estate Market Review

Submarket leverage -- market history and forecast Submarket

2011

2012

2013

2014

Property Clock -- Current Market Conditions 2015

Newport News Williamsburg Yorktown Norfolk Virginia Beach Portsmouth

Peaking Market

Rising Market

Falling Market

Tenant Leverage

Landlord Leverage

Hampton

Bottoming Market

Chesapeake Suffolk

Southside Landlord-favorable conditions

Balanced conditions

Tenant-favorable conditions

Peninsula

TOP NEW SALES 2013 CITY

SUBMARKET

RBA

SELLER

PRICE ($/SF) PRICE $

1. Suffolk

Harborview/N Suffolk

111,084 Medical Bon Secours

Monticeito Medical

$418.41

567,753 Office American Real

Capmark Financial Group $31.55

2. Newport News Oyster Point

TYPE

BUYER

QTR SOLD REPRESENTING COMPANY

$46,478,600 Q4 2013

CBRE

$17,910,000 Q2 2013

NA

Estate Partners 3. Virginia Beach Newtown/Witchduck

86,170

Office Chartway Credit Union Liberty Property Trust

$127.39

$10,977,500 Q2 2013

Katsias

4. Newport News Oyster Point

62,361

Office Tidewater Physicians

CBL, Inc.

$84.19

$5,250,000 Q2 2013

CBRE

Lexington Realty Trust

$89.19

$5,045,100

Harvey Lindsay

Multi-Specialty Group 5. Hampton

Hampton Roads Center 56,564

Office

Baylor Corp

Q3 2013

TOP NEW LEASES 2013 TENANT

SF LEASED

SIGNED

REPRESENTING COMPANY

1. Battlefield Technology Center II Battlefield

United Services Auto Association (USAA)

81,478

Q1 2013

Jones Lang LaSalle (JLL)

2. Liberty I

Battlefield

Schenker

26,283

Q3 2013

CBRE

3. Liberty III

Battlefield

Gannett/GMTI

25,825

Q4 2013

CBRE

4. Bridgeway Tech Center III

Harbour View

Liberty Live

22,161

Q2 2013

Jones Lang LaSalle (JLL)

5. 421 Butler Farm Rd

Hampton Roads Center Childrens Hospital for the Kings Daughters

20,069

Q3 2013

Harvey Landsay

6. New Hope Center

Lynnhaven

New Hope Center for Reproductive Medicine 18,479

Q2 2013

CBRE

7. Bridgeway Tech Center

Harbour View

US 460 Mobility Partners

17,947

Q2 2013

Whitley Bain & Company

8. The Atrium @ Oyster Point

Oyster Point

Riverside Healthcare Associates

16,560

Q2 2013

Thalhimer/Cushman & Wakefield

SUBMARKET

2014 OFFICE

BUILDING

49

2014 OFFICE

OUTLOOK FOR 2014 Hampton Roadsâ&#x20AC;&#x2122; recovery will increase in pace in 2014. More construction is anticipated in the medical sector that should help bolster Office growth during the second half of 2014 with more anticipated acceleration expanding into 2015. Office users seeking Class A space will find few options outside the Class B inventory, pushing large users towards mid-sized build-to-suits. A large volume of lease expirations over the next 24 months may produce small waves of negative net absorption due to right sizing; a continuing trend in Hampton Roads and throughout the U.S. market. Short-term leases signed commonly by government contractors over the past two years will energize most of the upcoming renewal requirements. Large vacancies in the Class B inventory will begin to see spill-over demand as Class A market fundamentals tighten, although these leases will be temporary as the Class A supply pipeline reemerges with characteristics of a comeback.

The medical sector will continue to show signs of growth in Hampton Roads which will lead to additional office space requirements and demand. Although there was a report of job loss in the United States in the month of December, this was not the case for Hampton Roads. In fact, Lend Lease Group broke ground in early 2013 on a 105,000 square foot, four-story medical office building at the DePaul Medical Campus located at 150 Kingsley Lane. The building will house several medical specialists and primary care medical practice groups.

In addition, Sentara completed the East Tower which opened in November 2013. It is a five-story Class A medical building which features an Ortho-Joint center and ICU Center among several other medical facilities and beds. The development began in 2011 and completion of the atrium entry, outpatient center, outpatient pharmacy and other accommodations will be completed by spring 2016.

Riverside Medical Center is in the process of developing a mixed-use campus at the intersection of Route 199 and Route 60. The campus is over 25 acres and is a component of the 380+ acre mixed-use campus named Quarterpath. This includes a new hospital for Riverside together with new medical office buildings, multi-family, single family and retail around the 25 acre medical facility.

Based on the new medical growth in play, the anticipated growth in the healthcare arena, the influx of $63 billion in defense spending, and the tenacity of the American people, 2014 will produce a much better year and stronger office market moving forward. Hampton Roads has seen the worst of the setbacks and the dips in the economy.

We are positioned to move forward in a modest, but steady upswing.

REGIONAL OFFICE MARKET COMPARISON The Mid-Atlantic Office markets ended 2013 as follows: Washington D.C. concluded with a total inventory of 327,262,253 square feet and a vacancy rate of 14%, or 45,816,715 square feet available. Richmond, Virginia, has a total inventory of 27,410,300 square feet with a year-end vacancy rate of 11.9%, or 3,261,826 square feet available. Finally, the Hampton Roads MSA ran almost head to head with Richmond at an 11.8% vacancy, or 3,246,949 square feet available at the close of 2013, with an inventory of 27,516,514 square feet.

50

2014 Hampton Roads Real Estate Market Review

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51

2013 Office Building Directory DOWNTOWN NORFOLK CLASS A Crown Center, 580 East Main Street ...........................................58,674 Dominion Tower, 999 Waterside Drive...................................... 403,276 Fort Norfolk Medical Office Tower, 301 Riverview Avenue.......196,000 Norfolk Southern Tower, 3 Commercial Place ...........................301,463 SunTrust Bank Building, 150 West Main Street.........................225,498 Town Point Center, 150 Boush Street ........................................131,259 Wells Fargo Center, 440 Monticello Avenue..............................255,075 World Trade Center, 101 West Main Street ...............................366,251 TOTAL:......................................................................................1,937,496 CLASS B Bank of America, 1 Commercial Place ..................................... 339,892 Bank of Hampton Roads Building, 500 Plume Street .................55,830 BB&T Building, 500 East Main Street ........................................237,107 City Centre, 223 East City Hall Avenue........................................ 59,163 Hague Medical Center, 400 West Brambleton Avenue ..............31,659 Madison Office Building, 345 Granby Street ...............................81,932 Main Street Tower, 300 East Main Street..................................201,307 Monticello Arcade, 208 East Plume Street..................................44,500 Monticello Place, 253 Monticello Avenue ....................................70,000 PNC Bank Building, 555 East Main Street ................................125,691 St. Paul Building, 201 St. Pauls Boulevard ..................................42,000 The Virginia Club, 101 Granby Street...........................................22,000 Towne Bank Building, 109 East Main Street ...............................52,698 Two Commercial Place, 2 Commercial Place ........................... 234,450 York Street Center, 142 West York Street ....................................52,293 TOTAL:..................................................................................... 1,650,522 TOTAL CLASS A & B:............................................................3,588,018 OWNER OCCUPIED AT&T, 136 Bute Street ............................................................... 200,000 Dominion Enterprises, 150 Granby Street................................. 220,000 Landmark Communications, 150 Granby Street.........................66,500 PETA, 501 Front Street.................................................................25,000 Royster Building, 201 Granby Street ............................................76,071 Tazewell Building, 223 Granby Street ..........................................38,000 Virginian Pilot Building, 150 West Brambleton Avenue ..............174,141 TOTAL:.........................................................................................799,712

AIRPORT/NORTHAMPTON CLASS A Commander Corporate Center, 6201 Commander Parkway.....65,000 Silver Oak, 5900 Lake Wright Drive.............................................78,200 The Concourse, 5800 Northampton Boulevard ........................315,000 Twin Oaks I, 5700 Lake Wright Drive ..........................................88,000 Twin Oaks II, 5800 Lake Wright Drive .........................................88,000 TOTAL:........................................................................................634,200 CLASS B Airport Executive Center, 5700 Thurston Avenue .......................70,609 Northampton Executive Center, 1300 Diamond Springs Road ..69,904 TOTAL:.........................................................................................140,513 TOTAL CLASS A & B:................................................................774,713 OWNER OCCUPIED CMA CGM Headquarters, 5701 Lake Wright Drive....................90,000 HRSA-ILA Building, 1355 Terminal Boulevard ............................21,678 Zim-American Israeli Shipping, 5801 Lake Wright Drive............30,000 TOTAL:......................................................................................... 141,678

CENTRAL NORFOLK CLASS B Almeda Business Center, 2500 Almeda Avenue (Flex) ..............84,000 Central Center Office Building, 7447 Central Business Park Dr. 53,815 Commerce Park Place, 2600 Eltham Avenue (Flex)...................58,783 DePaul Health Park, 100 Kingsley Lane ......................................48,000 DePaul Medical Atrium, 160 Kingsley Lane ................................40,000 DePaul Medical Building, 110 Kingsley Lane...............................39,054 Gateway II, 2550 Ellsmere Avenue (Flex) ....................................45,000 Norfolk Business Center, 2551 Eltham Avenue (Flex).................89,000 Norfolk Commerce Center I, 5505 Robin Hood Road (Flex) ......73,000 Norfolk Commerce Center III, 5425 Robin Hood Road (Flex)...168,000 Norfolk Commerce Center IV, 5365 Robin Hood Road (Flex) ....79,980 Norfolk Commerce Center V, 2510 Walmer Avenue (Flex) ........72,000 Norfolk Commerce Park II, 5301 Robin Hood Road (Flex).......126,926 Norfolk Commerce Park, 5360 Robin Hood Road (Flex)............42,576 Virginia Eye Consultants, 241 Corporate Boulevard (Flex) ..........34,070 TOTAL:.....................................................................................1,054,204 TOTAL CLASS B: ...................................................................1,054,204

52

OWNER OCCUPIED Capital Group Companies, 5300 Robin Hood Road .................106,000 TOTAL:.........................................................................................106,000

CHESAPEAKE/GREENBRIER CLASS A BECO Corp HQ, 609 Independence Parkway.............................22,400 CHKD Health Center, 733 Volvo Parkway ...................................25,000 Chubb Building, 600 Independence Parkway .............................97,500 Crossways Commerce Center I, 1545 Crossways Boulevard ....45,000 Crossways Commerce Center, 1434 Crossways Boulevard ... 220,020 Dendrite One, 1309 Executive Boulevard ....................................50,000 Greenbrier Tower I, 860 Greenbrier Circle ...................................87,900 Greenbrier Tower II, 870 Greenbrier Circle ..................................86,976 HR Realtors Association Building, 638 Independence Parkway.40,000 Independence Place, 676 Independence Parkway .....................73,345 Lake Center I, 501 Independence Parkway ................................61,000 Lake Center II, 505 Independence Parkway ...............................64,000 Liberty IV, 1313 Executive Boulevard ...........................................50,000 Liberty One, 1305 Executive Boulevard.......................................50,000 Liberty Three, 1317 Executive Boulevard.....................................75,000 Liberty Two, 1301 Executive Boulevard .......................................51,000 TOTAL:......................................................................................1,099,141 CLASS B Atlantic Business Center, 1122 Executive Boulevard ..................56,000 1429 Crossways Boulevard ...........................................................21,100 ABNB, 830 Greenbrier Circle ....................................................... 47,000 Armada Hoffler Business Center, 840 Greenbrier Circle ............45,000 Battlefield Corporate Center, 535 Independence Parkway.........98,000 Battlefield Lakes Tech Center I, 525 Byron Street (Flex) ............38,500 Battlefield Lakes Tech Center II, 533 Byron Street (Flex) ...........29,000 Battlefield Technology Center I, 510 Independence Parkway.....97,000 Battlefield Technology Center II, 520 Independence Parkway.... 81,478 Battlefield Technology Center III, 530 Independence Parkway...51,000 Battlefield Technology Center, 500 Independence Parkway ...... 51,578 Branch Executive Quarter, 4012-4016 Raintree Road ...............42,300 Crossways at Greenbrier, 1408 Stephanie Way..........................53,500 Crossways Commerce Center II, 1449 Kristina & 1501 Crossways Boulevard ..................................................................................... 149,166 Crossways I, 1441 Crossways Boulevard ..................................145,000 Crossways II, 1400 Crossways Boulevard ...................................84,751 Crossways III, 1430 Kristina Way .................................................61,992 Dominion Business Center, 1001 Scenic Parkway (Flex) ...........20,000 Eden North Centre, 1021 Eden Way............................................25,000 Gateway Bank, 1403 Greenbrier Parkway ..................................75,000 Greenbrier Business Center, 1244 Executive Boulevard (Flex)...71,000 Greenbrier Business Center, 850 Greenbrier Circle ....................81,370 Greenbrier Circle Corp Center, 825 Greenbrier Circle & 1801 Sara Drive (Flex) ................................................................233,138 Greenbrier Executive Center II.......................................................26,870 Greenbrier Tech Center I, 814 Greenbrier Circle (Flex) ............... 95,414 Greenbrier Tech Center II, 826 Greenbrier Circle (Flex) ..............82,340 Hanbury Office Park, 131-135 Hanbury Road.............................24,000 Independence Technology Center, 700 Independence Parkway 97,000 Rose and Womble Business Center, 1207-1215 Volvo Parkway 21,551 SunTrust Bank Building, 100 Volvo Parkway ...............................23,000 Volvo Office Parkway, 737 Volvo Parkway (Flex).........................36,000 Volvo Park, 1210-1228 Progressive Drive ...................................52,000 TOTAL:......................................................................................2,116,048 TOTAL CLASS A & B:.............................................................3,215,189 OWNER OCCUPIED Cox Communications, 1341 Crossways Boulevard...................198,000 Dollar Tree, 500 Volvo Parkway..................................................114,000 Household Finance, 1421 Kristina Way .....................................110,000 Monarch Bank, 1434 Crossways Boulevard ...............................52,702 Panasonic Call Center, 661 Independence Parkway ..................55,000 QVC, 1553 North River Birch Run................................................50,000 TOTAL:.........................................................................................579,702

HILLTOP/OCEANFRONT CLASS A Camelot Professional Center, 1800 Camelot Drive .....................40,275 Hilltop West Executive Cntr, 1600 Hilltop West Shopping Cntr...33,260 Mill Dam Medical Center, 1200 First Colonial Road....................28,295 Sentara Medical Office Building, 1080 First Colonial Road ........60,000 Sidney Kellam Building, 300 32nd Street ....................................61,980 Towne Bank Center, 984 First Colonial Road ..............................24,000 Towne Pavilion Center I, 2101 Parks Avenue .............................. 98,100 Towne Pavilion Center II, 600 22nd Street ..................................83,800 TOTAL:.........................................................................................429,710

CLASS B Beach Health Pavilion, First Colonial Road...................................57,800 Beach Tower, 3330 Pacific Avenue .............................................23,000 Birdneck Executive Suites and Services, 1206 Laskin Road ....33,000 First Colonial Medical Center, 1120 First Colonial Road..............22,300 Gibson Pavilion, 1081 19th Street................................................30,000 Hilltop West Executive Center, 1604 Hilltop West ......................23,000 Medical Arts Building, 1101 First Colonial Road..........................24,000 Mill Dam Crossing, 1423 North Great Neck Road ......................22,037 Sandpiper Key Associates Building, 1060-1064 Laskin Road...32,000 TOTAL:..........................................................................................267,137 TOTAL CLASS A & B:...............................................................696,847

CORPORATE LANDING CLASS B Executive Center at Corporate Landing, 5226 Indian River Rd ..45,000 Princess Anne Executive Park, 2388 Court Plaza Drive.............61,500 TOTAL:.........................................................................................106,500 OWNER OCCUPIED Al-Anon Family Group Headquarters, 1600 Corporate Landing Parkway ...............................................33,765 GEICO, 1345 Perimeter Parkway.............................................. 250,000 Liberty Tax Service, 1716 Corporate Landing Parkway ..............30,000 Liberty Tax Service, 1732 Corporate Landing Parkway...............31,170 TOTAL:........................................................................................344,935

KEMPSVILLE CLASS A Amerigroup Building I, 1300 Amerigroup Way..........................106,000 Amerigroup Building II, 1330 Amerigroup Way .........................106,000 Metroplex I, 1333 Regent University Drive...................................35,000 TOTAL:.........................................................................................247,000 CLASS B Atrium of College Park Square, 6477 College Park Square ........47,195 Central Park II, 544 Central Drive.................................................43,000 College Park Square III, 6465 College Park Square ...................37,800 TOTAL:.........................................................................................127,995 TOTAL CLASS A & B:................................................................374,995

LYNNHAVEN CLASS A Lynnwood Plaza, 621 Lynnhaven Parkway ..................................87,157 Marsh Landing, 575 Lynnhaven Parkway ....................................62,117 Oceana Center One, 484 Viking Drive.........................................39,804 Oceana Place, 448 Viking Drive...................................................73,502 Pinehurst Centre, 477 Viking Drive ............................................103,000 Reflections I, 2809 South Lynnhaven Road.................................62,924 Reflections II, 200 Golden Oak Court...........................................72,676 Reflections III, 208 Golden Oak Court..........................................67,000 Reflections IV, 2901 South Lynnhaven Road...............................80,000 500 Viking Building, 500 Viking Drive .........................................40,888 Windwood Center, 780 Lynnhaven Parkway...............................77,622 TOTAL:........................................................................................ 766,690 CLASS B 582 Lynnhaven Parkway ..............................................................23,408 2700 International Parkway..........................................................53,000 Chase Building, 596 Lynnhaven Parkway.................................... 31,910 Gateway Executive Center, 468 Viking Drive...............................31,680 Lynnhaven Commons, 562, 580, 605, 607, 609, 611, 613, 615 Lynnhaven Pkwy............................................................................61,788 Lynnhaven Corporate Center I, 770 Lynnhaven Parkway ...........36,046 Lynnhaven Corporate Center II, 760 Lynnhaven Parkway .......... 39,184 Lynnhaven Five, 629 Phoenix Drive .............................................24,549 Lynnhaven Station, 101 North Lynnhaven Road .........................26,226 Parkway Center III and IV, 2697 International Pkwy ................... 64,186 Parkway Center I and II, 2695 International Pkwy .......................32,112 Parkway III (Unisys), 600 Lynnhaven Pkwy .................................50,428 Parkway West, 509 Viking Drive..................................................41,563 Sabre Street I, 2875 Sabre Street.................................................67,074 Sabre Street II, 2900 Sabre Street...............................................60,000 Sabre Street III, 2901 Sabre Street..............................................40,000 Sabre Street IV, 2929 Sabre Street .............................................40,000 South Lynnhaven Business Park, 2984 South Lynnhaven Road40,000 The Viking Building, 440 Viking Drive ..........................................20,341 Yorktown Commerce Center, 228 North Lynnhaven Road.........30,529 TOTAL:.........................................................................................814,024 TOTAL CLASS A & B:.............................................................1,580,714

OWNER OCCUPIED AMSEC Building, 2829 Guardian Lane .......................................89,500 Bank of Hampton Roads, 641 Lynnhaven Parkway....................20,733 Global Technical Systems, 784 Lynnhaven Parkway ..................46,000 Hall Automotive, 441 Viking Drive ................................................29,865 SAIC Building, 2877 Guardian Lane ............................................72,000 TOTAL:........................................................................................ 258,098

LITTLE NECK CLASS B Little Neck Office Park, 3300 Building, 397 Little Neck Road ...33,000 Little Neck Office Park, 3300 South Building, 397 Little Neck Rd...50,000 Little Neck Office Park, 3400 Building, 397 Little Neck Road ...22,000 Little Neck Towers, 3500 Virginia Beach Boulevard ...................50,000 Lynnhaven Station, 101 North Lynnhaven Road .........................28,000 NEXCOM Building, 3280 Virginia Beach Boulevard....................75,000 Rose Hall Professional Center, 3145 Virginia Beach Boulevard..20,000 Rosemont Interstate Center I, 195 South Rosemont Road.........41,060 Rosemont Interstate Center II, 3637 Sentara Way .....................51,290 Rosemont Interstate Center III, 3629 Sentara Way..................... 37,031 TOTAL:.........................................................................................407,381 OWNER OCCUPIED Plan-It Building, 100 Landmark Square.......................................24,000 TOTAL:...........................................................................................24,000

MILITARY CIRCLE CLASS A Riverside Commerce Center, 120 Corporate Boulevard .............66,498 Riverside Commerce Center, 130 Corporate Boulevard .............34,847 Riverside Corporate Center, 140 Corporate Boulevard ...............25,002 Riverside Corporate Center, 150 Corporate Boulevard ...............58,582 Riverside Corporate Center, 240 Corporate Boulevard ...............89,513 Virginia Eye Deveopment, 241 Corporate Boulevard...................34,070 TOTAL:.........................................................................................308,512 CLASS B Centura Bank Building, 870 North Military Highway ...................40,442 Circle East, 861 Glenrock Road....................................................52,500 Circle South, 835 Glenrock Road.................................................48,000 College Park Executive Center, 900 Commonwealth Place .......20,000 I.T.T. Building, 8623 Glenrock Road .............................................54,312 Sentara, 835 Glenrock Road........................................................45,000 TOTAL:........................................................................................ 260,254 TOTAL CLASS A & B:...............................................................568,766 OWNER OCCUPIED Union Mission, 5100-5314 Virginia Beach Boulevard ................75,403 TOTAL:...........................................................................................75,403

NEWTOWN/WITCHDUCK CLASS A The AAA Building, 5366 Virginia Beach Boulevard ....................54,000 Amelia Building, 885 Kempsville Road ........................................64,600 Chadwick Building, 5029 Corporate Woods Drive.......................57,079 Gallery I, 5712 Cleveland Street ...................................................30,632 Gallery II, 5716 Cleveland Street ..................................................30,000 Grayson Building, 5041 Corporate Woods Drive.........................43,000 Greenwich Station, 5589 Greenwich Road .................................30,000 Smithfield Building, 6160 Kempsville Road................................ 129,183 Verizon Center, 5701 Cleveland Street ......................................135,000 TOTAL:.........................................................................................573,494 CLASS B BPD Building, 168 Business Park Drive.......................................29,608 Cross Roads Center, 6330 Newtown Road ................................ 55,150 Expressway Business Park,184 Business Park Drive..................32,650 Expressway Corporate Center, 5555 Greenwich Road ..............84,359 Greenwich Center, 192 Ballard Court ..........................................56,000 Greenwich Commons, 5501 Greenwich Road............................50,292 Halifax Building, 6161 Kempsville Road.......................................69,584 Mass Mutual Building, 5544 Greenwich Road ...........................48,000 TRC Center I, 230 Clearfield Avenue ...........................................63,601 TRC Center II, 236 Clearfield Avenue ..........................................36,947 TRC Center III, 240 Clearfield Avenue..........................................54,083 Interstate Corporate Center Albemarle Building, 400 North Center Drive ..............................22,450 Chesapeake Building, 410 North Center Drive ...........................19,920 Elizabeth Building, 6333 Center Drive..........................................14,250 Gloucester Building, 814 Kempsville Road................................... 11,400 James Building, 6325 North Center Drive...................................34,230 Kroger Building, 6350 Center Drive ............................................40,000

Linkhorn Building, 6345 Center Drive............................................5,640 Lynnhaven Building, 6363 Center Drive .....................................20,510 Maury Building, 6300 Center Drive...............................................26,111 Nansemond Building, 6387 Center Drive ................................... 11,600 Nottaway Building, 6379 Center Drive ..........................................9,660 Potomac Building, 6320 North Center Drive ..............................26,500 Rappahannock Building, 6330 North Center Drive.....................24,330 Rivanna Building, 6315 North Center Drive ..................................28,120 Shenandoah Building, 420 North Center Drive ...........................51,040 Warwick Building, 6353 Center Drive ..........................................24,410 York Building, 6340 Center Drive ................................................28,270 TOTAL:.........................................................................................978,715 TOTAL CLASS A & B:............................................................1,552,209 OCCUPIED Copy Data (Ikon), Executive Business Park, 1224 Executive Blvd....20,000 Cox Cable Building, 225 Clearfield Avenue .................................45,979 TOTAL:...........................................................................................65,979

PEMBROKE/ CENTRAL BUSINESS DISTRICT CLASS A Armada Hoffler Tower, 222 Central Park Avenue ....................256,900 Clark Nexsen Tower, 4525 Main Street (Delivery in July 2014).....213,174 Convergence Center I, 295 Bendix Road ....................................80,000 Convergence Center II, 277 Bendix Road....................................80,000 Convergence Center III, 272 Bendix Road...................................98,000 Corporate Center VI, 4433 Corporation Lane .............................59,932 Five Columbus Center, 4525 Columbus Street...........................20,000 Fulton Bank Plaza, 4429 Bonney Road .......................................87,000 IssueTrak, 249 Central Park Avenue ............................................94,730 One Columbus Center, 283 Constitution Drive..........................129,465 Six Columbus Center, 4505 Columbus Street ............................32,000 Southport Centre, 4525 South Boulevard ...................................61,594 Ticketmaster Building, 4445 Corporation Lane ..........................30,000 Town Center North Tower, 222 Central Park Avenue ( Pender & Coward).......................................................................53,000 Two Columbus Center, 4500 Main Street .................................109,000 TOTAL:......................................................................................1,404,795 CLASS B Corporate Center I, 4460 Corporation Lane................................51,000 Corporate Center II, 4456 Corporation Lane...............................52,768 Corporate Center III, 4452 Corporation Lane ..............................51,000 Corporate Center IV, 4417 Corporation Lane (Sentara) .............76,012 Corporate Center V, 4425 Corporation Lane...............................70,760 Dragas Office Park, 4532-4542 Bonney Road ..........................40,878 Pembroke Office Park, 281, 287, 289, 291, 293 & 297 Independence Boulevard .................................................................................... 294,000 Princess Anne Commercial Bank Building, 4801 Columbus St.39,900 Prism Plaza, 4455 South Boulevard ............................................50,516 Remax Alliance Building, 4701 Columbus Street........................32,000 SEC Building, 4705 Columbus Street ..........................................33,000 Southgate Centre, 4560 South Boulevard...................................43,200 Southport Trade Center, 349 Southport Circle ............................30,883 TechnoCenter I, 525 South Independence Boulevard ................50,000 TOTAL:.........................................................................................915,917 TOTAL CLASS A & B:............................................................ 2,320,712 OWNER OCCUPIED AVIS, 300 Centre Pointe Drive ...................................................168,000 Bryant & Stratton College,301 Centre Pointe Drive.....................30,000 Coastal Training Technologies, 500 Studio Drive .......................60,000 QED Building, 3433 Inventorâ&#x20AC;&#x2122;s Road ..........................................30,000 Virginia Natural Gas Building, 544 South Independence Blvd....48,242 REIN Building, 4575 Bonney Road...............................................24,500 TOTAL:.........................................................................................360,742

PORTSMOUTH CLASS A Churchland Medical Center, 3235 Academy Avenue .................25,095 Mast One, 1040 University Boulevard .........................................60,000 TOTAL:...........................................................................................85,095 CLASS B BB&T Building, 500 Crawford Street....................................................42,350 Crawford Street Building, 355 Crawford Street ....................................77,000 Portsmouth Municipal Building, 801 Water Street..............................55,085 The Seaboard Building, 1 High Street...................................................65,000 Towne Bank Building, 200 High Street.................................................35,046 Wachovia Bank, 430 Crawford Street..................................................35,800 TOTAL:.........................................................................................310,281 TOTAL CLASS A & B:............................................................... 395,376

SUFFOLK CLASS A Bon Secours Health Campus, 5818 Harbour View Boulevard .123,050 Godwin Office Building, 1005 Godwin Boulevard .......................26,005 Harbour View Medical Arts Building, 5838 Harbour View Blvd..50,000 JCW Building, 116 Lakeview Parkway......................................400,365 Konikoff Medical Building, 5849 Harbour View Boulevard .........23,000 Lakeview Technology Center, 7511 Burbage Drive.....................86,400 The Woodley Office Building, 8030 Harbour View Boulevard ....23,000 TOTAL:.........................................................................................731,820 CLASS B Bridgeway Technology Center I, 7023-7025 Harbour View Blvd124,326 Bridgeway Technology Center II, 7021 Harbour View Blvd ........67,500 Bridgeway Technology Center III, 7007 Harbour View Blvd........72,384 Brinkley Building, 3005 Corporate Lane......................................20,000 Harbour Breeze Professional Center, 1500-1540 Breezeport Way..57,000 Harbour View Professional Center, 1033-1037 Champions Way ....46,000 Lake View Technology Center I, 115 Lake View Parkway.........102,000 Suffolk Flex Building, 1001 Obici Industrial Boulevard ................25,000 Suffolk Professonal Building, 100 North Main Street ..................24,000 TOTAL:.........................................................................................538,210 TOTAL CLASS A & B:............................................................1,270,030 OWNER OCCUPIED TowneBank Operations Center, 6005 Harbour View Blvd..........43,000 Rose & Womble Building, 5857 Harbour View Boulevard..........25,000 Lockheed Martin Center for Innovation, 8000 Harbour View Blvd...60,000 TOTAL:.........................................................................................128,000

DOWNTOWN HAMPTON CLASS A Harbour Centre, 2 Eaton Street ..................................................162,674 TOTAL:.........................................................................................162,674 CLASS B Olde Hampton Bank Building, 47 West Queens Way ..................17,688 TOTAL:............................................................................................17,688 TOTAL CLASS A & B:................................................................180,362

DOWNTOWN NEWPORT NEWS CLASS B Maritime Square, 2600 Washington Avenue ............................ 135,103 Rouse Tower, 6060 Jefferson Avenue.......................................150,075 TOTAL:.........................................................................................285,178 TOTAL CLASS A & B:................................................................285,178 OWNER OCCUPIED Newport News Shipbuilding, Apprentice School, 4101 Washington Avenue ...........................................................................................90,000 TOTAL:...........................................................................................90,000

HAMPTON ROADS CENTER CLASS A Lakefront Plaza, 21 Enterprise Parkway ......................................76,000 Olympia Place, 22 Enterprise Parkway ........................................72,444 Oxford Plaza, 1 Enterprise Parkway .............................................72,444 Research Quad, Building One, 100 Exploration Way ..................60,000 Research Quad, Building Three, 300 Exploration Way .............100,000 Riverside Health Center, 850 Enterprise Parkway.......................92,600 VPAR, 1001 North Campus Boulevard........................................20,000 TOTAL:....................................................................................... 493,488 CLASS B Butler Farm 400, 400 Butler Farm Road ..................................100,600 Butler Farm 421, 421 Butler Farm Road .....................................56,500 Hampton I, 2713 Magruder Boulevard ........................................68,500 Hampton II, 303 Butler Farm Road .............................................. 67,750 Hampton III, 525 Butler Farm Road .............................................40,000 Hampton Technology Center I, 903 Enterprise Parkway ............56,700 HealthNet Building, 514 Butler Farm Road ..................................60,482 Parkway Center, 521 Butler Farm Road ......................................44,650 Parkway Executive Center, 501 Butler Farm Road .....................35,200 Research Office Building, 144 Research Drive............................30,000 TOTAL:........................................................................................ 560,382 TOTAL CLASS A & B:............................................................1,053,870

53

COLISEUM CENTRAL

SUBURBAN NEWPORT NEWS

CLASS A Claiborne Building, 4410 East Claiborne Square.......................150,000 Central Park Six, 6 Manhattan Square ........................................32,500 Sentara Health Campus, 4000 Coliseum Drive ........................103,600 Sentara Center, 4001 Coliseum Drive .........................................59,000 TOTAL:.........................................................................................345,100 CLASS B Executive Tower, 2101 Executive Drive......................................135,000 Pinewood Plaza, 1919 Commerce Drive .....................................70,000 Raytheon Building, 130 Research Drive.......................................50,000 TOTAL:........................................................................................ 255,000 TOTAL CLASS A & B:................................................................600,100 OWNER OCCUPIED Langley Federal Credit Union, 1055 West Mercury Boulevard...73,056 TOTAL:...........................................................................................73,056

OYSTER POINT CLASS A Atrium At Oyster Point, 11832 Rock Landing Dr. .......................62,970 Cedar Two, 11837 Rock Landing Drive .......................................27,000 Compass Point, 1 Compass Way...............................................100,000 Fountain Plaza One, 701 Town Center Dr. ................................100,000 Fountain Plaza Two, 698 Town Center Dr. ..................................80,000 Fountain Plaza Three, 721 Lakefront Commons.........................80,000 Merchants Walk, 11870 Merchants Walk ...................................28,000 One City Center, 11815 Fountain Way .........................................70,000 One Oyster Point, 827 Diligence Dr..............................................36,200 Oyster Point Interstate Center, 675 Old Ouster Point Rd. ...........64,000 Patrick Henry Corporate Center, 12350 Jefferson Ave...............98,900 Peninsula Professional Building, 11818 Rock Landing Dr. ..........30,800 Riverside Medical Office Building (Warwick), 1220 Warwick Blvd.104,500 SunTrust Building, 11817 Canon Blvd. .......................................100,955 TowneBank Center, 1 Old Oyster Point Road ..............................56,300 Two City Center, 11820 Fountain Way.........................................63,600 Two Oyster Point, 825 Diligence Way ..........................................60,000 Wells Fargo Building, 600 Thimble Shoals Boulevard.................42,900 TOTAL:.....................................................................................1,206,125

CLASS B 11790 Jefferson Avenue...............................................................20,662 BB&T Plaza, 603 Pilot House Drive .............................................37,350 Canon Place, 11828 Canon Blvd. (Flex) ......................................26,000 Comb-Bay Park, 11821 - 11825 Rock Landing Dr. (Flex) .........32,000 Dunwoody Place, 780 Pilot House Drive (Flex)............................19,798 Executive Center, 739 Thimble Shoals Blvd. ...............................95,399 Fishing Point Center, 11828/11830 Fishing Point Drive (Flex) ...50,600 Fulton Bank Building, 601 Thimble Shoals Boulevard (Mixed-Use) ........................................................................................................29,750 McCale Professional Park, 729 Thimble Shoals Blvd. ................40,000 Oyster Point Business Center, 11835 Canon Blvd.(Flex) ............25,000 Oyster Point Center, 732 Thimble Shoals Blvd............................44,000 Oyster Point West, 310 Ed Wright Lane (Flex) ..........................176,560 Park Central Executive Center, 610 Thimble Shoals Blvd. (Flex) ........................................................................................................54,425 Park Place, 751 & 753 Thimble Shoals Boulevard (Flex) ...........25,000 Peninsula Business Center I, 11851 Rock Landing (Flex)............21,817 Peninsula Business Centre II, 11851 Rock Landing (Flex) .........40,475 Peninsula Business Centre III, 11851 Rock Landing (Flex).........60,000 Rock Landing Corporate Center V, 11844 Rock Landing Drive ......................................................................................................20,000 Rock Landing Corporate Center V, 11846 Rock Landing Drive ......................................................................................................20,000 Technology Center, 813 Diligence Dr. (Flex) ................................81,000 Thimble Shoals Business Center, 720 Thimble Shoals Blvd. (Flex) ........................................................................................................55,377 Tower Park, 735 Thimble Shoals .................................................31,600 TOTAL:......................................................................................1,006,813 TOTAL CLASS A & B:............................................................2,212,938 OWNER OCCUPIED Applied Research Center ............................................................121,000 Ferguson Corporate Center II, 12490 Jefferson Avenue ..........152,965 Fountain Plaza Two .......................................................................80,000 Muller Martini Building...................................................................24,000 Peninsula Retail Credit...................................................................30,000 TOTAL:.........................................................................................407,965

Disclaimer: The information in this report is deemed reliable. Old Dominion University Real Estate Center makes no representation or warranty as to its accuracy.

SOUTHSIDE - Class A SUBMARKET AIRPORT/NORTHAMPTON CENTRAL NORFOLK CHESAPEAKE/GREENBRIER CORPORATE LANDING DOWNTOWN NORFOLK HILLTOP/OCEANFRONT KEMPSVILLE LITTLE NECK LYNNHAVEN MILITARY CIRCLE NEWTOWN/WITCHDUCK PEMBROKE/CENTRAL BUSINESS DISTRICT PORTSMOUTH SUFFOLK

NLA 634,200 N/A 1,099,141 N/A 1,937,496 429,710 247,000 N/A 766,690 308,512 573,494

YEAR 2013 VAC 9,913 N/A 148,807 N/A 318,487 24,610 5,800 N/A 135,786 64,445 153,100

1,404,795 146,737 85,095 26,596 731,820 88,900

PENINSULA - Class A YEAR 2013 SUBMARKET NLA VAC COLISEUM CENTRAL 345,100 121,269 DOWNTOWN HAMPTON 162,674 38,000 DOWNTOWN NEWPORT NEWS N/A N/A HAMPTON ROADS CENTER 493,488 36,126 OYSTER POINT 1,206,125 112,579 SUBURBAN NEWPORT NEWS N/A N/A WILLIAMSBURG/JAMES CITY/ YORK COUNTY 516,866 54,913

% VAC 1.56% N/A 13.54% N/A 16.44% 5.73% 2.35% N/A 17.71% 20.89% 26.70% 10.45% 31.25% 12.15%

% VAC 35.14% 23.36% N/A 7.32% 9.33% N/A 10.62%

CLASS B Mary Immaculate Pavilion, 12720 McManus Boulevard ............76,600 Net Center, 5200 Mercury Boulevard ........................................557,750 Patrick Henry Corporate Center, 12350 Jefferson Avenue ........ 99,100 TOTAL:........................................................................................ 733,450 TOTAL CLASS B: ......................................................................733,450 OWNER OCCUPIED TOTAL:.....................................................................................................0

WILLIAMSBURG/JAMES CITY COUNTY/YORK COUNTY CLASS A Atrium, 263 McLaws Circle..........................................................26,900 Casey Corner, 5400 Discovery Park Boulevard ..........................30,000 Courthouse Green Office, 4093 Ironbound Road .......................30,000 Cybernetics Building, 111 Cybernetics Way.................................65,000 Discovery Business Park Building II, 5308 Discovery Business Park Drive ...............................................................................................20,000 Discovery Business Park Building, 5300 Discovery Business Park Drive ........................................................................................................34,700 Ironbound Professional Center, 4125 Ironbound Road................22,200 Nationwide Building, 501 Village Avenue (Yorktown)..................25,000 Paladium Office Building, 5408 Discovery Park Boulevard ........21,000 Patriot Park Business Center, 5388 Discovery Park Boulevard..23,800 Ryan Homes Building, 5360 Discovery Park Boulevard .............20,000 Scott Thomas Building, 5372 Discovery Park Boulevard ...........20,000 Sentara Medical Building, 4374 New Town Avenue ...................49,200 SunTrust, 4801 Courthouse Street ..............................................60,000 WEG Building, 5209 Center Street ..............................................27,000 Wells Fargo, 428 McLaws Circle (Busch Corporation) ...............20,000 William E. Wood Building, 5208 Monticello Avenue....................22,066 TOTAL:.........................................................................................516,866 CLASS B Bionetics Building, 101 Production Drive (Yorktown) ..................30,000 Busch Gardens Building, 300-344 McLaws Circle ..................113,800 Rivergate Center, 309 McLaws Circle..........................................37,600 Williamsburg Commerce Center, 460 McLaws Circle.................31,150 TOTAL:.........................................................................................212,550 TOTAL CLASS A & B:................................................................729,416 OWNER OCCUPIED Tidewater Physicians Multi-Specialty Group, 5424 Discovery Park Boulevard ...................................................................................... 40,000

SOUTHSIDE - Class B SUBMARKET AIRPORT/NORTHAMPTON CENTRAL NORFOLK CHESAPEAKE/GREENBRIER CORPORATE LANDING DOWNTOWN NORFOLK HILLTOP/OCEANFRONT KEMPSVILLE LITTLE NECK LYNNHAVEN MILITARY CIRCLE NEWTOWN/WITCHDUCK PEMBROKE/CENTRAL BUSINESS DISTRICT PORTSMOUTH SUFFOLK

NLA 140,513 1,054,204 2,116,048 106,500 1,650,522 267,137 127,995 407,381 814,024 260,254 978,715

YEAR 2013 VAC 89,399 220,573 209,625 73,833 385,831 63,061 21,304 17,103 115,538 68,778 220,509

915,917 128,255 310,281 72,888 538,210 142,067

PENINSULA - Class B YEAR 2013 SUBMARKET NLA VAC COLISEUM CENTRAL 255,000 108,400 DOWNTOWN HAMPTON 17,688 3,086 DOWNTOWN NEWPORT NEWS 285,178 58,003 HAMPTON ROADS CENTER 560,382 121,193 OYSTER POINT 1,006,813 160,497 SUBURBAN NEWPORT NEWS 733,450 186,595 WILLIAMSBURG/JAMES CITY/ YORK COUNTY 212,550 87,178

% VAC 63.62% 20.92% 9.91% 69.33% 23.38% 23.61% 16.64% 4.20% 14.19% 26.43% 22.53% 14.00% 23.49% 26.40%

% VAC 42.51% 17.45% 20.34% 21.63% 15.94% 25.44% 41.02%

METHODOLOGY. Submarket office data collected by market reporters for Class A and Class B office buildings 20,000 square feet and above on the Southside and Peninsula.

54

2014 Hampton Roads Real Estate Market Review

Southside 1 Airport/Northampton 2 Chesapeake/Greenbrier 3 Downtown Norfolk 4 Central Norfolk 5 Hilltop/Oceanfront 6 Corporate Landing 7 Kempsville

Peninsula 8 Little Neck 9 Lynnhaven 10 Military Circle 11 Newtown/Witchduck 12 Northern Suffolk 13 Pembroke 14 Portsmouth

15 Downtown Hampton 16 Hampton Roads Center 17 Coliseum Central 18 Downtown Newport News 19 Newmarket 20 Oyster Point 21 Suburban Newport News 22 Williamsburg/James City Co. 23 York County

2014 OFFICE

OFFICE SUBMARKETS

55

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RESIDENTIAL 2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

New Residential Market Authors Data Analysis/ Layouts

Blair Hardesty Belliveau Ron Wildermuth Residential DataBank

Existing Residential Market Cameron Brown Data & Analytics Specialist Real Estate Information Network, Inc. Hampton Roads ML

Financial

The E.V. Williams Center for Real Estate and Economic Development (CREED) functions and reports are funded by donations from CREED members, organizations and individuals.

Disclosure

The data used for this report are deemed reliable; however, neither Old Dominion University, the E.V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals make any representation or warranty as to its accuracy.

2014 RESIDENTIAL

Author Data Analysis/ Layouts

57

2014 RESIDENTIAL

General Overview esidential new construction in Hampton Roads in 2013 was characterized by a continuation of the market upturn that began in 2012, but at a slightly reduced pace. Permits, closings, and sales prices were up by middle single digits compared to 2012, and total revenue was up double digits for the second year in a row. Though we are still a long way from the lofty numbers of the boom years, the lines on the graphs are continuing to point in the right direction.

The 4.8% increase in average sales price to $321,040 in 2013 was led by a renewed strength in single family detached price ranges above $350,000. Significantly, 2013 saw the first year over year increase in average sales price since 2006 to an average price last seen in 2009 and 2010. There are two main reasons for the average sales price increase: 1. a return of the move-up buyer due to improvements in the resale market; 2. an increase in land acquisition and labor costs, and a supply shortage, that pushed sales prices higher.

Inventory levels in most price ranges continue at multi-year lows for the third straight year and in some price ranges inventory is completely depleted. In 2013 a few builders were able to expand their “spec” inventory programs to accommodate the demand for quick occupancy homes. Demand was driven primarily by military transferees with excellent sales results. Builders who were able to restore their “spec” building program will benefit from the expected seasonal increase in demand that will occur during the 2014 spring market. Most builders and lenders maintain a healthy skepticism about the depth of the housing recovery and are carefully weighing their options amid concerns about rising interest rates, lot acquisition costs, and labor costs, as well as the uncertain funding environment for the crucial military component of our economy. The biggest concern is that mortgage interest rates and lot acquisition and labor costs will increase too quickly which could force sales prices to increase at an unsustainable rate and cause a slowing of demand for new homes.

Signs of a potential slowdown began in the latter part of 2013 with a noticeable decrease in the pace of new home traffic and sales that cannot be attributed to normal seasonal factors. It is too early to determine if this slowed pace will characterize residential sales activity in 2014. There is still considerable unmet buyer demand in the “for sale” segment of the residential housing market and this unmet demand, tempered by the availability of product and by affordability issues, will drive sales in 2014.

58

2014 Hampton Roads Real Estate Market Review

Class A Market Statistics 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Permits

7,271

7,854

7,359

5,035

3,393

2,911

3,100

2,809

3,297

3,451

Closings

5,466

5,128

4,864

4,153

3,318

2,775

2,421

2,354

2,714

2,873

$295,114

$363,818

$395,928

$386,587

$361,496 $321,711

$319,929

$309,295 $306,341

$321,040

$1,613

$1,866

$1,926

$1,605

Avg Sales Price Total Revenue (millions)

$1,199

$893

$775

$728

$831

$922

THE TEN YEAR TREND. . .

The run-up to the market peak that occurred from 2002 to 2005 was followed by several years of declines in permits, closings, sales price and revenue. Since bottoming out in 2011, there was a clear upward trend in Hampton Roads during 2012 and 2013 with regards to permits, closings, and revenue. Average prices bottomed out in 2012 and an upward trend was established in 2013. This year was the first in seven years to have an increase in average sales price for a new home in Hampton Roads.

FROM THE PEAK TO THE PRESENTâ&#x20AC;Ś Permits down 56% with 4,403 fewer permits issued in 2013 versus 2005 Closings down 47% with 2,593 fewer closings in 2013 versus 2004 Average Sales Price down 19%, a $74,888 decline from 2006 to 2013 Total Revenue down 52%, a decline of $1.0 billion in 2013 compared to 2006

2014 RESIDENTIAL

HAMPTON ROADS - BY PRODUCT TYPE Product Type Detached Multistory MultiPlex Town/Dup Total HR

Permits 2012 2013 % Change 2,452 2,682 9.4% 72 -8.3% 66 203 13.8% 231 570 472 -17.2% 3,297 3,451 4.7%

2012 1,830 127 235 522 2,714

Closings 2013 % Change 1,920 4.9% 79 -37.8% 288 22.6% 586 12.3% 2,873 5.9%

Avg Sales Price Revenue 2012 2012 2013 % Change 2013 % Change 335,691 357,359 6.5% 614,314,099 686,129,721 11.7% 273,065 227,810 -16.6% 34,679,314 17,997,003 -48.1% 225,474 225,031 -0.2% 52,986,400 64,809,034 22.3% 247,950 261,794 5.6% 129,430,070 153,411,370 18.5% 306,341 321,040 4.8% 831,409,883 922,347,128 10.9%

59

2014 RESIDENTIAL

2013 VERSUS 2012 CONSTRUCTION ACTIVITY

by Product Type Detached Detached permits were up 9.4% to 2,682. Detached homes accounted for 78% of all residential building permits during 2013. Closings increased by 4.9% to 1,920 led by successes at Culpepper Landing in Chesapeake, Village Bend in Virginia Beach, and Lakes of Jolliff in Chesapeake. The average sales price increased 6.5% to $357,359, and detached revenue increased by 11.7% to $686 million.

Attached - Multistory Multistory condominium permits were down 8.3% to 66 in 2013. Multistory condominiums were the only product type to have a decrease in closings for the year, with a decline of 37.8% to 79. The average sales price increased 16.6% to $227,810, and revenue declined 48% to $16.7 million.

Hampton Roads Product Mix 2013 Closings

Detached

Multistory

MultiPlex

Town/Dup

Attached - Multiplex Multiplex permits were up 13.8% to 231. Closings were up 22.6% to 288; this is due to success by the Dragas Companies at The Grove and Kings Pointe communities in Chesapeake that accounted for 33.3% of the 2013 multiplex condo closings. Average prices were down slightly to $225,031; however, this product experienced the largest increase in revenue, up 22.3% to $64.8 million.

Attached - Townhouse/Duplex Townhouse/Duplex permits were down 17.2% to 472. Closings were up 12.3% to 586, led by successes at Cornerstone in Virginia Beach and Weatherly at Whitehall in James City County. The average sales price increased 5.6% to $261,794, and revenue increased 18.5% to $153.4 million.

60

Permits

Avg Sales Price

Closing

Revenue

2014 Hampton Roads Real Estate Market Review

2013 VERSUS 2012 NEW CONSTRUCTION ACTIVITY

by City Permits There were 3,451 residential permits issued in Hampton Roads during 2013. Permits were up in eight cities in Hampton Roads. The largest gainer was Norfolk, up 82 to 124 permits issued. The largest percent increase was in Isle of Wight where permits increased 29.2% to 124. There were no declines on the Southside, but permits were down in four cities and counties on the Peninsula. The largest decline was Hampton, down 45.9% to 86 permits issued.

Closings Closings were up in 2013 compared to 2012 in all cities except for Hampton, Newport News and Williamsburg.

Although Gloucester had the largest percentage increase with 29.8%, Chesapeake had the largest number increase, up 132 closings for a 19.8% increase. Williamsburg had the largest percent decline, with a decrease of 61.1% to 7 closings for the year. Newport News had the largest number decrease, down 80 closings versus 2012.

Average Sales Price The average sales price for a new home in Hampton Roads during 2013 was $321,040. The average sales price increased in more than half of the cities and counties. The largest increase was in York County, up 33.3% to $366,259. Portsmouth had the largest decrease, down 5.0% to $198,385. Virginia Beach had the highest average closing price for a new home in Hampton Roads during 2013 at $388,217, and Portsmouth had the lowest average closing price at $198,385.

Revenue There were revenue increases in nine cities and counties. York County had the largest percentage increase up 43.8% to $40.3 million. Chesapeake had the largest dollar increase up $59 million to $249.6 million in revenue for 2013. The largest percentage and dollar value decrease occurred in Newport News with a 59.2% decrease in revenue to $26.9 million, an $18.9 million decrease compared to 2012.

City/County CHES

2012 821

Closings

Avg Sales Price

2013 % Change 2012 2013 % Change 2012 893

8.8%

665

797

19.8%

286,120

Revenue

2013 % Change

2012

2013

% Change

313,126

9.4%

190,269,711 249,561,310

31.2%

I of W

96

124

29.2%

61

74

21.3%

297,404

349,789

17.6%

18,141,648

25,884,393

42.7%

NORF

288

370

28.5%

211

244

15.6%

305,020

299,847

-1.7%

64,359,317

73,162,591

13.7%

PORT

69

83

20.3%

62

66

6.5%

208,828

198,385

-5.0%

12,947,317

13,093,436

1.1%

SUFF

347

365

5.2%

287

304

5.9%

298,009

291,926

-2.0%

85,528,485

88,745,523

3.8%

609

675

10.8%

546

VBCH Total Southside

2230 2510

601

10.1%

392,591

388,217

-1.1%

214,354,950 233,318,253

8.8%

12.6% 1832 2086

13.9%

319,651

327,788

2.5%

585,601,428 683,765,506

16.8%

29.8%

244,014

264,199

8.3%

13,908,800

19,550,755

85 -41.8%

262,657

255,944

-2.6%

38,347,946

21,755,263 -43.3%

GLOU

131

112

-14.5%

57

HAMP

159

86

-45.9%

146

JCC

453

456

0.7%

368

400

8.7%

311,446

320,146

2.8%

NNEWS

166

100

-39.8%

191

111 -41.9%

240,051

241,957

0.8%

7 -61.1%

WMSBG

74

114,612,062 128,058,415 45,849,825

40.6% 11.7%

26,857,219 -41.4%

15

11

-26.7%

18

281,842

295,918

5.0%

5,073,164

143

176

23.1%

102

110

7.8%

274,673

366,259

33.3%

28,016,658

Total Peninsula

1067

941

-11.8%

882

787 -10.8%

278,694

303,153

8.8%

245,808,455 238,581,622

-2.9%

Total Hampton Roads

3297 3451

306,341

321,040

4.8%

831,409,883 922,347,128

10.9%

YORK/POQ

4.7% 2714 2873

5.9%

2014 RESIDENTIAL

Permits

2,071,426 -59.2% 40,288,544

43.8%

61

2014 RESIDENTIAL

HAMPTON ROADS 2013 TOP SUBDIVISIONS For 2013, the top subdivision for permits, closings, and revenue was Culpepper Landing in Chesapeake with 109 permits, 104 closings and $30 million in revenue. There were 58 detached permits to six builders; HHHunt Homes had the most detached permits with 24 issued. Kotarides Builders had 24 multiplex condominium permits issued, and ABT Custom Homes had 27 townhome permits issued. There were 58 detached closings by nine builders; Ryan Homes had the most detached home closings with 21 closings recorded and an average sales price of $355,547. Kotarides Builders had 22 multiplex closings recorded with an average price of $172,745 and ABT Custom Homes had 25 townhome closings with an average price of $243,429.

Kings Pointe in Western Branch in Chesapeake by Dragas Companies had 94 permits issued during 2013. There were 28 multiplex condominium permits and 66 multistory condominium permits issued. There were 82 closings recorded in 2013; 39 multistory closings with an average price of $144,149 and 43 multiplex closings with an average price of $194,100.

Wilshire Village at Ashville Park was the number two community for revenue in 2013. There were 43 closings recorded yielding $23 million in revenue. There were 11 builders with closings recorded during 2013 and Pace Construction accounted for 32% of the revenue with $7,381,991.

CLOSINGS

PERMITS

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

62

Permits Subdivision Issued Culpepper Landing, C 109 Kings Pointe, C 94 Colonial Heritage, J 87 Jordan Hall, C 57 Ashville Park-Wilshire, V 55 Pointe East, R 55 Turtle Creek, N 50 Lakes of Jolliff, C 49 Settlement at Powhatan, J 42 East Beach, R 41 Eagle Pointe, C 40 Whitehall, J 40 The Grove, C 40 Riverlake, V 39 Sajo Farm, V 37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Closing Subdivision Recorded Culpepper Landing, C 104 Kings Pointe, C 82 Village Bend, V 57 Lakes Of Jolliff, C 56 The Grove, C 53 Jordan Hall, C 52 Sajo Farm, V 51 Cornerstone, V 51 Eagle Pointe, C 45 Ashville Park-Wilshire, V 43 Settlement At Powhatan, J 42 Turtle Creek, N 42 Whitehall, J 42 Sherwood Lakes, V 40 Weatherly At Whitehall, J 40

Average Price $288,983 $170,343 $385,926 $324,976 $204,904 $388,472 $393,551 $242,140 $339,934 $538,124 $335,763 $316,745 $256,431 $364,103 $159,147

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Subdivision Culpepper Landing, C Ashville Park-Wilshire, V East Beach, R Village Bend, V Jordan Hall, C Sajo Farm, V Lakes Of Jolliff, C Eagle Pointe, C Sherwood Lakes, V Settlement At Powhatan, J Kings Pointe, C Turtle Creek, N Eagle Harbor, I Parkside, S Wellington, J

Total Revenue 30,054,227 23,139,332 22,728,661 21,997,800 20,200,562 20,071,097 18,198,653 15,297,045 14,564,138 14,102,038 13,968,120 13,303,294 13,298,671 13,024,010 12,598,776

2014 Hampton Roads Real Estate Market Review

HAMPTON ROADS 2013 TOP BUILDERS Ryan Homes was the top builder in Hampton Roads for permits, closings and revenue with 309 permits issued, 292 closings, and $104,699,944 in revenue. Ryan Homes is actively building in 18 new communities in Hampton Roads. Their top subdivision was Turtle Creek in Newport News with 50 permits, 42 closings, and $13,303,294 in revenue. Windsor Ridge at Wellington in James City County was their number two subdivision for permits, closings, and revenue with 32 permits and 32 detached closings recorded for $11,898,876 in revenue.

Chesapeake Homes was the number two builder in Hampton Roads for permits, closings, and revenue with 134 permits issued, 173 closings recorded, and $46,874,097 in revenue in 15 communities on the Southside and Peninsula. Cornerstone in Virginia Beach was their number one community during the year with 36 permits recorded, 51 closings recorded, and $12,349,142 in revenue. West Neck Village was their number two community with 21 permits issued, 16 closings, and $5,648,588 million in revenue.

HHHunt Homes was the number three builder for closings and revenue with 154 closings recorded, and $37 million in revenue. HHHunt Homes had closings in ten communities in Hampton Roads during the year including eight detached and two attached. Their top subdivision in 2013 for closings was Weatherly in Whitehall in James City County with 40 closings. Their top subdivision for revenue was the single family product at Whitehall with closings totaling $7,835,125 in revenue.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Permits Builders Issued Ryan Homes 309 Chesapeake Homes 134 Dragas Companies 134 Napolitano Ent 107 HHHunt Homes 102 Terry Peterson Residential 95 Lennar Corp 87 Bishard Dev Corp 84 Franciscus Co Inc 82 McQ Blrds & Dev Inc 65 Platinum Homes 65 Hearndon Constr Corp 56 Ashdon Builders 54 Virginia Ent Inc 47 Eagle Construction 40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Closing Builders Recorded Ryan Homes 292 Chesapeake Homes 173 HHHunt Homes 154 Dragas Companies 146 Napolitano Ent Inc 99 Terry Peterson Res 97 McQ Bldrs & Dev Inc 76 Franciscus Co Inc 70 Platinum Homes 68 Ashdon Builders Inc 59 Hearndon Constr Corp 54 Stephen Alexander Homes 45 Bishard Dev Corp 45 Eagle Construction 45 Kotarides Bldrs & Dev Inc 45

Average Price $358,561 $270,949 $242,936 $183,570 $346,986 $292,389 $350,800 $232,575 $286,850 $317,526 $317,131 $482,091 $399,292 $339,934 $217,128

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Total Builders Revenue Ryan Homes 104,699,944 Chesapeake Homes 46,874,097 HHHunt Homes 37,412,186 Napolitano Ent Inc 34,351,657 Terry Peterson Res 28,361,775 Dragas Companies 26,801,226 Mcq Bldrs & Dev Inc 26,660,805 Stephen Alexander Homes Inc21,694,099 Platinum Homes 19,505,817 Ashdon Builders Inc 18,734,035 Bishard Dev Corp 17,968,126 Hearndon Constr Corp 17,125,065 Franciscus Co Inc 16,280,237 Eagle Construction 15,297,045 Summit Constr Corp 14,218,099

2014 RESIDENTIAL

CLOSINGS

PERMITS

63

2014 RESIDENTIAL

EXISTING HOMES The Hampton Roads existing real estate market showed signs of growth throughout 2013. Existing home closings came to realization just as the end of 2012 had indicated. All four quarters of 2013 posted increases in existing home closings. Overall, the region saw encouraging trends as inventory levels dropped, home closings rose, and the percentages of distressed properties in the market decreased.

The active inventory of existing homes for sale in the region for 2013 increased 3.1% when compared to 2012. There were 7,718 existing homes for sale at the end of 2013, whereas there were 7,483 existing homes for sale at the end of 2012. This is the first time since 2009 that the region has seen a year-over-year increase in existing homes for sale.

Despite active inventory counts rising, the months’ supply inventory dropped 7.6% to 5.1 months from 5.5 months in 2012. A significant increase of existing home closings caused the months’ supply inventory to drop, although existing homes for sale increased from the year prior.

25,000

$208,000

$200,000

$205,000

$194,500

$191,500

$130,000

16,249

15,017

14,265

15,526

$157,900

18,126

$182,500 $185,000

14,517

15,000

$219,900

18,572

16,612

18,430

19,604

20,000

$224,900 $215,000 21,890

20,881

23,209

24,207

$250,000

$150,000

$117,050 $109,900

10,000

$100,000

$99,999

$51,000

$53,800

$55,200

$56,600

$59,100

$65,100

$60,300

$67,900

$68,200

$69,900

$70,900

$73,300

$64,100

5,000

$50,000

5,538

4,873

3,831

2,801

2,015

2,093

4,313

6,982

9,055

10,077

9,809

8,614

7,483

7,718

$49,300

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

$0 Exis ng Ac ve Homes for Sale Exis ng Home Median SP

Exis ng Home Closings HUD Median Household Income

Existing home closings rose 11.6% to 18,126 from 16,249 in 2012.

Virginia Beach had the largest percentage of existing closings at 31%. This percentage has held constant for Virginia Beach for the past three years. Chesapeake and Norfolk recorded the second and third highest percentages of existing home closings at 15% and 13% respectively. The majority of the region’s cities saw increases of 10% or more of existing home closings in 2013.

For the second consecutive year, the median sale price of existing homes increased from the year prior. Significantly, 2013 ended with a median sale price for existing homes of $191,500. This is a 3.5% increase from 2012’s $185,000, and nearly a 5% increase from $182,500 in 2011. In addition to the median sale price for existing homes increasing in 2013, the average sale price of these same homes increased 3.7% when compared to 2012.

A total of eleven of the region’s cities experienced median sale price increases in 2013. Williamsburg and Matthews County saw the most notable rises at 17.4% and 11.5%. Surry County and Poquoson recorded the steepest drops in median sale price for existing homes at 20.6% and 6.4% respectively. York County remained most constant as the median sale price for existing homes only increased 0.4%. James City County had the highest median sale price for existing homes at $297,000, a 7.2% increase from $277,000 in 2012. Williamsburg recorded the second highest median sale price at $295,367. Virginia Beach and Norfolk experienced median sale prices for existing homes of $223,000 and $157,500 respectively. Surry County recorded the lowest median sales price of $99,237, followed by Portsmouth at $108,500.

64

2014 Hampton Roads Real Estate Market Review

Detached homes accounted for 78.5% of existing home sales as 14,229 closed in 2013, an increase of 12.1% from 12,693 in 2012. With the exception of Matthews County, all cities experienced growth in detached sales. The majority of cities in the region saw increases of at least 10%. Williamsburg rose the highest at 54.8% from 42 in 2012 to 65 in 2013.

Attached existing home sales increased 9.6% to 3,897 in 2013 from 3,556 in 2012. Currituck County declined from the year prior as it recorded zero attached existing home sales in 2013. All other cities increased or remained constant from 2012. York County and Hampton experienced the most notable increases of 44.2% and 32.8%. Portsmouth trailed slightly, recording 31.7% more attached existing home sales in 2013 than 2012.

2014 RESIDENTIAL

Distressed homes, those that are either bank owned or short sales, declined slightly in 2013 when compared to the year prior. Throughout the year distressed homes accounted for between 21.7% and 27% of existing homes for sale on a monthly basis, reaching a low during the month of June and a high during the month of January. Percentages are down from 2012â&#x20AC;&#x2122;s high of 28.1% and low of 24.2%. Due to population densities, Virginia Beach, Chesapeake, and Norfolk showed the most activity in regards to distressed homes.

65

2014 RESIDENTIAL Distressed homes comprised between 20.5% and 34.9% of existing home sales in the Hampton Roads region during 2013; on a monthly basis the low was in January and the high in July. These ranges can be compared to 2012’s low of 24.4% and high of 37.2%. The median sale price for these distressed homes fluctuated throughout the year between $119,900 in February and $135,000 in September. Meanwhile non-distressed existing homes recorded a median sale price of $190,000 in July and $230,000 in June. At years end, the median sale price of existing distressed homes was $125,500, a nominal discount of $79,500 and discount percentage of 38.8% when compared to the year-end median price of non-distressed existing sales of $205,000.

The average numbers of days an existing home spent on the market before closing in 2013 was 86 days, a decrease of nine days when compared to 2012’s average of 95 days and a decrease of two weeks when compared to 2011’s 101 days. Since tracking began, the lowest average days on the market of 26 days was recorded in 2004. The recording of 101 average days on the market in 2011 is a historic high for this statistic.

The average days on the market in the Hampton Roads region has increased nearly an average of seven days per year since 2004.

Looking into 2014, all key indicators point towards growth. For the first time since 2009, the existing homes for sale count has increased from the year prior. All four quarters of 2013 recorded increases in existing home sales. Supporting the growth trend, the year 2013 ended with a 15.6% increase in under contract home sales when compared to the end of 2012. Though there is no guarantee that all homes under contracts will advance to closings, this percentage is large enough to set the tone for gains in the residential real estate market early in 2014.

66

ABOUT THE DATA: The underlying data the resale home closing statistics are based upon is the collection of those closings belonging to Real Estate Information Network, Inc. (REIN) members only. The data for each sales transaction was input by hand and therefore may contain some errors at the individual home sale level.

But, as a collection, this data represents the timeliest and most accurate dataset of resale homes for the entire Hampton Roads region. The strength of the dataset lies within its proximity to origin and depth.

The MLS (Multiple Listing Service) data is considered the deepest of any resale home database due to the sheer number of rich data fields within the database and the information contained within. The information is also being keyed by either the actual listing agent or administrative staff of the same real estate firm. The combination of these two key elements allows the MLS data to be more precise than many other information repositories and vastly timelier. But, MLS data does have weaknesses. Most notably is the portion of the dataset at the edges of the MLS’s boundaries. Usually, MLS membership wanes around the borders of the coverage area, due to overlapping MLS’s. In such overlap areas, any given real estate broker may choose to join only one of the two or more MLS’s that cover the particular area. For the local MSA and the region covered by REIN, this translates into less than ideal accountability for sales in North Carolina, Northern Neck areas of Virginia, and the Williamsburg area. As for REIN, it is an independent MLS owned by broker stockholder members. Currently, there are approximately 500 real estate firms with over 5,800 real estate agents serving the entire Hampton Roads region.

2014 Hampton Roads Real Estate Market Review

RESIDENTIAL SUBMARKETS

RESIDENTIAL SUBMARKETS

(NEW CONSTRUCTION)

(EXISTING HOMES)

Southside

Peninsula

Southside

Peninsula

Chesapeake Franklin/Southampton Isle of Wight Co Norfolk Portsmouth Suffolk Virginia Beach

Gloucester Hampton James City County Newport News York County Williamsburg

Chesapeake Currituck Isle of Wight Co Norfolk Portsmouth Suffolk Surry Virginia Beach

Gloucester Hampton James City County Mathews Newport News York County

67

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68

2014 Hampton Roads Real Estate Market Review

MULTIFAMILY 2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

Author

Charles Dalton

Data Analysis

Real Data

Financial Support

The E.V. Williams Center for Real Estate and Economic Development (CREED) functions and reports are funded by donations from CREED members, organizations and individuals.

Disclosure

The data used for this report are deemed reliable; however, neither Old Dominion University, the E.V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals make any representation or warranty as to its accuracy.

2014 MULTIFAMILY 69

2 0 1 4 M U LT I F A M I LY

General Overview he Norfolk-Virginia Beach-Newport News Apartment Report, published by Real Data, is a detailed analysis of the rental market within conventional apartment communities in the Hampton Roads region. The area has been divided into nine submarkets: Chesapeake, Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach, Williamsburg and York.

Combined, these areas contain a survey base of over 95,000 units within conventional apartment communities of 50 or more units each.

The region is divided into two portions by the James River. The Peninsula area is north of the James River and contains Hampton, Newport News, Williamsburg, and York. The Southside area is south of the James River and contains Chesapeake, Norfolk, Portsmouth, Suffolk, and Virginia Beach. The cities with the highest concentration of units are Virginia Beach and Newport News, which accounts for nearly one half of the regionâ&#x20AC;&#x2122;s apartment units.

The Hampton Roads apartment market has remained stable over the past five years with a current occupancy rate of 93.4% as of the fourth quarter of 2013 compared to a five year average of 93.5%. Occupancy rates are forecast to dip slightly in 2014 as new supply comes on-line.

Submarket Percentages

Suffolk 1%

Williamsburg 4%

Chesapeake 12%

Hampton 12%

Virginia Beach 26%

Portsmouth 8%

Newport News 22% Norfolk 15%

70

York County 2%

Development activity continues to gain momentum to meet demand for rental housing, especially in the urban core areas. As of October 2013, there were 3,632 units under construction, which is a record high. This equates to a 3.8% growth rate in supply over the next 12 to 18 months which is a manageable rate given the current level of demand for apartments.

The average quoted rental rate is $952, with one-bedroom rents averaging $850 per month, two-bedroom units averaging $959 per month, and three-bedroom units reporting an average rental rate of $1,133 per month. Average rental rates from existing inventory increased by only $6.81 in the last twelve months.

Although the area did not see any significant drop in rents during the recession of 2008 to 2010, which other cities experienced, rent growth in the Hampton Roads region has been minimal especially when compared to rent growth of other cities over the past two years.

2014 Hampton Roads Real Estate Market Review

Historical Apartment Development Development of apartment units in this market peaked during two time periods, the early 1970s and the late 1980s.

The current five year period is projected to see the highest level of development activity since the peak of 1985 to 1989. Although current development activity is being slowed by tighter lending restrictions, there are over 3,000 units expected to come on line within the next 18 months. There are another 2,700 units in some level of planning, many of which are waiting to secure financing.

NORFOLK-VIRGINIA BEACH-NEWPORT NEWS Table I Historical Apartment Development

2014 MULTIFAMILY 71

2 0 1 4 M U LT I F A M I LY

MULTIFAMILY PERMIT ACTIVITY HISTORICAL MULTIFAMILY BUILDING PERMITS NORFOLK-VIRGINIA BEACH-NEWPORT NEWS Overall housing development in the region was at its peak from 2002 to 2006 with more than 10,000 permits issued annually for single and multifamily housing. Multifamily permit activity, which includes rental and for-sale units, surged from 2002 to 2005 and surged again in 2011 to 2013. Total multifamily development in 2013 nearly eclipsed the peak of development that occurred in 2005. The current development wave is being led by multifamily rentals, whereas development in 2005 was fueled by the for sale housing market.

2,921

2012

2013

761

1,159

1,519

1,734

2,560

2004

2,336

2,339

2003

1,811

2,292

2002

1,315

2,355

3,085

Table II Annual Multifamily Permit Activity

2001

2005

2006

2007

2008

2009

2010

2011

(Thru Nov.)

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2014 Hampton Roads Real Estate Market Review

Table III Multifamily Permits Issued Past Year 682 666

600 500 400

219

300 320

310

200 176

182

100 102 62

0 Nov 2012

Dec 2012

Jan 2013

Feb 2013

89 24

11

59

Mar 2013

Apr 2013

May 2013

Jun 2013

Jul 2013

Aug 2013

Sep 2013

Oct 2013

Nov 2013

APARTMENT DEVELOPMENT ACTIVITY As of the 4th quarter of 2013, there were 3,632 apartment units under construction within twenty communities in the Norfolk-Virginia Beach-Newport News market. There are an additional 2,720 apartment units proposed to start construction within the next year. Chesapeake, Norfolk, and Virginia Beach are the most active areas for new apartment development with 25 communities either underway or in planning.

2014 MULTIFAMILY

Table IV Apartment Development Activity (October 2013)

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DEMAND Based on historical performance, the Norfolk-Virginia Beach-Newport News area is expected to absorb between 900 and 1,100 units annually. A surge in demand for rental housing has pushed the absorption rate to nearly 1,400 units annually over the past five years.

The area experienced record levels for demand in 2013 with nearly 2,500 units absorbed.

Demand in 2013 was strongest in the Virginia Beach, Newport News, and Chesapeake submarkets. Although the outlook for rental demand is expected to remain strong for the next several years, household formation and job growth is the ultimate driver for housing demand and a rebounding job market will be needed to sustain demand for the long term.

Table V Absorption

2004

74

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014 Hampton Roads Real Estate Market Review

Table VI Submarket Absorption 2013 1000 900 800 700 600 500 400 300 200 100 0 -100 -200

VACANCY The overall vacancy rate for the Norfolk-Virginia Beach-Newport News market as of October 2013 was 6.6%, an improvement from 7.3% in 2012. Vacancy rates across the Peninsula averaged 7.9% compared to only 5.7% in the Southside submarkets. Vacancy rates for the overall Hampton Roads region are expected to remain in the 7% range through 2014.

Table VII Overall Vacancy

%

2014 MULTIFAMILY

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Most submarkets experienced a modest improvement in vacancies over the past year.

Hampton Roads historically has maintained a relatively healthy vacancy rate even in weak economic cycles due to the strong and consistent demand from the military bases for rental housing in the area.

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2 0 1 4 M U LT I F A M I LY Table VIII Submarket Vacancy Rates

October 2012

October 2013

RENTAL RATES As of October 2013, the average rental rate in Norfolk-Virginia Beach-Newport News was $952.

Table IX Average Rental Rates (New & Existing Communities)

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

AVERAGE RENTS Average overall rents ranged from a low of $852 in Newport News to a high of $1,080 in Chesapeake. Newport News, Portsmouth, Williamsburg, and Norfolk all reported rents lower than the regional average, while York, Hampton, Suffolk, Virginia Beach and Chesapeake all reported rents higher than the regional average.

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Table X Average Rent by Submarket â&#x20AC;&#x201C; October 2013

MANAGEMENT There were over 485 conventional apartment communities with more than 50 units surveyed in the Hampton Roads region. Of the 95,000+ apartment units surveyed, the top four firms: S.L. Nusbaum Realty Co., Drucker & Falk, Lawson Companies, and Breeden Management Company, manage one-quarter of these units.

Table XI Top 10 Management Companies S.L. Nusbaum Realty Co.

Lawson Companies Breeden Management Co. Harbor Group Management Bonaventure Group Inc. Kotarides Companies Weinstein Properties

2014 MULTIFAMILY

Drucker & Falk

Franklin Johnston Group Ripley-Heatwole

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REGIONAL TRENDS ROANOKE Roanoke has fewer than 10,000 conventional apartment units among communities of at least 30 units.

Roanokeâ&#x20AC;&#x2122;s apartment market coped better than most markets during the past recession. This was due in large part to the fact that there has been minimal new suburban apartment development in Roanoke over the past several years. Recent development activity has been focused on redevelopment of older commercial/ industrial buildings into rental apartments in and around the downtown area. Occupancy rates in 2013 reached 95.4% with rent averaging $714 per month.

RICHMOND Richmond has over 60,000 conventional apartment units within communities of at least 50 units. The areaâ&#x20AC;&#x2122;s apartments hit bottom in the fourth quarter of 2009 and first quarter of 2010 when occupancies fell to 90% and rents declined by (-3.5%) for the year. Since that time Richmond has seen a strong resurgence in rental demand and occupancies reached 93% in 2013. Rents also showed modest growth over the past year with rents now averaging $907 per month. Developers remain focused on the downtown areas of Richmond with 27 projects underway or planned in the urban core

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2014 Hampton Roads Real Estate Market Review

Southside

Peninsula

Chesapeake Norfolk Portsmouth Suffolk Virginia Beach Isle of Wight

Hampton Newport News York County Williamsburg Poquoson James City

2014 MULTIFAMILY

Multifamily Submarkets

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COMMERCIAL INVESTMENT 2014 HAMPTON ROADS REAL ESTATE MARKET REVIEW

Author

J. Scott Adams, CCIM Regional President, Mid-South Region CBRE|Hampton Roads

Data Analysis

Hardik Barot Senior Research Analyst CBRE|Hampton Roads

Financial Support

The E.V. Williams Center for Real Estate and Economic Development (CREED) functions and reports are funded by donations from CREED members, organizations and individuals.

Disclosure

The data used for this report are deemed reliable; however, neither Old Dominion University, the E.V. Williams Center for Real Estate and Economic Development, nor sponsoring companies and/or individuals make any representation or warranty as to its accuracy.

2014 COMMERCIAL INVESTMENT 81

2014 COMMERCIAL INVESTMENT

General Overview Commercial real estate showed signs of continued recovery in 2013 across all metrics. Vacancy rates across all property types decreased in 2013 and were substantially lower than their peaks during the recent recession. Interest rates remain near historic lows, and investors and lenders continue to show more confidence in the real estate sector. Raymond Torto, Ph.D., CRE, Global Chairman for CBRE Research, recently declared, “Commercial real estate is in a sweet spot right now. It is a highly sought after asset class with improving fundamentals, and for leveraged buyers, a big positive arbitrage”. While the economy still faces headwinds with uncertainty in our nation’s capital, rising health care costs, and other economic factors, tailwinds have been increasing from solid corporate financials, improving housing markets, and improving credit availability and accessibility.

National sales transactions for office, industrial, retail, and multifamily assets increased by nearly 20% year-overyear in 2013 and continued a steady annual increase since 2009 when the post-recession recovery began. The chart below shows that sales volume exceeded $350 billion in 2013.

PROPERTY SALES VOLUME ON THE REBOUND

Source: Real Capital Analytics

Within Hampton Roads, 2013 proved to be a successful year in the investment sales market. CBRE tracked approximately $375 million in sales of assets $5 million or more in the office, industrial, retail, and multifamily property types. Multifamily represented 76% of total sales transactions. This total of sales excludes portfolio acquisitions with assets inside and outside of the Hampton Roads market.

The largest individual sale transaction in the Hampton Roads market in 2013 was the sale of the Bon Secours Health Center, a medical office asset, in Suffolk, Virginia, for approximately $46.5 million.

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The health of the commercial real estate industry begins with the health of the overall U.S. economy. The below chart illustrates that the national economy as measured by Gross Domestic Product (GDP) has grown in 17 of the past 18 quarters. The painful reductions in employment experienced during 2008 and 2009 have begun to dissipate, particularly in higher growth industries such as technology, energy, and health care.

NOW IN 5TH YEAR OF ECONOMIC RECOVERY Quaterly Change in Real GDP, Seasonally Adjusted Annual Rate Q4 2013: 3.2%

6% 4% 2% 0% -2% -4% -6% -8% -10% 2008

2009

2010

2011

2012

2013

Source: U.S. Bureau of Economic Analysis, January 2014.

Even with the sustained positive trend in the economy, job growth has proven difficult and still has not returned more jobs in the four years of recovery than were lost during the two year recession. The below chart shows the relative comparison of job growth since 2010 versus the sharp and painful declines experienced during 2008 and 2009.

STILL NOT WHOLE ON RECOVERY OF LOST JOBS Quarterly average of monthly changes, thousands of persons 300

200

200

100

100 0

0 OCT.-NOV AVERAGE

-100

-100

-200

-200

-300

-300

-400

-400

-500

-500

-600

-600

-700

-700 -800

-800 2007

2008

2009

2010

2011

2012

2013

2014

Source: Bureau of Labor Statistics; Haver Analytics.

2014 COMMERCIAL INVESTMENT

300

While job growth remains a critical measure of real estate market performance, this report will focus on four other factors which help buoy the interest and optimism today in commercial real estate investment.

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2014 COMMERCIAL INVESTMENT

1. REAL ESTATE AS AN ASSET CLASS GETTING MORE INVESTMENT FOCUS Commercial real estate continues to be a highly sought after asset class relative to stocks and bonds. With improving fundamentals across all property types and limited new development, real estate is projected to remain a favorable investment class. The yield on traditional fixed income instruments remains near historical lows, and there are concerns of downside risk to bonds in the likely event of rises in interest rates. While stocks posted a phenomenal return in calendar year 2013, that return was more than double their 10-year average, and there are some concerns that stocks could be at bubble-level valuations.

As the graph below prepared by CBRE Global Research and Consulting shows, commercial real estate continues to post strong returns compared to other asset classes, particularly over a 10-year period. Leveraged real property returns have been over 12% on annualized basis over the last 10 years per the NCREIF Property Index.

ASSET CLASS RETURNS As of Year End 2013 Annualized Returns, % 34 29 24 19 14 9 4 -1 -6 S&P 500 Index

Leveraged Real Property

1 Year (2013)

Unleveraged Real Property

10 Years (2004-2013)

REITs

CPI

90-Day T-Bills

Government Bonds

Note: Order based on 1-year returns.

Source: CBRE Global Research and Consulting, NCREIF Property Index, NAREIT Equity Index, S&P 500 Index, Barclays Capital Government Bond, Consumer Price Index, 90 Day T-Bills

Institutional investors now believe they are under-invested in real estate which could result in greater capital flows into the sector in 2014. According to Cornell Universityâ&#x20AC;&#x2122;s 2013 Institutional Real Estate Allocations Monitor Survey, institutional portfolios are 8.8% invested in real estate, nearly 100 basis points below their average target real estate allocation of 9.8%. A shift in institutional investment choices towards more real estate will help buoy the demand side of the equation for commercial sales.

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2014 Hampton Roads Real Estate Market Review

2. IMPROVING LENDING ENVIRONMENT HELPS BUYERS MAKE MORE DEALS The improving economy and fundamentals across all property types have played a significant role as lenders have showed a willingness to lend on properties in smaller markets and to all five major commercial property types.

Borrowers have also been very cognizant that we are still blessed with a historicallylow interest rate environment.

Source: Federal Reserve Economic Data

Commercial Mortgage Backed Security (CMBS) loans are non-recourse commercial real estate loans which provide a very important service to both borrowers and lenders in commercial real estate transactions. CMBS loans provide borrowers access to the large fixed income capital markets, often with non-recourse, fixed rate, and higher loan-to-value terms that are more advantageous than those available from traditional banks or insurance companies. For lenders, the CMBS structure allows loans to be moved off of the originator’s balance sheet which helps create more opportunity for additional lending that meets standard underwriting criteria.

Dramatic Increase in CMBS Issuance

2014 COMMERCIAL INVESTMENT

CMBS issuance surpassed $85 billion in 2013, a 78% increase from the $48.4 billion in issuance recorded in 2012.

According to a recent National Real Estate Investor article entitled, “CMBS Lenders Start Year on Optimistic Note”, some industry experts expect CMBS volume will reach the $110 to $120 billion range in 2014 which would be another annual increase of 30% or more.

Source: Commercial Mortgage Alert CMBS Market Statistics

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2014 COMMERCIAL INVESTMENT

3. INVESTORS MORE WILLING TO INVEST IN SECONDARY MARKETS With most primary national markets having substantially or fully recovered in pricing relative to the 2007 peak, investor interest has shifted more towards secondary and tertiary metropolitan markets. Investor sentiment has moved from preferring only gateway markets to a broader set of leading markets nationally as investors have started seeking higher yield.

As seen to the left, 2013 sales prices are closer to the 2007 peaks across all property types in major markets, while pricing in secondary and tertiary markets has been climbing less dramatically.

Investors will tend to focus on assets located in markets (primary or otherwise) where demographics and job growth are most favorable and with high quality properties with strong credit tenants.

Source: Real Capital Analytics & Moody’s Investor Service

4. INVESTORS ARE WILLING TO TAKE ON MORE RISK Investors have become more and more comfortable with the economic outlook and have shown a much greater appetite for risk within both primary and other markets. Pricing for high grade core assets has recovered substantially causing investors to search for higher returns by taking on more risk.

The graph to the right, prepared by Cornell University’s Baker Program in Real Estate, shows approximately 60% of institutions pursued higher-yield value-add or opportunistic strategies in 2013, well above the 43% of institutions who focused on lower-yield and less risky core strategies.

Risk Preference in 2013 80% 60% 40% 20% Core

Value-Add

Opportunistic

0%

Source: Institutional Real Estate Allocation Monitor, Cornell University

CONCLUSION Randy Anderson, Ph. D., Head of Americas Research for CBRE, recently stated, “Economic momentum will prompt continued improvements in property market fundamentals, increase capital availability and fuel property transactions in 2014”.

Commercial real estate has established itself as a sound and strategic investment class, and we expect investment volumes to continue to rise both in Hampton Roads and across all national markets with all of the exciting factors underway that have been discussed in this report.

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2014 MARKET REVIEW EXHIBITOR DIRECTORY PRESENTING SPONSOR

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E. V. WILLIAMS CENTER FOR REAL ESTATE AND ECONOMIC DEVELOPMENT

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