THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, January 22, 1996 TAG: 9601200182
SECTION: BUSINESS WEEKLY PAGE: 15 EDITION: FINAL
SERIES: Forecast 1996
SOURCE: STAFF REPORT
LENGTH: Medium: 79 lines
Hampton Roads' empty acres of office space filled last year and the trend should continue in '96, possibly touching off the construction of office buildings on speculation, say commercial property brokers.
As the inventory of big blocks of empty space dwindled last year, Tidewater brokers and public officials turned creative, arranging building space and financial incentives to accommodate new companies moving to the region.
The shortage of space even lead some to complain that Hampton Roads might lose prospects to other cities with more empty space available immediately for companies moving in a hurry.
The construction of speculative buildings, if it happens this year, could help developers attract new jobs to the area as well as boost construction lenders and contractors in the region, where construction employment levels have barely changed. Construction firms employed about 35,500 workers last summer, 1,700 more than a year earlier.
Within the 16.3 million square feet of office space on the Peninsula and the southside are 1.82 million square feet of vacant space in buildings ranked in terms of amenities as Class A and Class B.
The empty space equals six buildings the size of the 21-story NationsBank tower in downtown Norfolk. While that's a lot of empty space, it's a good deal less than at any time since the early '90s, when developers stopped building on speculation, which means construction begins before tenants sign leases.
Hampton Roads' vacancy rate dipped to 11.25 percent in October from 16 percent a year earlier, according to the most recent survey by the Society of Industrial and Office Realtors.
``We absorbed 400,000 square feet last year and that's with the absence of any speculative construction,'' said Deborah K. Stearns, senior vice president of the Norfolk-based real estate firm Goodman Segar Hogan Hoffler.
About three fourths of the square footage absorbed last year reflected new buildings constructed specifically for tenants, including Trans World Airlines, Avis and Panasonic.
``The vacancy rate is at a level that will support new speculative construction, but we need to go up $1 or $2 in the lease rates to be consistent with new construction costs,'' Stearns said. ``I believe we will start to see rental states achieve those higher levels later this year.''
While the cost of constructing a typical three-story office building in Virginia Beach would run about $16 to $17 a square foot, existing office space leases on average for about $14 a square foot in Norfolk's downtown financial district and about $14.50 a square foot on average elsewhere in Tidewater.
Business expansions and relocations to Tidewater should help fill up space, and gradually push up lease rates, encouraging developers to begin speculative construction by year's end, Stearns said,
What also might help push lease rates higher this year in the region is the rapid filling of office space in what was widely regarded as the overbuilt financial district.
Office vacancy rates in downtown Norfolk, site of Hampton Roads' largest concentration of office space, 3.5 million square feet, plunged to 16 percent in December from 21 percent in October, Stearns said.
Coast Guard offices and a New York Times processing center are among the large tenants that located in the financial district.
In a forecast released last week, the Society of Industrial and Office Realtors suggested rental rates this year in Hampton Roads would rise 6 percent to 10 percent on average, with as much as a 15 percent increase outside the financial district. The forecast also called for 6- to 10-percent increases in the absorption rate.
According to Stearns, October office vacancy rates in Hampton Roads were: Pembroke central business district in Virginia Beach, 13.6 percent; Greenbrier district of Chesapeake, 10 percent; Lynnhaven Mall area of Virginia Beach, 7.5 percent; Newtown Road corridor in Norfolk and Virginia Beach, 7 percent; Oyster Point district in Newport News, 6.0 percent; Hampton Roads Center in Hampton, 1.5 percent. ILLUSTRATION: Photo
Real estate manager Deborah Stearns.
KEYWORDS: OFFICE SPACE VACANCY SPACE HAMPTON ROADS COMMERICAL REAL
ESTATE COMMERCIAL PROPERTY by CNB