By Chris Zarpas, Senior Vice President, Partner S.L. Nusbaum Realty Co.
Coastal Virginia’s commercial real estate (CRE) sector thrived in 2024, leveraging regional strengths that spurred population growth for the first time since the pandemic. With more military assets than any MSA in the world and local outposts of seven of the ten largest global defense contractors, the region drew $68.5 billion in defense spending, according to the DOD. Completion of a $450 million dredging project at the Port of Virginia enabled two-way traffic for the world’s largest container ships. A skilled and disciplined labor pool of retired military and world-class logistics infrastructure continue to attract investment. South Korean cable manufacturer LS Greenlink announced it will occupy a $681 million, 750,000-square-foot plant in Chesapeake. The region also boasts a cost of living 5.2% below the national average and a 3.0% unemployment rate, outperforming the national rate of 4.1%.
Following is a summary of regional CRE performance in 2024 with national data for context, and information on three recent events that may significantly impact CRE markets in 2025. Most data cited comes from CoStar, the worldwide leader in CRE information, marketing, and data analytic services, with special insights from Senior Market Analyst Alvin “AJ” Abston, MBA.
Retail
U.S. retail space has declined for decades due to exponential e-commerce growth, high interest rates and construction costs depressing new development. Redevelopment of older strip centers and enclosed malls took many out of inventory. Despite high inflation, national retail sales rose 1.4% YOY in September, even as bankruptcies and closures peaked. Applebee’s, CVS, and Big Lots are set to close 6,200 stores by 2025, but other national retailers are moving into our market such as Habit Burger, Dave’s Hot Chicken, and Chef’Store, a wholesale food and restaurant supplier, and they are quickly filling vacancies. Less retail supply and strong demand drove vacancy down to 4.5% and boosted rent growth to 5%, setting records for Coastal Virginia, where vacancy of 6.8% and rent growth of 1.6% have long been the averages. Rising rents led to national chains displacing independents. Locally, existing national retailers Burlington, Dollar Tree, Goodwill, and Bob’s Discount Furniture drove leasing, signing 204,515 square feet of new or renewed leases.
Industrial
Heavy port traffic, increased defense spending, and metastatic e-commerce growth created a seemingly unquenchable thirst for logistics space. Regional industrial vacancy was 4.2%, 270 basis points below the U.S. average of 6.9%, with YOY rent growth at 3.8%, exceeding the national average of 2.7%. Leasing slowed, with 1.5 million square feet leased in 2024, down from 2.5 million in 2023, and half the 5.3 million square feet in development remain unleased. However, increased defense spending, robust job growth, insatiable online shopaholics, and 30,000 acres of tidal wetlands limiting development should stabilize lease rates. However, aggressive tariff increases proposed by President-elect Trump could disrupt trade and supply chains and escalate industrial vacancy.
Office
Historically, Coastal Virginia’s office market has been stable, with slow but steady growth, and that was true again. Speculative office development is rare here, keeping vacancy at 7.3%, well below the national average of 14.0% and far below Northern Virginia’s average of 17.9%. Also contributing to market stability are state and local government tenants that account for a substantial percentage of space, and a growing Return To Office movement. . Regional rents averaged $22.00 per square foot versus $35.00 nationally, with YOY rent growth slowing to 1%. Only 110,000 square feet of new buildings were delivered, and all were pre-leased or owner-occupied. Among them is the 67,000-square-foot Riverside Williamsburg Family Medicine facility.
Hospitality
Ranked among the top 25 hospitality markets by hotel data aggregator STR, Coastal Virginia benefits from proximity to Richmond, Washington, D.C., and national attractions like Colonial Williamsburg, Kings Dominion, the resort of Virginia Beach, and the Outer Banks beaches. Military installations also drive enormous visitor traffic. Coastal Virginia outperformed national averages in key metrics except for Average Daily Rate, which fell 2.7% YOY versus a 0.1% national decline. Robust development added seven hotels in three years, with five more in the pipeline adding 570 rooms to the market. They include a planned 130-room TownePlace Suites on Military Highway in Norfolk from Shinda Bharij at ARP Hospitality and a 12-story Hampton Inn in Virginia Beach by Neil Amin’s Shamin Hotels, the largest hotel developer in Virginia.
Multifamily
Regional occupancy remained steady in 2024 at 94%, encouraging local developers who delivered over 3,300 units in 2024, surpassing a record of 3,000 set in 2014. Of those, 60% landed in Norfolk and Virginia Beach. Developers believe increasing numbers of newcomers seeking higher quality of life, affordability, and jobs will drive demand. Virginia Beach ranked 8th on the US News and World Report’s “Best Places To Live in the US.” Affordability is evident in the average regional asking rent of $1,517 compared to $2,600 in Northern VA. Chesapeake and Virginia Beach made Wallet Hub’s top 15 “Safest US Cities” list. Jobs are plentiful, with industrial employment growth of 5.2% driven by the Port and $68.5 billion in defense spending, which is expected to grow. However, data suggest that 2025 deliveries will fall to 500 units.
Average rents grew by 2.8%, aligning with the historical 2.9% average but below the five-year peak of 10.9%. York County led regional rents at $1,796, followed by Isle of Wight County and Williamsburg at $1,765 and $1718, the higher average rents due to the lower average age of properties there.
Looking Ahead To 2025
Three recent events or announcements may significantly impact the CRE industry in 2025.
Change in Washington
President Trump’s reelection and a unified Republican Congress could significantly impact CRE markets in 2025 and beyond. Proposed banking, business, and energy deregulation, tax cuts, and a proposed expansion of Opportunity Zones may boost investment. Companies that delayed investment spending due to tax and regulatory uncertainty may now unleash billions in heretofore cloistered cash. Many believe these policies will trigger a soaring recovery of the CRE markets. Others are not so sure.
The President-elect’s proposed 10-20% universal baseline tariff on imports and a 60% tariff on Chinese imports could spike inflation and increase the cost of construction materials. More expensive steel, lumber, concrete and tile could discourage new development. Sweeping deportation could reduce the construction labor pool and increase wages. Such momentous change demands vigilance from CRE professionals, who should be prepared to correct course as the markets evolve.
Revival of Norfolk International Airport
Norfolk International Airport is undergoing a *$920 million improvement plan under CEO Mark Perryman, adding gates and an international arrivals terminal. Under his leadership, the number of airlines has grown to eight, and discussions are ongoing with others. Direct flights are available to 46 cities where once were only 18. These enhancements will make Coastal Virginia more competitive in luring new foreign and domestic employers.
Most importantly, the Airport Authority announced plans to sell 100 acres of surplus land on and off the Airport property. Much of that land will be available for industrial development, a very big deal in a region where the demand for such land far exceeds the supply.
Hampton Roads Economic Alliance – Regional Investment Playbook
“Economic diversity” has long been the goal of local governments. However, a failure of regional cooperation and competition for new employers from vibrant, 24-hour cities like Atlanta, Boston, and Metro DC has made that goal elusive. A soon-to-be-completed “Regional Investment Playbook” from the Hampton Roads Alliance argues that our region should focus on growing our military/industrial/technology complex, our greatest economic asset. The Alliance will work with regional defense contractors to identify those cutting-edge technologies now in development for military applications that may have “dual-use” potential in the consumer product or B2B markets. There are many precedents. Among the innovations first created for military application by the DOD or its defense contractors are the Internet, GPS navigation, the microwave oven, duct tape, cargo pants, tea bags, the Jeep, and Super Glue. Hampton Roads Alliance Chief Business Development Officer Jared Chalk offered this. “The defense and maritime industries are the foundation of our local economy. By leveraging those assets, we can diversify within them by promoting dual-use technologies, which will drive greater long-term economic growth.”
*Erratum: In the print version of this article, the word "billion" was used in error. Our apologies for the mistake.
