Increase in CBD demand causes asking rates to rise

Transcription

1 MARKETVIEW Norfolk Office, Q4 16 Increase in CBD demand causes asking rates to rise Rate.2% CBD Rate.1% Asking Rate $18.85 PSF FS (10,707) SF 190,080 SF *Arrows indicate change from previous quarter. Figure 1: and (000s SF) (30) (70) (110) (150) Overall CBD Overall Q2 12 Q4 12 Q2 13 Q4 13 Q2 Q4 Q2 15 Q4 15 Q2 16 Q Source: CBRE Hampton Roads, Q4 16. NORFOLK OFFICE MARKET Downtown Norfolk was the focal point of Hampton Roads market activity throughout 16. The CBD finished 16 with another quarter of solid direct net absorption, bringing its annual total to 421,902 positive sq. ft. The majority of this positive absorption came in the 16, when ADP occupied the entirety of Two Commercial Place, which totals 288,662 sq. ft. This, combined with tenants relocating out of One Commercial Place, as it is redeveloped to multi-family, has caused the downtown market to tighten to its lowest vacancy level since 10, with vacancy reaching.1% during Q4 16. The decrease in vacancy during 16 has created a landlord favorable market in the CBD, which has lead to an increase in downtown rental rates. The lack of available big block spaces, as well as an increase in demand for downtown product, is anticipated to push CBD rental rates higher in the coming quarters. Overall, Norfolk saw average rental rate increase over all three market areas during Q4 16. Other fundamentals were relatively flat during Q4 16, with vacancy remaining unchanged at.2%, while the availability rate decreased basis points (bps) during Q4 16 to 18.0%. Q4 16 CBRE Research 16 CB Richard Ellis of Virginia, Inc. 1

2 CBD OFFICE MARKET SUBURBAN OFFICE MARKET The CBD saw the fourth best leasing activity of the submarkets during Q4 16. Downtown Norfolk experienced 16,730 sq. ft. of positive direct net absorption for the quarter, bringing the annual total to 490,967 sq. ft. during 16. The majority of leasing activity in Q4 16 occurred in Class A buildings, which accounted for 18,843 sq. ft. of positive direct net absorption. The Class B CBD market saw minimal leasing activing during Q4 16, with only 6,237 sq. ft. of positive absorption. Annually however, the Class B assets experienced 354,216 positive sq. ft. of absorption, the most of any asset class across all of the submarkets. This is mostly due to the 288,662 sq. ft. ADP at Two Commercial Place in 16. The Norfolk suburban market saw minimal activity in direct net absorption during Q4 16. Overall, the suburban market experienced 27,437 sq. ft. of negative absorption for Q4 16. The Suburban market saw 29,077 sq. ft. of positive direct net absorption during Q4 16, bringing the annual total to 5,8 sq. ft. The Central Norfolk submarket saw the highest direct net absorption of any submarket in the Hampton Roads area during Q4 16, with 39,193 sq. ft. of positive absorption. On the Peninsula, absorption fell to 56,5 negative sq. ft. during Q4 16. Hampton, the best performing Peninsula submarket in Q4 16, saw 30,124 sq. ft. of positive direct net absorption. The overall CBD vacancy tightened 60 bps in Q4 16 to.1%. Class A vacancy fell 1 bps quarter over quarter to 9.2% in Q4 16, a 400 bps decline from 16. The Class B market saw a similar 50 bps declined in its vacancy rate during Q4 16 to.6%. Downtown availability fell to.6%, down 80 bps from 16 and 240 bps lower than 16. As tenant demand continues to increase, vacancy and availability are expected to continue to tighten in. On the, vacancy remained relatively unchanged, falling bps quarter over quarter to 12.6% in Q4 16. Availability fell 50 bps for the to 16.0% during Q4 16, down 0 bps from 16. The Peninsula market softened during Q4 16, with vacancy climbing 110 bps quarter over quarter to 19.1%. Availability followed suit, ticking up 80 bps to 24.0% during Q4 16. Figure 2: Suburban and Peninsula (000s SF) (50) (100) (150) Q2 12 Q4 12 Q2 13 Q4 13 Q2 Q4 Q2 15 Q4 15 Q2 16 Q4 16 Source: CBRE Hampton Roads, Q Q4 16 CBRE Research 16 CB Richard Ellis of Virginia, Inc. 2

3 Figure 3: Market Overview by Submarket Submarket Market Rentable Area Vacant Rate Avail. Rate 16 Net Absorption YTD Under Gross Avg. Asking Lease Rate ($/SF/Yr) CBD 2,792, , , , Central Norfolk Chesapeake Greenbrier I-64/I-264 Corridor Lynnhaven Area 2,050, , ,193 18, ,411, , ,289 (36,309) 1, ,302, , (10,557) (,958) ,957, , ,778 34, Pembroke 2,833, , (42,907) (45,386) Portsmouth 399, , (12,102) (16,865) -.90 Suffolk 1,368, , (,755), Other Suburban 768,927 66, ,138 48, ,093,761 1,906, ,077 5,8 1, Hampton 2,194, , ,124 31, Newport News Other 531,667 73, (32,752) (32,589) Oyster Point 2,010, , (49,767) (47,384) Williamsburg James City County Suburban Peninsula Norfolk 360,152 74, (4,119) (21,840) 75, ,097, , (56,5) (69,978) 75, ,983,333 3,272, (10,707) 357, , Source: CBRE Hampton Roads, Q4 16. Q4 16 CBRE Research 16 CB Richard Ellis of Virginia, Inc. 3

4 WEIGHTED AVERAGE ASKING RENT Norfolk s office weighted average asking rates rose in all three market areas during Q4 16. Overall, the average asking rate rose $0.09 during Q4 16 to $18.85 per sq. ft. The downtown average asking rate rose to $.63 per sq. ft., up $0. quarter over quarter, as Class B assets climbed 12.0% from 16 to $19.90 per sq. ft. during Q4 16. The s weighted average asking rate rose $0.12 over the quarter to $19.73 per sq. ft. On the Peninsula, the weighted average asking rate rose marginally to $16.49 per sq. ft., up just eight cents from 16. Figure 4: Average Full Service Asking Rental Rents CBD ($/SF) Suburban Peninsula Q4 Q2 Q4 Q2 Q Source: CBRE Hampton Roads, Q4 16. Q2 15 Suburban Market Q4 15 Q2 16 Q4 16 CONSTRUCTION AND DELIVERIES activity remained unchanged from 16, with 190,080 sq. ft. still under construction during Q4 16. Three buildings on the are currently being developed, totaling 150,080 sq. ft., two in the Greenbrier submarket and one in Yorktown. All three are 33.0% pre-leased and expected to deliver to the market between and Q2. Figure 5: & Deliveries 000s SF Source: CBRE Hampton Roads, Q Deliveries Figure 6: Notable Q4 CBRE Office Transactions SF Industry/Asset Type Submarket Transaction Type 100,632 Office Hampton Sublease 75,846 Office Lynnhaven Renewal 53,9 Office Central Norfolk New 27,0 Office Portsmouth Sale Source: CBRE Hampton Roads, Q4 16. Q4 16 CBRE Research 16 CB Richard Ellis of Virginia, Inc. 4

5 The region is commonly referred to as the Hampton Roads area or the Virginia Beach-Norfolk-Newport News, M.S.A. CBRE Research breaks out the overall market into three market areas with two in South Hampton Roads (downtown Norfolk and suburban South Hampton Roads) and one on the Peninsula (with all buildings considered suburban rather than breaking out downtown vs. suburban). The Norfolk Office market, totaling 22.9 million sq. ft., includes 331 buildings,000 sq. ft. or larger. CONTACTS Michael Ettel Financial Analyst & Market Researcher michael.ettel@cbre-norfolk.com CBRE OFFICES CBRE Norfolk 150 West Main Street, Suite 1100 Norfolk, VA Persifor Perry Frazer V Managing or perry.frazer@cbre-norfolk.com CBRE Newport News Jefferson Avenue, Suite 160 Newport News, VA To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.