Major acquisitions fuel resilient market
Hampton Roads weathered office space disruption of pandemic; 2 big buys helped
A pair of high-dollar transactions have spared Hampton Roads’ office market from many of the worst side effects of the coronavirus pandemic and the shift to remote work.
The area’s office real estate market has had the second-best net absorption rate in the country for the past year. Bucking national trends, the Hampton Roads market has been buoyed by major move-ins and a lack of new construction, according to experts.
“Most office markets around the country experienced negative absorption following the pandemic as companies vacated excess space or transitioned to remote work policies,” said Jonathan Koes, a research manager at Cushman & Wakefield | Thalhimer, in an email.
During the past 12 months, Hampton Road’s net absorption as a share of total inventory was 0.8%. Among the 60 largest markets, only Rochester,
New York (0.9%), ranked higher during that time period. Hampton Roads ranked fifth during the same time period for total net absorption — or the amount of space tenants moved into subtracted by the space tenants vacated — with 425,000 square feet. Pensacola, Florida (838,000 square feet) took the top spot, followed by Durham, North Carolina (794,000 square feet), Boise, Idaho (577,000 square feet) and
Rochester (483,000 square feet).
Two large transactions tipped the scales for Hampton Roads, Koes said. First, TowneBank and Children’s Hospital of The King’s Daughters teamed up to buy the 21-story, 300,000-square-foot office building in downtown Norfolk previously owned by Norfolk Southern for $30 million in June. Then, Ferguson Enterprises completed its eight-story, 260,000-square-foot headquarters a few months later.
TowneBank still plans to use that office space, too. G. Robert Aston Jr., executive chairman, said in-person work was a longterm priority for the regional bank and an essential part of company culture. Right now, he said around half the company’s employees are working remotely and he would like to transition back to office work, with some exceptions, in the next three to four months.
Aston said CHKD has employees working in the office, but TowneBank is still building out the space for its insurance and mortgage operations. He hoped to have all employees moved in by spring of next year.
“We’ll occupy pretty much all the building,” Aston said.
TowneBank will also lease some space to the Hampton Roads Alliance, Aston said.
Along with tenants filling major space, developers aren’t creating any new inventory. No speculative construction broke ground in Hampton Roads in 2020, presenter Deborah Stearns said at the 2021 Hampton Roads Real Estate Market Review & Forecast event in March.
Across the country, the pandemic has led to negative net-absorption and increases in subleasing as companies in tech-heavy metro areas look to unload office space, according to a first quarter market overview from Jones Lang LaSalle. Total sublease availability jumped around 62% from 2020 to 2021 nationally. Tech hubs like San Francisco (-5.4%), and the East Bay (-3.2%) had the worst net absorption rates during the past year.