2013 Hampton Roads Real Estate Market Review

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

E. V. WILLIAMS CENTER FOR REAL ESTATE AND ECONOMIC DEVELOPMENT WWW.ODU.EDU/CREED

BOLD STEPS. BIG THINKING. ANOTHER DAY AT THE OFFICE.

Your only criteria for selecting a law ďŹ rm should be its commitment to do all the right things to help you succeed. We can. And we will.

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

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 Message From The Director

BUSINESS MANAGER Debbi Wilson Inside Business 150 W Brambleton Avenue Norfolk, Virginia 23510 757.222.5353

13 Hampton Roads Industrial Market Survey 27 Hampton Roads Office Market Survey 43 Hampton Roads Residential Market Survey 59 Hampton Roads Multifamily Market Survey 71 Hampton Roads Retail Market Survey

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 — 2012

Hampton Roads Real Estate Investment Review

83

M E S S A G E

F R O M

elcome and thank you for joining us for the 2013 Old Dominion University E. V. Williams Center for Real Estate and Economic Development (CREED) Hampton Roads Real Estate Market Review and Forecast. This is our 18th 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. Indeed, 2013 is gearing up to be the most productive programming year in CREED’s history. 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.

For example, our Residential Market Review held in the fall featured Professor Mike Seiler, the Robert M. Stanton Chair of Real Estate and Economic Development and the Director and Founder of the Institute for Behavioral and Experimental Real Estate (IBERE), the Old Dominion University Forecasting Research Team of Professor Vinod Agarwal and Professor Gary Wagner, Van Rose, President of Rose and Womble New Homes Division, and Dwight D. Dunton III, President and Founder of Bonaventure Realty Group, LLC, to discuss the current state of residential real estate research and trends.

Another example is our ongoing partnership with the

local chapter of the Urban Land Institute, in addition to many other regional industry partners, in growing awareness of the importance of sustainable and effective planning for our region’s projected growth for the next 25 years.

4

2013 Hampton Roads Real Estate Market Review

T H E

D I R E C T O R

Our student centered activities include the annual CREED Scholarship Tennis Pro-AM event held on campus at the Folkes-Stevens Tennis Center providing funding for student scholarships.

We have also

partnered with HRACRE to host annually a student mentoring roundtable and we continue to feature industry leaders as guest speakers for student organizations. Moreover, Skip Sacks provides students with a survey course on commercial real estate that features guest lecturers and real world project studies and site visits.

Some of these participating students are now providing their time and talents as full time employees in our industry.

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 get 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. Special thanks to Craig Cope, Brian Dundon, and Billy King for their long time service to the leadership of CREED and who were instrumental in moving CREED forward. Also, please welcome our newest Executive Committee members Larry Colorito, Brian Devlin, Tom Elder, Worth Remick, and Steven Wright, whose influence is sure to strengthen our activity. Lastly, a very special thanks to Kyllie Brinkley Bullion and Stephanie Sanker for their tireless support and vision of CREED’s future.

Your continued support is sincerely appreciated.

John R. Lombard, Ph.D.

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

5

MISSION OF CREED &%5(_+DPSWRQ 5RDGV DJHQWV FRPSOHWHG RYHU 0,//,21 LQ VDOH WUDQVDFWLRQV DQG 0,//,21 VTXDUH IHHW RI OHDVLQJ WUDQVDFWLRQV LQ $ IHZ PLOOLRQ UHDVRQV ZK\ &%5( FRQWLQXHV WR EH WKH FRPPHUFLDO UHDO HVWDWH LQGXVWU\ OHDGHU LQ +DPSWRQ 5RDGV : 0DLQ 6WUHHW 6XLWH 1RUIRON 9$

ZZZ FEUH FRP QRUIRON

LQ FRPPHUFLDO UHDO HVWDWH ZRUOGZLGH

The E.V. Williams Center for Real Estate and Economic

Development

at

Old

Dominion University (ODU) is a member-based organization whose mission is to connect the multidisciplinary

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

-HIIHUVRQ $YHQXH 6XLWH 1HZSRUW 1HZV 9$

ZZZ FEUH FRP QHZSRUWQHZV

(CREED)

communities.

Through the

application of technical resources, modeling and simulation, event programming, and publications, CREED partners with its members, alumni and business leaders to facilitate the advancement

L O O K I N G F O R CO M M E R C I A L R E A L E S TAT E I N T H E H A M P T O N R OA D S A R E A?

LOOK TO US FIRST.

of land planning and development initiatives. As a 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 Brinkley Bullion 757.683.5352 or kbrinkle@odu.edu

First Potomac is the area’s commercial real estate leader. Put our knowledge and experience to work for you. And discover a level of service that’s second to none.

1545 Crossways Boulevard Suite 200 Chesapeake, VA 23320

TEL 757.424.8844 www.first-potomac.com

6

2013 Hampton Roads Real Estate Market Review

2013 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 Brinkley Bullion

Market Review Committee Industrial............................... William C. Throne and ............................................. Stephanie Sanker Office.................................... Maureen Rooks Retail.................................... David Machupa ............................................. Kyllie Brinkley Bullion ............................................. David Chapman Multifamily............................. Charles Dalton/Real Data Residential............................ Blair Hardesty Belliveau ............................................. Cameron Brown ............................................. Van Rose Real Estate Investment ......... Tony Beck

Research/Editorial Committee Kyllie Brinkley Bullion 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 Brinkley 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

7

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 2013 SPONSORS

8

2013 Hampton Roads Real Estate Market Review

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

Burrell F. Saunders Lyall Design Architects

Jon S. Wheeler Wheeler Interests

Harrison J. Perrine Perrine Investments

Reese Smith Reese Smith & Associates

Robert T. Williams Tri-City Developers, LLC

Don Perry Continental Development

Tony Smith Robinson Development Group

Steven Wright City of Chesapeake Economic Development

Victor L. Pickett Grandbridge Real Estate Capital, LLC

Deborah K. Stearns, CPM, SIOR Jones Lang LaSalle

Thomas E. Robinson Robinson Development Group

Richard Thurmond William E. Wood & Associates

Bradley R. Sanford, MAI Dominion Realty Advisors

9

CREED COUNCIL MEMBERS J. Scott Adams CB Richard Ellis|Hampton Roads

Laura B. de Graaf Bank of America Merrill Lynch

Dorcas T Helfant-Browning DTH Properties, LLC

Tom Atherton Atherton Real Estate Development

Tom Dillon StellarOne Bank

Charles Hutchison Vanasse Hangen Brustlin, Inc.

Judy Boone Judy Boone Realty

Michael Divaris Divaris Real Estate, Inc.

Michael A. Inman Inman & Strickler, P.L.C.

Stewart Buckle, II The Morgan Real Estate Group

Helen Dragas The Dragas Companies

Candi James HBA Architecture & Interior Design, Inc.

M. Albert Carmichael Harvey Lindsay Commercial Real Estate

Brian Dundon Dundon & Associates

Jamie Clark Colliers International

Tom Elder Hampton Roads Economic Development Alliance

W. Page Cockrell Hurt & Proffitt

Sandra Ferebee GSH Residential Sales

David Collier First Atlantic Restoration

Bart Frye, Jr. Frye Properties, Inc

Lawrence J. Colorito, Jr , MAI Axial Advisory Group, LLC

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

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 Kim Curtis Tidewater Home Funding William G. Darden Hearndon Construction Co.

10

Cherie James Cherie James, CPA

Mallory Kahler City of Portsmouth Economic Development E. Andrew Keeney Kaufman & Canoles, P.C.

Howard E. Gordon Williams Mullen Dennis W. Gruelle Appraisal Consultation Group Elizabeth O. Hancock Office of Real Estate Assessor, Norfolk

R. I. King, II Cushman & Wakefield | THALHIMER William E. King, SIOR Harvey Lindsay Commercial Real Estate April Koleszar Koleszar Properties, Inc. Barry M. Kornblau Summit Realty Group, Inc.

Russell G. Hanson, Jr. Hanson Capital, LLC Carl Hardee Lawson Realty Corporation John Harry John C. Harry, Inc.

Terry Johnson Abbitt Realty

Joy Learn Fulton Bank Tyler Leinbach Meredith Construction Company

2013 Hampton Roads Real Estate Market Review

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

M. B. Mike Mausteller, Jr. Harvey Lindsay Commercial Real Estate

Robert J. Ruhl City of Virginia Beach Economic Development

G. Cliff Moore Virtexco Corporation

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

Michael Nice George Nice and Sons, Inc.

Robert M. Sherman III, CPM Harrison & Lear, Inc.

Thomas O’Grady Clancy & Theys Construction

Kenneth Sisk, P.E. Bowman Consulting Group

James N. Owens, CCIM Harvey Lindsay Commercial Real Estate

Anthony W. Smith Robinson Development Group

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

Robert L. Philips, Jr. Cushman & Wakefield|THALHIMER Chris Read CB Richard Ellis|Hampton Roads 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

Robert M. Stanton Stanton Partners, Inc. Jeremy R. Starkey Monarch Bank Commercial Real Estate Finance/Monarch Capital, LLC 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 Michael P. Zarpas Global Real Estate Investment Inc.

Michael Sykes Bank of Hampton Roads

11

DRIVING CLIENT VALUE BY DELIVERING THE RIGHT REAL ESTATE SOLUTION.

Our team is known and trusted by those who shape Hampton Roads’ future.

Our in-depth knowledge spans the full range of leasing, sales, asset management and property management services in ofďŹ ce, retail, industrial, investment and commercial enterprises. Get to know us. We’re the go-to team that can make it happen.

A Tradition of Forward Thinking

8KTIKPKC $GCEJ ^ 0GYRQTV 0GYU

12

harveylindsay.com | 757-640-8700

2013 Hampton Roads Real Estate Market Review

2013

RETAIL

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

Author

David Machupa Cushman & Wakefield | THALHIMER

Survey Collection

Kyllie Brinkley 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 IPAC and Council Advisory Boards, 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 makes any representation or warranty as to its accuracy.

2013 RETAIL 13

2 0 1 3 R E TA I L

General Overview his report analyzes the 2012 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 2012.

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 2012 and January 2013. 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.

14

2013 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

2013 RETAIL

Neighborhood Center

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.

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.

15

2 0 1 3 R E TA I L

YEAR IN REVIEW The Hampton Roads market is in a gradual recovery. At the end of 2011 we saw economic indicators and trends that lead us to believe the gradual recovery would continue, and continue it did in 2012. On a national level, the retail market improved, and it also did, here in Hampton Roads. There was less culling of the herd amongst retailers this past year and, as such, less occupied retail came back to market. The financing market is making its way back as well. While not as robust as at the peak of the market, financing is available and lenders are actively looking for opportunities. A disconnect still 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 this past year. With a decreasing vacancy rate, we witnessed an increase in the average asking rents across Hampton Roads and renewed tenant interest in the market. We ended 2011 cautiously optimistic as we moved in 2012, and do so again entering 2013.

Fortunately, 2012 brought increased activity from various mid-size and big box users. WalMart was under construction with a new Super Center in Newport News along with several of the smaller Neighborhood Market concepts. Bally’s went bankrupt and their locations were backfilled; Harris Teeter opened in Portsmouth and signed a lease and announced a new Wards Corner location in Norfolk; Kroger became aggressive and purchased the former Super KMart location on Holland Road in Virginia Beach and is currently under construction with their 124,000 square foot concept. Additionally, Kroger is under contract in various cities across Hampton Roads, including Portsmouth and Suffolk. Target opened on the backside of Pembroke Mall and was a catalyst for Off Broadway to join them there; Hampton Roads welcomed its first Whole Foods in the Hilltop area of Virginia Beach; Dave and Busters announced at Lynnhaven Mall; Urban Outfitters opened in Downtown Norfolk; and 7-11 made a push by acquiring existing gas stations and rebranding. Cookout entered the market with locations in Newport News, Norfolk, and Portsmouth, and is under contract in Chesapeake. Starbucks added three new locations to the market and continues to expand and develop sites. Settler’s Market in Williamsburg is again pushing dirt for the mid box retailers that expressed an interest when the project initially started. This activity speaks well regarding the direction of the market.

There has been a bit of downside concerning retailers as some continue to struggle on a national level, and some of the Hampton Roads locations are impacted. Sears closed the Military Highway location in 2012; Blockbuster announced the closing of four out of five remaining stores in Hampton Roads; but, on a larger scale, there is concern about Sears and Kmart on a national level, Best Buy continues to struggle as more and more electronics sales are lost to the internet, JCPenney miscalculated with a new pricing policy and chased customers away from an already struggling concept. Barnes and Noble continues to be impacted by electronic books and the office product sector as a whole is downsizing stores. These retailers may impact the market due to their inability to adapt to the new retail reality.

Hampton Roads is improving and at a pace that we realistically expected. One concern for the retail market is how the military will be impacted by the new budget cutbacks and how those cutbacks will be felt by the retailers. Retailers have flourished in the market because of a stable military presence and Hampton Roads is home to almost 100,000 military personnel. Having said that, it is expected that the market will continue to improve and outperform 2012.

16

2013 Hampton Roads Real Estate Market Review

HAMPTON ROADS MARKET SURVEY The Hampton Roads retail market contains approximately 53,456,802 square feet of gross leasable area (“GLA�) in 424 properties with an average asking rental rate of $15.96 triple net. The US Census Bureau indicates the population of Hampton Roads is approximately 1.7 million, resulting in a 31.45 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 34,924,153 square feet, roughly 66% of the total square footage in the market, in 286 properties. The average asking rent for small shop space increased $.33 over 2011 numbers to $16.36 triple net. The increase in rental rates can be attributed to the increase in demand as vacancy rates reduced to 6.31% in 2012 from 7.42% in 2011.

While 57,442 square feet of new construction came on line in 2012, we have significant amounts of new construction coming in 2013.

The Peninsula also experienced some mixed changes this past year. The 138 properties on the Peninsula that were surveyed combined for 18,532,649 square feet of product. Although the average asking price of small shop space decreased by $.22 to $15.06 per square foot triple net, we did witness a slight increase in the vacancy rate on the Peninsula. The vacancy rate increased .22% to 10.73%; however, activity and interest in the Peninsula market is strong in the first quarter of 2013. The Williamsburg submarket saw stabilization of some newer projects that suffered during the recession.

2013 RETAIL

In 2012, the Hampton Roads market continued its gradual recovery. The overall 8.51% vacancy rate in 2011 gave way to a vacancy rate of 7.85% in 2012 as landlords and tenants continue to get creative in the deal making process. Retailers are repositioning themselves within the market creating new developments as well as second generation opportunities. Unlike years past, the market was not saturated with retail product due to mass store closings. Having said that, there are a few retailers that we are watching carefully as it appears the retailers’ life cycles are coming to an end. Hampton Roads should continue the gradual recovery as landlords continue to aggressively pursue leases. While we will face challenges in 2013, retail sales are up, consumer demand is up, supply is slowly reducing and tenants continue to express interest in the Hampton Roads market.

We move forward acknowledging that 2013 is trending in the right direction. We will see the size of the overall market increase due to grocery store expansion as multiple new centers are currently under construction or in the pre-leasing stage. We have consistently stated that the recovery will be slow and gradual, and 2012 numbers reflect that projection. As supply continues to be absorbed, we will see rental rates gradually increase. Just three short years ago, the Hampton Roads retail market had a vacancy rate just under 10% compared to 7.85% in 2012.

17

2 0 1 3 R E TA I L Market Overview Table Number of Properties

2013 Southside 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

18

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

286 138 424 279 138 417 274 138 412 273 136 409 265 133 398 263 133 396 259 131 390 246 129 375 243 125 368 243 127 370 245 126 371 239 123 362 230 121 351 220 118 338 208 112 320 195 102 297

GLA in SF

Vacant SF

% Vacant

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 25,463,588 12,952,845 38,416,433

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 2,886,635 1,601,455 4,488,090

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% 11.34% 12.36% 11.68%

New Construction in SF 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 No Data No Data No Data

Occupied in SF 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 22,576,953 11,351,390 33,928,343

Absorption in SF 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 No Data No Data No Data

2013 Hampton Roads Real Estate Market Review

SOUTHSIDE SUBMARKETS There are 25 retail submarkets on the Southside this year. The average size of a typical submarket is 1,396,966 square feet. The Hilltop submarket had a strong performance in 2012 with vacancy decreasing from 8.58% in 2011 to 3.27% in 2012, and average small shop rents increasing from $20.83 to $21.14 per square foot, which is the highest asking rent of all Southside submarkets.

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

SOUTHSIDE BY SUBMARKET

GLA in SF

Vacant SF

% Vacant

Small Shop Rate PSF

6 5 6 12 17 8 4 9 18 26 13 10 4 12 17 12 8 15 16 11 1 22 14 5 15 286

304,258 201,350 332,921 2,294,809 1,996,260 1,520,256 1,329,283 396,454 1,383,063 4,287,237 1,604,624 853,000 484,281 1,216,659 1,762,977 1,459,428 1,822,451 1,770,272 3,252,612 579,332 49,875 2,777,253 1,750,498 281,150 1,213,850 34,924,153

20,702 1,294 85,015 75,544 49,225 47,340 29,675 32,324 132,429 205,178 52,406 73,505 80,815 141,780 169,827 18,745 173,347 196,856 95,631 90,479 5,220 262,334 61,898 11,050 93,995 2,206,614

6.80% 0.64% 25.54% 3.29% 2.47% 3.11% 2.23% 8.15% 9.58% 4.79% 3.27% 8.62% 16.69% 11.65% 9.63% 1.28% 9.51% 11.12% 2.94% 15.62% 10.47% 9.45% 3.54% 3.93% 7.74% 6.32%

$18.00 $13.96 $12.39 $17.33 $17.13 $19.81 $14.17 $18.06 $16.17 $19.66 $21.14 $13.63 $12.42 $15.42 $15.31 $16.61 $17.60 $12.33 $12.78 $12.60 $21.00 $17.13 $17.85 $16.00 $16.62 $16.36

2013 RETAIL

BAY FRONT BIRDNECK/OCEANFRONT CAMPOSTELLA CHESAPEAKE SQUARE CHURCHLAND-PORTSMOUTH/HARBORVIEW DAM NECK DOWNTOWN GHENT GREAT BRIDGE GREENBRIER/BATTLEFIELD BOULEVARD HILLTOP/GREAT NECK HOLLAND/GREEN RUN INDIAN RIVER/COLLEGE PARK (Including Chesapeake) KEMPSVILLE LITTLE CREEK ROAD /WARDS CORNER/OCEAN VIEW LITTLE NECK LYNNHAVEN ROAD (Virginia Beach Boulevard to Holland Road) MIDDLE PORTSMOUTH MILITARY HIGHWAY/JANAF NEWTOWN ODU PEMBROKE PRINCESS ANNE ROAD (From Kempsville Road to Holland Road) SMITHFIELD SUFFOLK Total

Average Number of Properties

19

2 0 1 3 R E TA I L

PENINSULA SUBMARKETS There are 10 retail submarkets on the Peninsula with an average size of 1,853,264 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 3.6%. 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) 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 2 12 31 2 33 12 138

4,051,110 1,785,033 687,014 894,676 118,972 1,021,071 4,374,256 108,521 4,652,273 839,723 18,532,649

492,006 425,040 37,431 68,664 19,470 169,297 157,511 20,169 524,805 74,635 1,989,028

12.14% 23.81% 5.45% 7.67% 16.37% 16.58% 3.60% 18.59% 11.28% 8.89% 10.73%

$16.80 $11.65 $12.80 $14.38 $10.75 $9.81 $17.08 $13.50 $18.52 $14.41 $15.06

RETAIL PRODUCT TYPE The Neighborhood Center remains the predominant product type with 175 properties containing 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 rates and an increase in rental rates.

20

2013 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

12,356,971 9,834,621 1,539,686 11,405,839 100,000 349,927 2,405,077 7,746,040 7,718,641 53,456,802

36,000 21,442 6,576 64,018

1,399,583 852,071 108,648 768,636 287,107 346,862 432,735 4,195,642

11.33% 8.66% 7.06% 6.74% No data No data 11.94% 4.48% 5.61% 7.85%

Number of Properties

GLA in SF

New Construction in SF

Vacant SF

% Vacant

127 36 8 22 1 44 41 7 286

8,966,072 6,074,826 1,056,686 7,225,330 100,000 1,572,327 4,279,267 5,649,645 34,924,153

36,000 21,442 57,442

1,069,086 344,382 53,681 250,904 162,047 13,450 313,064 2,206,614

11.92% 5.67% 5.08% 3.47% No data No data 10.31% 0.31% 5.54% 6.32%

Number of Properties

GLA in SF

New Construction in SF

Vacant SF

% Vacant

48 21 2 10 1 20 33 3 138

3,390,899 3,759,795 483,000 4,180,509 349,927 832,750 3,466,773 2,068,996 18,532,649

6,576 6,576

330,497 507,689 54,967 517,732 125,060 333,412 119,671 1,989,028

9.75% 13.50% 11.38% 12.38% No data No data 15.02% 9.62% 5.78% 10.73%

Number of Properties 175 57 10 32 1 1 64 74 10 424

Average Small Shop Average Rate PSF CAM PSF $15.05 $15.69 $24.33 $20.23 No data No data $15.67 $13.06 $20.50 $15.96

$2.72 $2.47 $3.77 $3.59 No data No data $2.96 $3.45 $17.75 $2.83

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 $15.49 $16.00 $24.13 $19.88 No data No data $16.03 $14.50 $20.50 $16.36

$2.71 $2.47 $3.77 $3.59 No data No data $2.96 $3.45 $18.86 $2.92

2013 RETAIL

Peninsula 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 $13.90 $15.17 $26.00 $20.95 No data No data $14.95 $11.25 No data $15.06

$2.26 $2.41 $5.40 $2.88 No data No data $2.46 $2.38 $17.75 $2.61

21

2 0 1 3 R E TA I L

BIG BOX VACANCY Big Box vacancy in 2012 slightly decreased in the Hampton Roads market. Having said that, there is concern with several big box retailers and the region may see product in the big box category increase dramatically as retailers such as Sears, Kmart, Best Buy, Barnes and Noble, JCPenney, and the entire office supply sector struggle to keep stores open. The 1,589,630 square feet of vacant space represents 38% 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

Big Box Vacancy Southside 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1,607,323 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 Peninsula 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1,232,255 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 TOTAL 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2,839,578 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

22

2013 Hampton Roads Real Estate Market Review

Retail Submarkets 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

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 Chic’s Beach Shopping Center Kroger Kroger Shops Lake Shores Plaza Shopping Center Marina Shores

A A H A A G

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

Planet Fitness Plaza Poplar Hill Plaza Sterling Creek Town Point Square Victory Crossing

A B A A D

52,966 102,326 75,660 58,989 500,000

DAM NECK 2236 General Booth Blvd Dam Neck Crossing Dam Neck Square General Booth Plaza Red Mill Commons Red Mill Walk Sandbridge SC Strawbridge Marketplace

A B A A D B A A

11,500 138,571 67,917 71,639 750,000 240,000 66,800 173,829

DOWNTOWN Berkley Center Church Street Crossing MacArthur Center Mall

A A I

47,945 51,000 1,100,000 130,338

A G A A G H C G G

15,616 21,000 139,081 44,585 13,000 27,000 78,669 37,503 20,000

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

278,023 35,659 46,000 17,700 68,970 73,103 63,733 73,859 156,937 100,560 21,505 82,000 16,930 112,021 34,180 52,500 9,760 139,623

Waterside Festival Marketplace I

BIRDNECK/OCEANFRONT Birdneck SC Farm Fresh Harris Teeter Linkhorn Shops Pacific Plaza

A H H A A

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

CAMPOSTELLA Atlantic Commons Bainbridge Marketplace Campostella Corner George Washington Commons Holly Point SC Southgate Plaza

A A A A A A

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

CHESAPEAKE SQUARE BJ’s Castle Shops Chesapeake Center Chesapeake Square Mall Chesapeake Square Shops Crossroads Center at Chesapeake Square Food Lion @ Chesp Sq Home Depot Lowes Shops at Chesapeake Square Taylor Road Plaza Wal-Mart Supercenter/Sam’s Club

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

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

CHURCHLAND-PORTSMOUTH/HARBORVIEW Academy Crossing G Churchland Place Shoppes G Churchland SC A Churchland Square A College Parkway Crossing at Harbour View A Grand H Harbor View Shoppes A Harbour View East D Harbour View Marketplace D Harbourview Station East D Harbourview Station West D Marketplace Square A

24

45,483 21,000 149,741 72,189 86,130 30,000 17,000 172,000 300,000 217,308 83,007 12,461

GHENT 201 Twenty One 21st Street Pavilion Center Shops Colley Village Ghent Place Harris Teeter Palace Shops I, II Palace Station The Corner Shops GREAT BRIDGE Cahoon Commons Cedar Lakes Center Centerville Crossing Country Club Shoppes Crossings at Deep Creek Dominion Marketplace Dominion Plaza SC Glenwood Square Great Bridge SC Hanbury Village Harbor Watch Shoppes Las Gaviotas Millwood Plaza Mt Pleasant Shopping Center

Mt Pleasant Village Wilson Village Woodford Shoppes Woodford Square

GREENBRIER/BATTLEFIELD BOULEVARD Battlefield Marketplace G Chesapeake Crossing B Country Club Square H Crossways Ctr I & Eden Way Shops D Crossways II D Edinburgh Commons D Edinburgh East D Gainsborough Square A Greenbrier Mall I

30,000 287,679 12,600 438,725 152,686 184,232 133,000 88,862 899,665

Greenbrier Market Center Greenbrier Shops Greenbrier South SC Home Depot K-Mart/OfficeMax Knell’s Ridge Square Lowes Orchard Square Parkview @ Greenbrier Plantation Woods Regal Cinemas The Shoppes at Greenbrier Towne Place at Greenbrier Village Square Volvo Parkway SC Wal-Mart Way Crossing Wal-Mart/Sam’s Club/Kohl’s

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

487,580 37,500 97,500 130,060 165,000 40,000 114,000 88,910 83,711 16,800 60,763 40,000 127,109 15,000 41,874 80,160 433,821

HILLTOP/GREAT NECK Great Neck Square Great Neck Village Hilltop East Hilltop North Hilltop Plaza Hilltop Square Hilltop West La Promenade Marketplace at Hilltop Mill Dam Crossing Regency Hilltop Renaissance Place Target

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

93,887 73,736 144,100 202,511 152,025 270,093 60,000 63,280 113,000 25,776 236,549 47,667 122,000

HOLLAND/GREEN RUN Auburn Place Chimney Hill Green Run Square Holland Plaza SC Holland Windsor Crossing Lowes Lynnhaven Green Rosemont Center Shipps Corner Timberlake SC

A B A A B H A A A A

42,709 207,175 75,000 155,000 47,400 125,323 50,838 12,700 63,355 73,500

INDIAN RIVER/COLLEGE PARK (Including Chesapeake) College Park I & II B Indian River Plaza B Indian River SC A Tidewater Plaza A

183,874 126,017 123,752 50,638

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

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

97,006 239,763 25,929 62,507 245,268 94,477 60,778 26,602 135,915 26,100 50,000 152,314

LITTLE CREEK ROAD /WARDS CORNER/OCEAN VIEW Ames/Kroger B 140,568 Dollar Tree Shopping Center A 51,415 East Beach Marketplace B 202,000 East Beach Shoppes A 63,000 Farm Fresh - Little Creek H 66,120 Glenwood Shoppes A 53,255 Little Creek and Tidewater Shops B 119,820 Little Creek Square A 82,300 Meadowbrook S C G 27,260 Mid-Town A 75,768 Mid-Way SC G 31,000 Ocean View SC A 73,658 Roosevelt Gardens SC A 109,175 Southern Shopping Center B 243,264 Super Wal-Mart H 225,000 Wards Corner Strip A 61,540 Wedgewood SC A 137,834 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 A H H B H A G B C G D

358,635 23,625 130,060 45,000 114,584 160,000 13,326 36,900 191,136 77,558 60,000 248,604

LYNNHAVEN ROAD (Virginia Beach Boulevard to Holland Road) Lynnhaven Crossing G 55,550 Lynnhaven East B 97,303 Lynnhaven Mall I 1,293,100 Lynnhaven North B 176,254 Lynnshores Shopping Center G 12,692 Lynnway Place G 30,213 Parkway Plaza G 44,227 Wal-Mart H 113,112 MIDDLE PORTSMOUTH Afton SC Airline Marketplace Airline Plaza Alexander’s Corner Shopping Center Elmhurst Square

A A A A A

106,500 69,000 99,549 50,826 66,250

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 MILITARY HIGHWAY/JANAF 3455 Azalea Garden Road Best Square 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 NEWTOWN Cypress Point Diamond Springs N (Shopping Center) Diamond Springs Shoppes Newpointe SC Newtown Baker Crossing Newtown Center Newtown Convenience Center Northampton Business Center Thomas Corner SC Weblin Square Wesleyan Commons Shopping Center ODU First Floor Retail Shops at University Village Apartments 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 Loehmann’s Plaza

G G G A A H A D A B

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

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

1,024 140,030 205,417 67,790 110,000 115,854 60,000 41,000 35,000 878,381 115,000 192,000 10,061 200,000 224,513 856,542

A A H A A G G G G G

117,958 23,880 18,840 92,978 91,687 19,876 19,800 85,000 23,557 31,552

A

54,204

G

49,875

A H A A

69,700 45,000 123,870 63,000

E D H B H H B H G C

100,000 140,000 165,000 150,000 34,000 55,000 165,000 228,000 22,827 139,380

Northern Super Center Pembroke East Pembroke Mall Pembroke Meadows SC Pembroke Place Pembroke Plaza Roomstore The Town Center of Virginia Beach

G B I A B G H

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

C

313,590

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 SMITHFIELD Cypress Run SC Eagle Harbor Shoppes at Eagle Harbor Smithfield Plaza Smithfield Square SUFFOLK Bennetts Creek Crossing Bennetts Creek Food Lion Centerbrooke Village Creekside Village Holland Plaza Kensington Square Lowes Mattress Discounters Plaza Oak Ridge Suffolk Plaza Suffolk Plaza West Suffolk Shopping Center Suffolk Specialty Shops Suffolk Village SC Wal-Mart Super Center

254,197 122,000 130,000 71,460 505,766 22,933 64,820 88,107 209,500 84,725 92,316 42,087 37,087 25,500

G A

25,000 77,400

A B A

24,386 89,120 65,244

A

119,812

A A A A A H

64,544 12,600 18,835 9,345 66,421 150,000

A A B A B G G H

59,892 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 Goodwill Store & Warehouse Hampton Towne Centre Hampton Woods Home Depot Newmarket South Peninsula Towncenter Riverdale Plaza Sports Authority 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 FOXHILL/BUCKROE/EAST MERCURY Buckroe SC Farm Fresh Phoebus Kmart Langley Square Marketplace @ Nickerson Nickerson Plaza Willow Oaks Village Square S C GLOUCESTER Food Lion Hayes Plaza SC Hayes SC Home Depot Lowe’s Shoppes at Gloucester Wal-Mart Super Center York River Crossing HAMPTON MISC Kecoughtan SC The Shops at Hampton Harbor

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

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

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

A H H A A A B

76,000 39,000 94,500 120,646 75,850 83,849 197,169

H A A H H B H B

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

A G

64,327 54,645

NEWMARKET/MAIN (TO INCLUDE HAMPTON) 4113 W Mercury Blvd H 4205 W Mercury Blvd H Brentwood SC A

26

49,770 28,080 53,600

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

G B A B A G B A A

35,000 150,000 55,865 173,199 74,000 58,780 117,377 150,000 75,400

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 Jefferson Plaza D 178,200 Kroger H 55,000 Lowes H 120,000 Market Place at 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 at Kiln Creek A 78,000 Village Square at Kiln Creek B 263,000 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 Ewell Station Festival Marketplace Gallery Shops Governor’s Green SC Home Depot James York Plaza Kingsgate Green Lowes Marketplace Shoppes

A A G G A H B B H G

66,806 68,048 16,216 18,187 100,000 130,000 137,708 138,348 163,000 32,026

Marketplace Shopping Center A Monticello Marketplace B Monticello SC A New Town Shops on Main C Norge Crossing H Olde Towne SC G Prime Outlets F Quarterpath Crossing A Settlers Market at New Town B 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

36,000 299,792 82,000 253,000 52,000 30,000 349,927 85,600 37,051 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

183,403 48,720 23,900

INDUSTRIAL

2013 HAMPTON ROADS R E A L E S TAT E MARKET REVIEW

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

Data Preparation

Stephanie Sanker, SIOR, CCIM 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 and 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 Phillips Oakland/Upper Peninsula Area............................. Clay Culbreth Williamsburg Extended Area................................. Bobby Phillips

Financial Support

The E. V. Williams Center for Real Estate and Economic Development (CREED) functions and reports are funded by donations from the CREED IPAC and Council Advisory Boards, 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 makes any representation or warranty as to its accuracy.

27

2013 INDUSTRIAL

Author

2013 INDUSTRIAL

General Overview his report analyzes the 2012 industrial real estate conditions

within

the

Virginia

Beach-Norfolk-

Newport 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, in addition to the counties of Gloucester, James City, York and Isle of Wight.

METHODOLOGY The 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 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 as 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, 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

2013 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 2012) indicate that the Hampton Roads industrial market currently encompasses 107,695,634 square feet or 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.

INTRODUCTION The market in 2012 made no appreciable gains year-over-year in comparison to 2011. Vacancy rates showed a tepid .65% improvement from last year’s 12.12% rate.

Only six out of the sixteen submarkets actually decreased vacancy rates. The remaining ten submarkets increased vacancy in 2012.

Submarket

Vacancy Reduction

Greenbrier

-.16%

Suffolk

-1.03%

Norfolk Commerce

-1.11%

Oyster Point

-4.15%

Lynnhaven

-8.07%

Isle of Wight

-13.13%

In total, 712,017 square feet was absorbed, total industrial square footage was 107,695,634 square feet for both the Southside and the Peninsula markets.

It appears the vacancy rate peaked in 2009 at 12.94%, with a gradual descent in the years following.

The Hampton Roads industrial vacancy has remained above 11% for the last five years.

2013 INDUSTRIAL

The trend line looks positive, with an average .5% increase in each of the last three years. About 3.9 million square feet have been added to market total since 2007, but the market has lost over 1 million square feet since 2009.

It would appear the market has reached something of a balance, with supply and demand close to equilibrium.

13.00% 100,010,000

11.00% 9.00%

80,010,000

7.00%

50,010,000

5.00%

40,010,000

3.00%

20,010,000

1.00%

10,000

2007 Vacancy Rate

2008

2009 Total Sq Ft

2010

2011

Vacant Sq Ft

2012 Occupied Sq Ft

29

2013 INDUSTRIAL

Now the question must be asked: what event on the horizon will alter the current industrial space balance?

The answer could be one or more of the following:

1 The Panama Canal expansion completion in 2015.

The primary driver of industrial growth in the Hampton Roads region will be the Port of Virginia. As the economy recovers, the volume of containers to East Coast ports through the Panama Canal will increase. The Port of Virginia has significant advantages over other east coast ports that will result in an increase in container volume, and subsequently, an increase in demand for warehouse space. While some of the existing warehouse space can accommodate this anticipated demand, new construction will be inevitable with the evolution of building features making loading, holding and shipping of product more efficient.

2 Population growth shaped by changing national demographic shift to the Southeast.

On January 28, 2013, Virginia Business reported the following: “Virginia’s population growth outpaced the nation in the past two years, according to annual population estimates by demographers at the University of Virginia. Virginia’s population grew by 2.3 percent, to nearly 8.2 million residents, between the 2010 Census and July 1, 2012, according to University of Virginia’s Weldon Cooper Center for Public Service. Virginia had the 13th-highest growth rate among the 50 states and ranked sixth in the largest numerical population gain. The largest gains in the Commonwealth were concentrated in the urban centers of Northern Virginia, Richmond and Hampton Roads.”

Every community has a requirement for service industry industrial space. This can be tracked on a per capita basis. With any substantial increase in population, the per capita increase will demand warehouse, showroom, sales and service space to provide services to the expanding population; however, projected sequestration and the subsequent reduction in government jobs facing the Region will most likely counteract any migratory gains.

3 The national economy.

Any rebound in the global and national economy will positively affect the industrial market. More goods being produced and purchased will drive demand for space. On the other hand, sequestration and potential defense cuts are projected to have a dramatic impact on employment, spending, and, ultimately, industrial demand.

In summary, over the last five years occupancy rates have held at between 87% and 88%. The market appears to be in equilibrium. Without a significant market event, such as a rebounding economy, there is no expectation of appreciable change in the coming year.

VACANCIES AND ABSORPTION One of the unique features of the ODU/CREED survey 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 the market, the trends and forces that shape them. This year, we will provide submarket totals, in addition to a brief overview of each submarket and a historical perspective to help interpret the data.

30

2013 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

286 143 194 142

Kaempfe Worley Mumey Remick

357 281 306 125 72 162 127 34 2,229 339 130 118 62 649 2,878

Totals

Total Sq Ft

Vacancy Sq Ft Vacancy %

8,747,532 5,829,489 6,235,240 5,104,077

717,269 669,572 1,046,158 521,658

8.20% 11.49% 16.78% 10.22%

Dickinson King Baker Beasley/Throne Beasley Walker Throne King

10,268,991 6,839,429 8,842,216 3,031,458 3,641,362 4,280,345 11,612,335 3,807,023 78,239,497

833,173 589,946 977,106 299,594 459,215 596,570 1,514,984 480,650 8,705,895

8.11% 8.63% 11.05% 9.88% 12.61% 13.94% 13.05% 12.63% 11.13%

Culbreth Phillips Culbreth Phillips

11,041,469 4,417,127 4,866,068 9,131,473 29,456,137

2,196,489 102,829 710,266 642,201 3,651,785

19.89% 2.33% 14.60% 7.03% 12.40%

Sanker

107,695,634

12,357,680

11.47%

Greenbrier Area # of Buildings

8,747,532 8,593,530 8,587,634 8,469,468 8,398,437 8,342,696

Vacant SF Vacancy Rate Year

717,269 718,667 956,633 749,882 491,127 308,286

8.20% 8.36% 11.14% 8.85% 5.85% 3.70%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

Greenbrier has stabilized at approximately 8.5% vacancy. The submarket offers a good blend of flex and light industrial product, along with some distribution. This submarket offers close surrounding workforce, hospitality, food and shopping. It has fared well during the recession and is expected to reduce vacancy further in 2013.

Bainbridge/S Elizabeth River Area # of Buildings

143 143 143 142 133 133

Total SF

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

Vacant SF Vacancy Rate Year

669,572 447,921 659,621 489,508 750,958 385,783

11.49% 7.68% 11.30% 8.33% 13.74% 7.06%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

Historically, Bainbridge/S. Elizabeth River is a heavy industrial area. This submarket is a little more volatile than most, as large blocks of space come on the market in any given year. Specialty uses, such as waterfront and heavy industrial service companies, make it unique to Hampton Roads.

31

2013 INDUSTRIAL

286 283 283 282 274 274

Total SF

2013 INDUSTRIAL Cavalier Industrial Park Area # of Buildings

194 189 189 188 179 179

Total SF

Vacant SF Vacancy Rate Year

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 5,959,713 596,380

16.78% 14.41% 13.39% 9.19% 8.27% 10.01%

2012 2011 2010 2009 2008 2007

% change

2.37% 1.02% 4.20% 0.92% -1.74%

Absorption

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

Cavalier Industrial Park continues to suffer.

The bulk of the vacancy is second generation, manufacturing/warehousing space with functional limits. The location will do well for distribution being closer to the ports than Suffolk and other points west. Unfortunately, there is little land available for development.

Norfolk Commerce Park/Central Norfolk Area # of Buildings

142 143 144 144 142 142

Total SF

Vacant SF Vacancy Rate Year

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 7,076,668 2,609,090

10.22% 11.33% 16.30% 38.41% 36.78% 36.87%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

The Norfolk Commerce Park/Central Norfolk submarket saw a large adjustment in square footage in 2010 with the demolition of most of the previous Ford truck plant. Since 2010 the market appears to be gradually tightening in concert with the overall industrial market.

Norfolk Industrial Park Area # of Buildings

357 352 352 348 340 339

Total SF

Vacant SF Vacancy Rate Year

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 10,196,798 655,962

8.11% 7.58% 11.78% 13.49% 5.78% 6.43%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

Vacancy has been in retreat in Norfolk Industrial Park since a high of 13.49% in 2009, with a minor uptick in 2012. While the market is comprised of older, less functional buildings, the location is still preferred by service companies and distributors looking to take advantage of the population density and proximity to Norfolk International Terminal.

West Side/Midtown Norfolk Area # of Buildings

281 277 271 271 265 261

Total SF

Vacant SF Vacancy Rate Year

6,839,429 6,780,759 6,418,873 6,463,281 6,401,209 6,441,519

589,946 546,271 576,482 443,771 286,673 290,845

8.63% 8.06% 8.98% 6.87% 4.48% 4.52%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

Another market in balance, the West Side/Midtown Norfolk submarket market is older, but still functional. A large part of the existing buildings are smaller properties with local tenants.

Lynnhaven Area # of Buildings

306 283 283 278 269 253

32

Total SF

8,842,216 8,618,677 8,132,331 7,994,242 7,810,165 7,449,758

Vacant SF Vacancy Rate Year

977,106 1,648,242 1,141,225 1,015,633 1,015,365 730,961

11.05% 19.12% 14.03% 12.70% 13.00% 9.81%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

The Lynnhaven area is representative of Virginia Beach’s evolution away from industrial uses. Its location east of the ports makes it less desirable to some warehouse and distribution companies who move product to the west. While 2012 shows an 8.07% improvement over 2011, this improvement is primarily due to the purchase of 2600 International Parkway by Stihl (870,000 square feet). The property is not currently in use by Stihl, and may be brought back to market. In addition, the Lynnhaven submarket is beginning to see real incremental loss due to Navy APZ, AICUZ and air rights restrictions and a reduction in defense spending. Actual vacancy in this submarket is over 20%, and is predicted to increase in 2013 with additional large blocks of space coming to market.

2013 Hampton Roads Real Estate Market Review

Greenwich/Cleveland Streets Area # of Buildings

Total SF

125 125 125 125 127 127

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

Vacant SF Vacancy Rate Year

299,594 300,717 203,304 184,214 144,843 60,102

9.88% 9.84% 6.64% 5.96% 4.61% 1.91%

2012 2011 2010 2009 2008 2007

% change

0.04% 3.20% 0.68% 1.35% 2.70%

Absorption

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

The Greenwich/Cleveland Street area is one of the submarkets available for businesses looking to serve the general industrial needs of Virginia Beach. Smaller buildings dominate, and vacancy has historically remained low. Over half the vacant space is found in four buildings, each over 20,000 square feet. Unfortunately, this submarket is landconstrained and can accommodate no substantial new development.

Airport Industrial Park Area # of Buildings

Total SF

3,641,362 3,641,362 3,637,737 3,611,776 3,556,987 3,684,329

72 72 72 71 70 70

Vacant SF Vacancy Rate Year

459,215 445,215 667,375 349,086 318,231 330,881

12.61% 12.23% 18.35% 9.67% 8.95% 8.98%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

City of Portsmouth # of Buildings

162 158 161 154 154 154

Total SF

Vacant SF Vacancy Rate Year

4,280,345 4,228,501 4,221,156 4,775,530 4,111,277 4,004,464

596,570 478,849 303,145 262,595 244,227 297,805

13.94% 11.32% 7.18% 5.50% 5.94% 7.44%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

City of Suffolk 127 126 124 123 119 115

Total SF

11,612,335 11,637,163 11,578,012 11,762,676 11,617,903 11,535,116

Vacant SF Vacancy Rate Year

1,514,984 1,638,902 2,115,318 2,249,644 1,492,301 1,477,357

13.05% 14.08% 18.27% 19.13% 12.84% 12.81%

2012 2011 2010 2009 2008 2007

% change

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

There was very little positive activity in the Portsmouth submarket in 2012, and the same is expected for 2013. Most of the product in Portsmouth is older and it is difficult to compete with the newer product in other cities with higher ceilings and better column spacing.

Rents have dropped substantially in the last several years. While container activity has picked up for the Port of Virginia, the Portsmouth Marine Terminal has been relegated to break-bulk product. In 2012,the Portsmouth submarket did not see any positive port related impact.

Absorption

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

Suffolk remains the primary expansion market for Hampton Roads. With large tracts of land for development, it is expected that vacancy rates will appear volatile with the addition of big box warehouse space and subsequent lease-up of space.

Throughout the current recession, available space has been gradually absorbed, and it is expected that vacancy rates will drop in 2013.

Isle of Wight # of Buildings

34 34 30 28 28 27

Total SF

Vacant SF Vacancy Rate Year

3,807,023 2,807,023 2,970,400 2,658,340 2,791,916 2,788,716

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

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

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

Absorption in Isle of Wight was primarily with the purchase of Johnson Developments’ 329,000 square feet by Green Mountain. No new speculative development is planned at this time, and 2013 is expected to remain unchanged over 2012 numbers.

33

2013 INDUSTRIAL

# of Buildings

The City of Virginia Beach’s oldest industrial park, Airport Industrial Park, offers a number of large buildings that suffer from obsolescence. The location is still good, at the convergence of I-64 and I-264, and within close range of Norfolk International Terminals.

As the distribution market improves, it is expected that the vacancy rate at Airport Industrial Park will drop as tenants look to currently vacant Class B and C product to accommodate storage and distribution needs.

2013 INDUSTRIAL Copeland/Lower Peninsula # of Buildings

339 346 370 400 305 303

Total SF

11,041,469 11,218,810 12,139,266 12,213,348 10,015,783 9,983,484

Vacant SF Vacancy Rate Year

2,196,489 1,989,149 2,038,564 2,041,608 2,045,618 2,103,397

19.89% 17.73% 16.79% 16.72% 20.42% 21.07%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

Oyster Point/Middle Peninsula Area # of Buildings

130 129 123 128 149 149

Total SF

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

Vacant SF Vacancy Rate Year

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

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

2012 2011 2010 2009 2008 2007

% change

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

Copeland’s 19.89% vacancy is a large number.

In seeking perspective, it should be noted that the former Spiegel facility of 372,000 square feet came on the market in 2012. As of January 2013, that property is fully leased. Camp Morrison is carried on the report as a vacant 600,000 square feet. In reality, neither the City of Newport News nor the owner of the property has any real industrial intent for the property. Ultimately, it is slated for demolition.

These two properties reflect 1,000,000 square feet. Adjusting the survey numbers by removing these two properties will bring Copeland in line with the balance of the Hampton Roads market: 12.3%. Copeland will remain an important submarket and should experience improvement in 2013.

Absorption

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 maintains a healthy market with a good track record.

Oakland/Upper Peninsula Area # of Buildings

118 116 134 133 127 97

Total SF

Vacant SF Vacancy Rate Year

4,866,068 4,829,759 4,940,030 4,872,279 4,785,704 4,611,983

710,266 669,549 571,891 303,221 317,861 254,733

14.60% 13.86% 11.58% 6.22% 6.64% 5.52%

2012 2011 2010 2009 2008 2007

% change

0.74% 2.28% 5.36% -0.42% 1.12%

Absorption

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

Oakland and the Upper Peninsula is a unique market with a number of specialty buildings on the market that skew the vacancy rates. The former Sherwood Manufacturing facility is one example with over 260,000 square feet of vacancy.

Williamsburg Extended Area # of Buildings

62 62 62 60 60 60

34

Total SF

Vacant SF Vacancy Rate Year

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

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

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

2012 2011 2010 2009 2008 2007

% change

0.18% 1.76% 1.10% -0.25% 0.00%

Absorption

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

Walmart is located in the Williamsburg submarket and occupies 3 million square feet. InBev (Anheuser Busch) also occupies a substantial amount of space.

The remaining market is smaller and generally stable.

2013 Hampton Roads Real Estate Market Review

SOUTHSIDE TOTALS: # of Buildings

2229 2185 2177 2074 2100 2074

Total SF

Vacant SF Vacancy Rate Year

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 76,085,095 8,099,218

11.13% 12.14% 13.24% 14.29% 11.48% 10.64%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

PENINSULA TOTALS: # of Buildings

649 653 689 721 641 669

Total SF

29,456,137 29,572,501 30,532,962 30,521,355 27,915,879 27,709,859

Vacant SF Vacancy Rate Year

3,651,785 3,569,014 3,232,311 2,896,929 2,812,738 2,807,389

12.40% 12.07% 10.59% 9.49% 10.08% 10.13%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

HAMPTON ROADS TOTALS: # of Buildings

Total SF

2878 2838 2866 2795 2741 2743

107,695,634 107,805,428 106,691,857 108,722,115 104,417,653 103,794,954

Vacant SF Vacancy Rate Year

12,357,680 13,069,697 13,313,836 14,071,871 11,594,471 10,906,607

11.47% 12.12% 12.48% 12.94% 11.10% 10.51%

2012 2011 2010 2009 2008 2007

% change

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

Absorption

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

2013 INDUSTRIAL 35

2013 INDUSTRIAL

BUILDING SALES Total sales volume was up in 2012 to $88.2 million from a 2011 total of $84.2 million.

In 2012, 42 sales were transacted compared to 44 transactions in 2011.

Number of Industrial Properties Sold: Hampton Roads 80

$100.00

Number of Deals

70 $80.00

60 50

$60.00

40 $40.00

30 20

$20.00

10 $0.00

0

2007

2008

2009

Number of Deals Median Price per Square Foot

2010

2011

2012

Average Price per Square Foot

AVERAGE BUILDING SALE SIZE WAS A RECORD: Larger building sales continue to skew the average results 2012: 57,012 square feet 2011: 50,332 square feet 2010 was the previous high: 34,756 square feet Median Square Footage was also a record 2012: 14,536 square feet 2011: 11,506 square feet 2008 was the previous high: 13,500 square feet Average Price per square foot dropped to the second lowest level in the last six years 2012: $36.83 per square foot 2011: $38.02 per square foot 2007 is the recorded high: $73.26 per square foot 2010 is the recorded low: $32.10 per square foot Median Price per square foot dropped to a record low 2012: $52.33 per square foot 2011: $59.65 per square foot 2007 was the previous high: $94.54 per square foot 2010 was the previous low: $56.21 per square foot

36

2013 Hampton Roads Real Estate Market Review

REPRESENTATIVE BUILDING SALES Greenbrier, 123 Bruton Court, Chesapeake November 2012

12,280 square feet

$1,050,000

$85.51 per square foot

$350,000

$32.08 per square foot

$695,000

$77.01 per square foot

Bainbridge, 828 Seaboard Court, Chesapeake September 2012

10,910 square feet

Cavalier, 3744 Cook Boulevard, Chesapeake May 2012

9,025 square feet

Norfolk Commerce Park/Central Norfolk Area, 3302 Croft Street, Norfolk June 2012

20,000 square feet

$1,400,000

$70.00 per square foot

Norfolk Industrial Park, 1122 Azalea Garden Road, Norfolk March 2012

12,361 square feet

$465,000

$36.81 per square foot

$525,000

$46.46 per square foot

West Side/Midtown, 915-921 21st Street, Norfolk August 2012

11,300 square feet

Lynnhaven, 2645 International Parkway, Virginia Beach May 2012

21,000 square feet

$1,800,000

$85.71 per square foot

Airport Industrial Park, 5713 Thurston Avenue, Virginia Beach December 2012

9,152 square feet

$500,000

$54.63 per square foot

$800,000

$40.00 per square foot

$2,200,000

$32.00 per square foot

$15,000,000

$45.59 per square foot

$2,500,000

$36.50 per square foot

Portsmouth, 2 Victory Court, Portsmouth March 2012

20,000 square feet

Suffolk, 1391 Progress Road, Suffolk May 2012

68,750 square feet

Isle of Wight, Johnson Development, Isle of Wight March 2012

329,000 square feet

Copeland Lower Peninsula, 400 E Street, Hampton July 2011

68,500 square feet

Oyster Point/Middle Peninsula, 11850 Jefferson Avenue, Newport News 153,890 square feet

$7,700,000

$50.04 per square foot

2013 INDUSTRIAL

May 2012

Oakland Upper Peninsula, 113 Greene Drive, Yorktown March 2012

1,600 square feet

$290,000

$181.38 per square foot

Williamsburg Extended, 117 Production Drive, Yorktown May 2012

8,400 square feet

$540,000

$64.29 per square foot

LEASING Leasing activity was modest in 2012. Few major transactions occurred, with most leases being either renewals or move-to-quality relocations. While overall vacancy remains flat, higher quality properties are being leased, while second and third generation space continues to languish.

This trend is especially true 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

2013 INDUSTRIAL

REPRESENTATIVE INDUSTRIAL LEASING Warehouse and Distribution 103 Industrial Drive, Suffolk 1391 Air Rail Avenue, Virginia Beach 713 Fenway Avenue, Chesapeake 5601 City Line Road, Newport News 3100 Elmhurst, Portsmouth 5909 Thurston Avenue, Virginia Beach

55,200 square feet 27,027 square feet 38,000 square feet 64,000 square feet 120,000 square feet 30,456 square feet

$3.40 NNN $6.43 NNN $3.80 NNN $2.75 NNN $3.80 NNN $4.30 NNN

16,925 square feet 9,015 square feet 10,000 square feet 7,200 square feet 7,000 square feet 6,000 square feet

$4.25 NNN $6.79 NNN $6.00 NNN $4.00 NNN $3.80 NNN $6.00 NNN

9,600 square feet 6,000 square feet 5,344 square feet 5,417 square feet 5,000 square feet 5,956 square feet

$6.50 NNN $7.00 NNN $8.24 NNN $7.00 NNN $9.60 NNN $5.50 NNN

General Industrial 3450 E. Virginia Beach Boulevard, Norfolk 500 Woodlake Drive, Chesapeake 1189 Lance Road, Norfolk 700 Flagstone Way, Newport News 1256 Progress Road, Suffolk 700 Thimble Shoals Road, Newport News

Flex, Sales and Service 200 Tintern Court, Chesapeake 320 Ed Wright Lane, Newport News 533 Byron Street, Chesapeake 709 Middle Ground Boulevard, Newport News 1008 Executive Boulevard, Chesapeake 3429 Chandler Creek, Virginia Beach

RENTS FOR AVAILABLE SPACES BY SIZE RANGE 2012 <5,000 square feet 5,000 to 20,000 square feet 20,000-40,000 square feet 40,000-60,000 square feet >60,000 square feet

$5.50-$7.50 $4.75-$6.50 $3.50-$5.25 $3.00-$4.50 $1.00-$4.50

Lack of available product in specific locations or product type may warrant speculative development.

Lending will continue to be a challenge, leaving new development to the courageous and well-funded.

Look for 2013 to see a tightening of lease rates in high quality buildings with modest overall leasing activity.

38

2013 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.

• 2700 International Parkway, Virginia Beach 870,000 square feet Sold to Stihl Corporation, this property may be used for expansion or brought back on the market for lease in 2013.

• Green Mountain Coffee Roasters, Isle of Wight 329,000 square feet Purchased along with land for expansion, this represents not just a real estate transaction, but an economic development win for Hampton Roads.

• 2601 Indian River Road, Chesapeake 231,852 square feet Sold as a fully leased industrial investment, this sale was an institutional grade sale to an institutional investor, indicating a new level of market maturity.

• IMS Gear, Virginia Beach 111,585 square feet This is a substantial build-to-suit in the Virginia Beach area representing another economic development victory in landing a high quality manufacturing and assembly user to the area.

• 11850 Jefferson Avenue, Newport News 153,890 square feet Bought by a developer for redevelopment, this property ultimately was released immediately to an office/industrial user, representing the third largest sale of the year and the second largest industrial lease of the year.

See us on Facebook

DEPARTMENT OF DEVELOPMENT

Turn Your Ideas into Action.

VISIT OUR WEBSITES

norfolkdevelopment.com norfolknavigator.com

————————————— 757-664-4338

39

2013 INDUSTRIAL

REGIONAL INFLUENCES ON THE LOCAL MARKET Beyond real estate transactions, the following events occurred in 2012 and will influence the Hampton Roads industrial market for years to come.

The Port of Virginia • Still deciding on the privatization issue. The ultimate impact of this decision will not be known for decades.

• Regardless of who operates the Port of Virginia, it looks as though we have seen a rebound since 2007.

From the Virginia Maritime Association: With 9.8% growth in 2012, The Port of Virginia was the fastest growing container port on the US East Coast last year, according to comparative data from the coast’s leading container ports compiled by the Virginia Port Authority (VPA).

In 2012, The Port of Virginia handled 2,105, 887 TEUs, which is the second best year in port history. Only 22,479 TEUS separated 2012 from 2007, which is the Port’s best year on record in terms of TEUs. Virginia showed growth in the each of the final 11 months of 2012. In addition to TEU growth, the Port posted increases in six other categories it uses to measure cargo moving across the state-owned terminals.

• Containers: 1,209,822, up 9.8% • General Cargo Tonnage: 17,513,093, up 12.1% • Total Rail Containers: 385,804, up 16.8 % • Barge Containers: 8,009, up 82.5% • Ship Calls: 1,963, up 7.4% • Vehicle Units: 40,031, up 28.5% “This is not the type of thing we’ll get an award for, but it shows that our effort to market the deepest shipping channels on the East Coast, an expanding rail network, the modern container terminals that we own and operate, and a commitment to customer service and continual improvement is drawing attention – business – to Virginia,” said Rodney W. Oliver, the VPA’s interim executive director. “We’re proud to be able to say that this port is the fastest growing on the East Coast, but now the effort is to build upon that growth.”

CONCLUSION 2012 was a year of confirming equilibrium in the industrial market. After many years of regional and national economic stagnation, it appears that supply and demand are in balance. It is anticipated that balance will be shifted in 2013 in both a positive and negative manner.

Whether sequestration in its most draconian form occurs, or defense spending is pared in a more reasoned way, look for Hampton Roads to see a reduction in related industrial demand.

On the positive side of the ledger, the Port of Virginia will have a greater than expected influence on industrial development and absorption in 2013. Again, from Mr. Oliver of the Virginia Port Authority: “We also set a mark last year that was worthy of noting when we sailed a container ship from the harbor so heavy with export boxes that it needed 48.5 feet of water,” Oliver said. “This will likely be the standard in the very near future.”

The net result should be a modest gain in occupancy similar to 2012. Lease rates and sales prices are expected to rise for quality product in quality locations.

40

2013 Hampton Roads Real Estate Market Review

Industrial Submarkets 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

41

42

2013 Hampton Roads Real Estate Market Review

2013

OFFICE

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

Author

Maureen G. Rooks Vice President Jones Lang LaSalle

Data Analysis

Geoff Thomas and Nicole Pitts Jones Lang LaSalle

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 IPAC and Council Advisory Boards.

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, makes any representation or warranty to its accuracy.

2013 OFFICE 43

2013 OFFICE

General Overview he Hampton Roads office market concluded 2012 with positive absorption of 606,000 rentable square feet. The increase in absorption is highly attributable to the lease transaction completed at the Concourse Building in Norfolk with AmeriGroup, now WellPoint. However, even with improved absorption, the statistical performance for 2012 was less than average overall for the Hampton Roads office market.

The office market started 2013 with a pleasant spurt of market energy that was not experienced in 2012. This welcomed change in our first quarter of 2013 may be fundamentally due to sheer restlessness in the business community. The year 2012 was marked with observation and hesitation with minor business growth and decision delay due to the Presidential election and political deadlock, in addition to lingering questions of sequestration and its effect on civilian government employment.

The fourth quarter of 2012 ended with a vacancy rate of 12.1%, down from 13.5% in the fourth quarter of 2011. This is due to lack of new construction and an increase in office absorption overall.

METHODOLOGY The information in this report relies on market reports and information from Deloitte Center for Financial Services (Bob Oâ&#x20AC;&#x2122;Brien, author); Property and Portfolio Research (PPR); CoStar; and select interviews with local office brokers. The parameters of size referenced in this report for the office market in Hampton Roads as a whole were 15,000 SF and higher for largest completed lease transactions in 2012; 15,000 SF and higher for top completed office building sales transactions; and 15,000 SF and greater and/or five acres or higher are included for top new construction deliveries and office land sales.

44

2013 Hampton Roads Real Estate Market Review

EMPLOYMENT About 8,200 jobs were added in the Hampton Roads area over the last 12 months; however, we are still vulnerable to increased unemployment and low job growth due to the significant reduction in defense spending and government contract expenditures. While the national economic recovery should lead to some business expansions nationwide, Hampton Roads’ historic reliance on defense spending and government contract work, which has maintained a high level of office absorption, is expected to keep employment growth down in the area over the next five years as federal spending is curtailed.

ECONOMY The 2012 Presidential election and congressional partisanship significantly stalled the Hampton Roads economy overall, while defense contractors and small businesses waited for November’s elections and the effects that government spending, health care costs, and budget negotiations may have on the Hampton Roads economy.

Hampton Roads has been coined the “Little Pentagon” due to the vast presence of all military constituents, ship building and defense contractors. Defense spending accounts for approximately 46% of the area’s gross regional domestic product, which with the looming budget cuts, leaves Hampton Roads with even more uncertainty on how its economy will fare for the next three to five years.

Overall, 2012 exhibited evidence of slow, but steady economic growth (below 2%). Strong economic sectors and new rising areas of growth that may assist in backfilling the possible job loss in government contracting and enlisted military in Hampton Roads are: 1) 2) 3) 4) 5)

Information Technology/Cyber Security Technology/Cloud Computing Enterprise Mobility/Social Media - New Era in Communication & Advertising (iPhone, iPad, Facebook, YouTube) Government/Defense Contracting Health Care Services and Education - Larger employment pool required for the increased Baby Boomer retirees.

Financial services; Legal services; Accounting Services

OFFICE MARKET ACTIVITY LIKELY TO CONTINUE A SNAIL’S SLOW, BUT STEADY PACE Key Market Indicators

12-month forecast

Supply

Supply Direct vacancy rate

12.1%

Projected vacancy rate

11.4%

Under construction (% prereleased) Demand

38,761,000 sf

2013 OFFICE

Office market recovery has finally started to evidence itself in the Hampton Roads market.

The Peninsula and the Southside of Hampton Roads appear to be headed in the right direction.

Although the pendulum is still swinging towards a Tenant’s market, Class A rental rates are rising and they are predicted to continue to rise by a modest 2% year over year (YOY) through 2017. Although a meager growth pattern, it is a positive sign.

235,757 sf (85.0%)

Net absorption for 2012

606,000 sf

Projected absorption for 2013

250,000 sf

Pricing

12-month overall rent % change 0.0% In 2012, Amerigroup, now WellPoint, signed a 315,000 SF contract to lease the Concourse buildClass A overall asking rent $21.26 ing in central Norfolk; AMSEC signed a 65,000 SF Class B overall asking rent $15.75 lease at 5701 Cleveland Street in Virginia Beach; Sutherland Corporation renewed 37,000 SF at Liberty I in Chesapeake; and Northrop Grumman Information Systems, Inc. renewed a 31,680 SF lease at The Gateway Executive Center in Lynnhaven. New product, aside from the new 4525 Main Street Building at Town Center, will be rare over the next five years, allowing double digit vacancies to recover somewhat by 2017. The current vacancy in Hampton Roads is 12.1% with an overall net absorption of 606,000 SF of backfilled space.

Recent absorption in the office market has also been supported by a slowdown in move-outs and downsizing.

45

2013 OFFICE

NEW CONSTRUCTION The Federal Bureau of Investigation (FBI) has purchased land and is building a 131,000 SF Class A office building that the Bureau will fully occupy in the Oakbrooke submarket in Chesapeake, which should deliver in mid-2013.

Operation Smile purchased land off South Independence near the Virginia Beach CBD and built a 72,300 SF headquarters building. The Sydney Kellam building at the Virginia Beach oceanfront is slated to open approximately 62,000 SF in early 2013.

One major project that is breaking ground in 2013 is 4525 Main Street in the Town Center of Virginia Beach. The new 794,000 square foot tower is slated to offer approximately 200,000 SF of Class A office space.The anchor tenant will be Clark Nexsen which will retain naming rights of the building. Clark Nexsen will vacate the Smithfield Building located in Norfolk across from Sentara Leigh Hospital. Clark Nexsenâ&#x20AC;&#x2122;s exodus from the Kempsville Road corridor will open needed medical office space in Hampton Roads. The Clark Nexsen Tower is expected to deliver 4th quarter 2014.

Submarket leverage -- market history and forecast Submarket

2010

2011

2012

2013

2014

Newport News Hampton Williamsburg Yorktown Norfolk Virginia Beach Portsmouth Chesapeake Suffolk Landlord-favorable conditions

Balanced conditions

Tenant-favorable conditions

Peaking Market

Falling Market

Rising Market

Bottoming Market

Southside Peninsula

46

Tenant Leverage

Landlord Leverage

Property Clock -- Current Market Conditions

Hampton Roads methodology: Inventory includes all Class A and B office properties > 15,000 square feet

2013 Hampton Roads Real Estate Market Review

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

Net absorption

Leasing activity vs. sublease vacant space

Total vacancy

sf

20%

1,200,000 800,000

15%

400,000

10%

Leasing activity

sf 2,000,000 1,500,000 1,000,000

0%

0

2012

-400,000

2011

500,000

2010

5%

2009

0

2008

Sublease space

2008

2009

2010

2011

2012

Sublease space includes vacant space Source: Jones Lang LaSalle Americas Research Pulse - Hampton Roads Office Insight - Q4 2012

SO MUCH TO OFFER...

+$5%25 *5283 ,17(51$7,21$/

ZZZ KDUERUJURXSLQW FRP

:DWHUVLGH 'ULYH 6XLWH 1RU IRON 9LUJLQLD

47

2013 OFFICE

Top Completed Office Building Sales/Transactions (2012) ADDRESS

SUBMARKET

BUYER / SELLER

PRICE

SF

$ PSF

Fort Norfolk MOB Patrick Henry Corporate Center Commander Corporate Center 100 Volvo Parkway Wainwright Building 131 W Hanbury Rd 1201 Lake James Dr 129 W Virginia Beach Blvd 3630 S Plaza Trl 126-128 32nd St 5104-5124 Greenwich Rd 5400 Discovery Park Blvd 428 McLaws Cir – Phase I

Norfolk Newport News Norfolk Chesapeake Norfolk Chesapeake Virginia Beach Norfolk Virginia Beach Newport News Virginia Beach Williamsburg Williamsburg

Private Buyer / Fort Norfolk Plaza LLC PWA Real Estate, LLC / KBS Realty Advisors Townsend Capital, LLC / Michael Noell Norfolk Dredging Co / The Simpson Organization Wbg Financial Inv & Cap LLC / Commonwealth Equity Hanbury LLC / McKinley Properties LLC Century 21 Nachman Realty / Irwin Hurwitz Canyon Meadows LLC / Ghent Center Associates LLC 130 London Bridge LLC / 3630 South Plaza Trl LLC Washington Ave Assoc, LLC / Tryon Hills Devel, LLC NTC LLC / Harry J Mote Hex, LLC / Leebcor Properties of Casey, LLC Liptavia, LLC / Leebcor Properties of Mclaws, LLC

$29,000,000 $14,100,000 $10,700,000 $3,050,000 $3,000,000 $1,929,501 $1,900,000 $1,675,000 $1,200,000 $620,000 $500,000 $445,000 $405,000

196,205 99,100 65,524 22,768 90,000 24,397 14,653 16,516 16,744 26,000 16,000 30,000 20,000

$147.80 $142.28 $163.30 $133.96 $33.33 $79.09 $129.67 $101.42 $71.67 $23.85 $31.25 $14.83 $20.25

Top Completed Office Land Sales/Transactions (2012) ADDRESS

SUBMARKET

BUYER / SELLER

PRICE

SF

$ PSF

5100 Marshall Ave

Newport News

Heritage Forest II LLP / SLNNN Holdings LLC

$1,100,000

26.57

$41,400

Top Select New Construction Deliveries (2012) BUILDING

SUBMARKET

LEASING COMPANY

DELIVERY

SF

Operation Smile Global HQ

Southside

Operation Smile Telethon

Q3 2012

72,300

Chesapeake Eye Center

Southside

Jones Lang LaSalle Americas, Inc.

Q2 2012

20,000

5678 E Virginia Beach Blvd (USCIS) Southside

Curtis Investments

Q4 2012

19,530

430 McLaws Cir

Cushman & Wakefield / Thalhimer

Q2 2012

15,000

Peninsula

Top Under Construction Properties (2012) BUILDING

SUBMARKET

LEASING COMPANY

EXPECTED DELIVERY SF

FBI Building

Southside

GSA – (WPERC)

Q3 2013

131,000

The Sidney Kellam Office Building Southside

GoldKey / PHR

Q1 2013

61,980

101 E Queen Street

N/A

Q4 2013

42,777

Peninsula

Source: CoStar Group, Inc.

48

2013 Hampton Roads Real Estate Market Review

Select Top Office Leases (2012) Building

Submarket

SF

Qtr

The Concourse 5701 Cleveland St Liberty IV Gateway Executive Center

Central Norfolk Newtown/Witchduck Greenbrier Lynnhaven

315,000 65,000 37,000 31,680

5 Bay Mechanical 6 Chase Building 7 4211 Monarch Way

Lynnhaven Lynnhaven Norfolk/ODU/Ghent

30,000 21,591 20,000

8 Rosemont Interstate Center III 9 5700 Thurston Ave

Little Neck Virginia Beach

19,031 17,707

2nd Amerigroup Corp/Wellpoint 2nd AMSEC 1st Sutherland Corp (renewal) 2nd Northrop Grumman Information Systems, Inc. 2nd New American Mortgage 3rd Atlantic Bay Mortgage 1st ODU Bioelectrics (expansion) 4th FNF Servicing, Inc. 4th Serco (renewal)

10 Norfolk Southern Tower 11 Maritime Square 12 Bridgeway Tech Center III

Downtown Norfolk Downtown Newport News Harbourview/N Suffolk

16,558 16,092 15,131

1st 1st 2nd

13 434 McLaws Cir

Williamsburg/J City Cty

15,000

1 2 3 4

Tenant Name

Thoroughgood School Huntington Ingalls Industries ITT Space Systems, Inc., a subsidiary of Exelis, Inc. 2nd Branscome, inc.

Tenant Representative Company

Landlord Representative Company

N/A CBRE Hampton Roads N/A Cushman & Wakefield I Thalhimer N/A N/A N/A

CBRE Hampton Roads Olympia Development Corp Liberty Property Trust N/A

CBRE Hampton Roads Jones Lang LaSalle Americas, Inc. N/A N/A Jones Lang LaSalle a Americas, Inc. N/A

Harvey Lindsay CRE Sperry Van Ness CBRE Hampton Roads

Cushman & Wakefield I Thalhimer Divaris Real Estate, Inc. Harvey Lindsay CRE Jones Lang LaSalle Americas, Inc. Cushman & Wakefield I Thalhimer

2013 OFFICE 49

2013 OFFICE Class A Market Statistics

Year-End 2012

Existing Inventory Market Currituck County Mathews County Peninsula Southside Surry County Totals

# Blds Total RBA 0 0 0 0 34 3,036,229 96 9,485,011 0 0 130 12,521,240

Vacancy Direct SF 0 0 320,876 1,203,896 0 1,524,772

Total SF 0 0 342,799 1,221,217 0 1,564,016

Vac % 0.0% 0.0% 11.3% 12.9% 0.0% 12.5%

YTD Net YTD Under Absorption Deliveries Const SF 0 0 0 0 0 0 58,691 0 0 190,645 0 192,980 0 0 0 249,336 0 192,980

Class A Submarket Statistics

Year-End 2012

Existing Inventory Market Airport/Northampton Battlefield Central Norfolk Churchland Coliseum Central Currituck County Downtown Hampton Downtown Newport News Downtown Norfolk Downtown Portsmouth Fox Hill Franklin City Gloucester Greenbrier Hampton Roads Center Harbourview/N Suffolk Haygood/Bayside Hilltop/Great Neck Isle Of Wight Kempsville Little Neck Lynnhaven Mathews County Newtown/Witchduck Norfolk-ODU/Ghent Oceanfront Oyster Point Poquoson Portsmouth Princess Anne S Independence/Holland Rd South Norfolk South Suffolk Southern Chesapeake Suburban Newport News Surry County VA Beach CBD/Pembroke Western Branch Williamsburg/J City Cnty York Totals

# Blds

Quoted Rates $0.00 $0.00 $19.25 $21.82 $0.00 $21.26

Vacancy

Total RBA

Direct SF

Total SF

Vac %

1 65,524 7 406,418 7 754,969 0 0 3 323,870 0 0 1 158,855 3 528,010 10 2,307,865 2 128,094 0 0 0 0 0 0 13 1,066,455 6 467,774 9 695,149 0 0 1 40,725 0 0 0 0 0 0 13 864,266 0 0 8 597,358 3 396,000 2 181,889 15 1,095,202 0 0 0 0 5 466,171 3 275,864 0 0 0 0 0 0 3 307,628 0 0 12 1,238,264 0 0 2 89,898 1 64,992 130 12,521,240

0 44,710 30,957 0 102,231 0 35,393 0 276,899 56,127 0 0 0 181,970 37,158 181,812 0 0 0 0 0 143,628 0 59,174 110,704 15,896 136,982 0 0 30,688 0 0 0 0 0 0 71,331 0 4,360 4,752 1,524,772

0 44,710 30,957 0 102,231 0 35,393 0 281,842 56,127 0 0 0 181,970 46,297 184,190 0 10,000 0 0 0 143,628 0 59,174 110,704 15,896 147,127 0 0 30,688 0 0 0 0 0 0 71,331 0 6,999 4,752 1,564,016

0.0% 11.0% 4.1% 0.0% 31.6% 0.0% 22.3% 0.0% 12.2% 43.8% 0.0% 0.0% 0.0% 17.1% 9.9% 26.5% 0.0% 24.6% 0.0% 0.0% 0.0% 16.6% 0.0% 9.9% 28.0% 8.7% 13.4% 0.0% 0.0% 6.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.8% 0.0% 7.8% 7.3% 12.5%

YTD Net YTD Under Absorption Deliveries Const SF 0 (15,909) 198,078 0 (1,918) 0 17,490 900 72,592 (41,244) 0 0 0 (66,834) 46,808 (27,326) 0 (10,000) 0 0 0 (30,794) 0 72,200 28,800 4,501 (8,315) 0 0 10,982 0 0 0 0 8,046 0 (4,401) 0 (4,320) 0 249,336

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 131,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 61,980 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 192,980

Quoted Rates $0.00 $19.92 $20.44 $0.00 $17.79 $0.00 $16.00 $0.00 $24.02 $16.87 $0.00 $0.00 $0.00 $20.07 $19.46 $24.28 $0.00 $22.00 $0.00 $0.00 $0.00 $18.57 $0.00 $20.02 $26.51 $27.11 $20.54 $0.00 $0.00 $17.86 $0.00 $0.00 $0.00 $0.00 $14.50 $0.00 $23.98 $0.00 $20.92 $19.00 $21.26

Source: CoStar Property

50

2013 Hampton Roads Real Estate Market Review

Class B Market Statistics

Year-End 2012

Existing Inventory Market Currituck County Mathews County Peninsula Southside Surry County Totals

# Blds Total RBA 11 44,805 1 3,328 703 9,318,162 809 16,858,748 1 15,000 1,525 26,240,043

Vacancy Direct SF 7,674 0 1,177,775 2,224,236 0 3,409,685

Total SF 7,674 0 1,192,455 2,266,353 0 3,466,482

Vac % 17.1% 0.0% 12.8% 13.4% 0.0% 13.2%

Class B Submarket Statistics

Quoted Rates $10.00 $0.00 $14.78 $16.54 $0.00 $15.95

Year-End 2012

Existing Inventory

Vacancy Direct SF 94,691 125,828 183,171 6,844 76,504 7,674 35,287 59,803 534,967 42,207 159,660 0 23,858 133,934 57,603 30,178 46,474 142,677 23,810 29,195 55,345 80,568 0 234,757 40,554 29,174 424,825 7,386 40,239 75,233 69,722 49,929 10,858 28,021 35,294 0 99,261 16,599 215,025 82,530 3,409,685

Total SF 104,478 125,828 186,879 6,844 76,504 7,674 35,287 59,803 548,197 42,207 159,660 0 23,858 139,499 57,603 30,178 46,474 142,677 28,810 29,195 55,345 80,568 0 239,584 40,554 29,174 439,505 7,386 40,239 75,233 69,722 49,929 10,858 28,021 35,294 0 99,261 16,599 215,025 82,530 3,466,482

Vac % 39.7% 13.1% 11.7% 3.6% 9.5% 17.1% 9.2% 7.4% 21.4% 6.3% 28.9% 0.0% 13.5% 11.3% 10.8% 4.3% 11.5% 21.3% 13.9% 10.2% 8.3% 9.6% 0.0% 12.1% 11.5% 13.0% 13.4% 12.1% 19.0% 20.3% 12.5% 19.4% 2.8% 10.3% 7.6% 0.0% 12.9% 8.8% 13.2% 13.4% 13.2%

YTD Net YTD Under Absorption Deliveries Const SF (26,656) 0 0 39,647 0 0 63,227 19,530 0 1,923 0 0 1,237 0 0 (7,674) 0 0 11,353 0 42,777 19,189 0 0 (48,722) 0 0 (24,707) 0 0 (11,356) 0 0 0 0 0 13,706 8,229 0 10,094 20,000 0 (2,807) 0 0 15,483 9,802 0 (9,074) 0 0 8,883 0 0 2,100 0 0 12,584 0 0 (3,017) 0 0 85,947 0 0 0 0 0 12,178 0 0 15,865 0 0 6,614 0 0 25,362 0 0 (3,119) 0 0 (3,060) 0 0 (1,226) 0 0 71,840 76,800 0 (2,546) 0 0 8,549 0 0 (6,189) 0 0 12,120 0 0 0 0 0 51,137 0 0 (2,534) 0 0 3,626 15,000 0 17,562 0 0 357,539 149,361 42,777

Quoted Rates $13.26 $15.86 $15.68 $13.61 $12.36 $10.00 $13.21 $14.37 $17.06 $15.76 $14.92 $0.00 $15.73 $15.62 $15.74 $18.76 $15.21 $21.91 $30.00 $20.53 $16.02 $15.09 $0.00 $17.30 $16.90 $19.76 $14.81 $15.37 $9.00 $15.93 $16.83 $12.21 $14.23 $16.71 $15.85 $0.00 $17.14 $14.64 $15.07 $14.43 $15.95

2013 OFFICE

Market # Blds Total RBA Airport/Northampton 12 263,433 Battlefield 32 962,083 Central Norfolk 53 1,599,797 Churchland 14 188,567 Coliseum Central 65 808,256 Currituck County 11 44,805 Downtown Hampton 30 383,141 Downtown Newport News 19 812,407 Downtown Norfolk 54 2,558,516 Downtown Portsmouth 23 668,427 Fox Hill 41 552,346 Franklin City 1 25,816 Gloucester 20 177,092 Greenbrier 63 1,236,204 Hampton Roads Center 12 534,587 Harbourview/N Suffolk 29 707,252 Haygood/Bayside 30 403,270 Hilltop/Great Neck 51 669,485 Isle Of Wight 20 207,329 Kempsville 22 285,945 Little Neck 23 666,330 Lynnhaven 37 840,340 Mathews County 1 3,328 Newtown/Witchduck 93 1,974,875 Norfolk-ODU/Ghent 28 353,577 Oceanfront 15 225,281 Oyster Point 200 3,281,344 Poquoson 11 61,014 Portsmouth 22 211,534 Princess Anne 32 371,483 S Independence/Holland Rd 38 557,245 South Norfolk 16 257,509 South Suffolk 27 394,031 Southern Chesapeake 32 271,114 Suburban Newport News 56 464,682 Surry County 1 15,000 VA Beach CBD/Pembroke 22 770,191 Western Branch 20 189,114 Williamsburg/J City Cnty 175 1,626,706 York 74 616,587 Totals 1,525 26,240,043

YTD Net YTD Under Absorption Deliveries Const SF (7,674) 0 0 0 0 0 86,873 23,229 42,777 278,340 126,132 0 0 0 0 357,539 149,361 42,777

Source: CoStar Property

51

2013 OFFICE Class A Market Statistics

Year-End 2012

Existing Inventory Period 2012 4q 2012 3q 2012 2q 2012 1q 2011 4q 2011 3q 2011 2q 2011 1q 2010 4q 2010 3q 2010 2q 2010 1q

# Blds 130 130 130 130 130 129 129 129 129 129 128 127

Total RBA 12,521,240 12,521,240 12,521,240 12,521,240 12,521,240 12,481,841 12,481,841 12,481,841 12,481,841 12,481,841 12,285,841 11,985,954

Vacancy Direct SF 1,524,772 1,761,463 1,837,098 1,768,228 1,724,319 1,786,068 1,735,346 1,728,807 1,816,178 1,885,739 1,898,204 1,755,315

Total SF 1,564,016 1,799,076 1,893,553 1,847,290 1,813,352 1,888,921 1,813,196 1,769,137 1,889,307 1,982,149 1,999,537 1,851,606

Net Vac % 12.5% 14.4% 15.1% 14.8% 14.5% 15.1% 14.5% 14.2% 15.1% 15.9% 16.3% 15.4%

Absorption 235,060 94,477 (46,263) (33,938) 114,968 (75,725) (44,059) 120,170 92,842 213,388 151,956 13,205

Deliveries # Blds Total RBA 0 0 0 0 0 0 0 0 1 39,399 0 0 0 0 0 0 0 0 1 196,000 1 299,887 0 0

UC Inventory # Blds 2 2 1 1 1 2 2 1 0 0 1 2

Total RBA 192,980 192,980 61,980 61,980 61,980 101,379 101,379 39,399 0 0 196,000 495,887

Class B Market Statistics # Blds 1,525 1,525 1,522 1,519 1,519 1,515 1,515 1,511 1,507 1,504 1,502 1,496

Total RBA 26,240,043 26,310,513 26,220,182 26,180,682 26,180,682 26,116,978 26,116,978 26,021,640 25,964,203 25,912,399 25,890,118 25,796,850

Vacancy Direct SF 3,409,685 3,626,055 3,646,279 3,676,373 3,685,332 3,598,922 3,444,106 3,255,602 3,239,391 3,146,195 3,090,563 2,969,613

Total SF 3,466,482 3,683,409 3,709,891 3,750,343 3,764,660 3,676,304 3,525,730 3,330,614 3,316,395 3,222,719 3,187,731 3,039,821

Net Vac % 13.2% 14.0% 14.1% 14.3% 14.4% 14.1% 13.5% 12.8% 12.8% 12.4% 12.3% 11.8%

Absorption 146,457 116,813 79,952 14,317 (24,652) (150,574) (99,778) 43,218 (41,872) (12,707) (54,642) (100,337)

Deliveries # Blds Total RBA 1 19,530 3 90,331 3 39,500 0 0 4 63,704 0 0 4 95,338 4 57,437 3 51,804 2 22,281 6 93,268 2 21,791

UC Inventory # Blds 1 2 4 7 6 7 6 7 8 10 9 14

Total RBA 42,777 62,307 109,861 149,361 129,831 171,004 156,004 150,738 152,775 171,579 131,522 207,489

Total Office Market Statistics Existing Inventory Period 2012 4q 2012 3q 2012 2q 2012 1q 2011 4q 2011 3q 2011 2q 2011 1q 2010 4q 2010 3q 2010 2q 2010 1q

# Blds 3,234 3,234 3,231 3,228 3,228 3,223 3,223 3,219 3,215 3,212 3,210 3,203

Total RBA 47,952,455 48,022,925 47,932,594 47,893,094 47,893,094 47,789,991 47,789,991 47,694,653 47,637,216 47,585,412 47,382,131 46,988,976

Rates $21.26 $21.13 $21.00 $21.12 $21.19 $21.00 $20.91 $21.16 $21.51 $21.62 $21.62 $21.60

Year-End 2012

Existing Inventory Period 2012 4q 2012 3q 2012 2q 2012 1q 2011 4q 2011 3q 2011 2q 2011 1q 2010 4q 2010 3q 2010 2q 2010 1q

Quoted

Rates $15.95 $15.76 $15.67 $15.74 $15.77 $15.64 $15.84 $16.08 $16.47 $16.37 $16.47 $16.58

Year-End 2012 Vacancy

Direct SF 5,686,739 6,151,807 6,247,748 6,185,381 6,161,384 6,089,353 5,893,233 5,737,341 5,751,263 5,739,279 5,747,633 5,409,280

Quoted

Total SF 5,782,780 6,246,774 6,367,815 6,338,413 6,329,745 6,269,588 6,055,652 5,855,628 5,903,476 5,921,858 5,952,834 5,582,479

Net Vac % 12.1% 13.0% 13.3% 13.2% 13.2% 13.1% 12.7% 12.3% 12.4% 12.4% 12.6% 11.9%

Absorption 393,524 211,372 10,098 (8,668) 42,946 (213,936) (104,686) 105,285 70,186 234,257 22,800 (118,234)

Deliveries # Blds Total RBA 1 19,530 3 90,331 3 39,500 0 0 5 103,103 0 0 4 95,338 4 57,437 3 51,804 3 218,281 7 393,155 2 21,791

UC Inventory # Blds 3 4 5 8 7 9 8 8 8 10 10 16

Total RBA 235,757 255,287 171,841 211,341 191,811 272,383 257,383 190,137 152,775 171,579 327,522 703,376

Quoted Rates $17.06 $16.90 $16.93 $16.99 $17.07 $16.93 $17.24 $17.35 $17.83 $17.71 $18.05 $18.11

Source: CoStar Property

52

2013 Hampton Roads Real Estate Market Review

REGIONAL OFFICE MARKET COMPARISON The mid-Atlantic Office market vacancy rate averaged practically even in percentages. Richmond ended 2012 with11.3% office vacancy; Hampton Roads, Charlotte and Raleigh-Durham, NC, tied at 12.1% and 12.2% office vacancy; and Washington D.C. finished at 13.5% vacancy. This compares well with the national average of approximately 17.1% office vacancy across the United States.

Regional Office Market Comparison - Office Vacancy Rates Year-End 2012 2012 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Hampton Roads, VA 13.2% 13.3% 13.0% 12.1%

Washington, DC 13.4% 13.4% 13.3% 13.5%

Richmond, VA 11.4% 11.5% 11.1% 11.3%

Raleigh-Durham, NC 12.9% 12.7% 12.4% 12.2%

Charlotte, NC 12.7% 12.6% 12.2% 12.1%

500,000 Square Feet of Real Estate for Your Next Meeting From trade shows and meetings to receptions and holiday parties, our coastal facility is a wise investment for your next meeting or event.

Proud Host of the Virginia Association of Realtors Annual Convention & Expo

A Division of the Virginia Beach Convention & Visitors Bureau 1000 19th Street | Virginia Beach, VA 23451 (757) 385-2000 | vbcc@vbgov.com | vbconventioncenter.com

53

2012 Office Building Directory DOWNTOWN NORFOLK CLASS A 150 West Main Street .................................................................226,183 Bank of America.........................................................................340,000 Crown Center.................................................................................62,000 Dominion Tower.......................................................................... 403,276 Fort Norfolk Medical Office Tower..............................................196,000 Main Street Tower ...................................................................... 200,000 Norfolk Southern Tower ..............................................................301,463 Town Point Center .......................................................................130,266 World Trade Center .....................................................................366,941 Wells Fargo Center ..................................................................... 255,000 CLASS B 101 Granby Street .........................................................................22,000 141 W. Virginia Beach Blvd. (ABC Building) ...............................10,000 201 Granby Mall Building ............................................................76,071 250 W. Brambleton Avenue ..........................................................17,984 345 W. Freemason ....................................................................... 11,000 500 Plume Street ..........................................................................60,000 500 E. Main St. (BB&T)............................................................. 230,000 City Centre ..................................................................................... 54,138 Hague Medical Center...................................................................31,659 Madison Office Building ................................................................82,000 Monticello Arcade..........................................................................44,500 The Monticello Building .................................................................70,000 Plume Center West .......................................................................82,375 RBC Centura Tower..................................................................... 111,600 St. Paul Building............................................................................. 47,308 Seaboard Center ...........................................................................30,000 Tazewell Building ..........................................................................38,000 The Helena Building....................................................................... 20,100 Towne Bank Building.....................................................................52,698 Wainwright Building........................................................................83,151 York Street Center .........................................................................52,293 CLASS C 220 West Freemason Street ........................................................10,775 255 Granby Street.........................................................................30,000 400 Gresham Drive (The Medical Building) ...............................78,867 700 Monticello Avenue .................................................................22,760 700 Boush Street .........................................................................16,825 Anders Williams Building...............................................................14,000 Duke Grace Building...................................................................... 26,417 Ghent-Olney Building.....................................................................24,000 Lonsdale Building...........................................................................18,000 Norfolk Community Services .........................................................16,192 Wainwright Building.......................................................................82,318 OWNER OCCUPIED AT&T............................................................................................ 200,000 Atlantic Building .............................................................................14,000 Decker Building..............................................................................10,000 Dominion Enterprises ................................................................. 220,000 Landmark Communications..........................................................66,500 Norfolk Telcom Center...................................................................60,000 Peta ................................................................................................25,000 Standard Forms.............................................................................30,000 Two Commercial Place............................................................... 234,450 Virginian Pilot Building ..................................................................174,141

AIRPORT/NORTHAMPTON CLASS A Twin Oaks I ....................................................................................88,000 Twin Oaks II....................................................................................88,000 Silver Oak .......................................................................................78,200 The Concourse ............................................................................315,000 Commander Corporate Center .....................................................65,000 CLASS B Airport Executive Center................................................................70,609 Circle South....................................................................................48,000 HRSA-ILA Bldg (Longshoremen’s)...............................................21,678 Northampton Executive Center.....................................................69,904 CLASS C Electrical Workers Corporation Office...........................................22,020 OWNER OCCUPIED CMA/CGM (USA)..........................................................................90,000 Zim-American Israeli Shipping......................................................30,000

CENTRAL NORFOLK CLASS B 100 Kingsley Lane, DePaul Health Park”.....................................48,000 110 Kingsley Lane, DePaul Medical Building” .............................39,054 160 Lingsley Lane, DePaul Medical Atrium” ...............................40,000 241 Corporate Blvd. (VA Eye Development) ................................34,070 930 Majestic Avenue ......................................................................9,500 5360 Robin Hood Road................................................................42,000 Almeda Business Center (flex)......................................................84,000 Central Center Office Building.......................................................53,815 Commerce Park Place(flex) ..........................................................58,783 Gateway II(flex)...............................................................................45,000 Lafayette Executive Center............................................................18,641 Lawson Building ............................................................................20,022 Norfolk Business Center (flex) ......................................................89,000 Norfolk Business Center II (flex) ..................................................126,926 Norfolk Commerce Center I(flex) ..................................................73,000 Norfolk Commerce Center III(flex) ..............................................168,000 Norfolk Commerce Center IV(flex) ...............................................79,980 Norfolk Commerce Center V(flex).................................................72,000 CLASS C 4100 Building.................................................................................20,614 Atlas Building .................................................................................30,476 Blair Building ..................................................................................15,000 Southern Office Building ............................................................... 11,061 Time Building .................................................................................32,000 OWNER OCCUPIED Capital Group Companies ...........................................................106,000

CHESAPEAKE/GREENBRIER CLASS A BECO Corp HQ (609 Independence)...........................................22,400 Chesapeake Eye Center................................................................20,000 Crossways Center..........................................................................52,702 CHKD Health Center (Volvo Park VI) ............................................25,000 Chubb Building...............................................................................97,500 Dendrite One..................................................................................50,000 Dendrite Two..................................................................................50,000 EDS - 1434 Crossways Blvd ...................................................... 111,000 Greenbrier Tower I .........................................................................87,900 Greenbrier Tower II .......................................................................86,976 Independence Place ......................................................................73,345 Lake Center I..................................................................................60,000 Lake Center II.................................................................................64,000 Liberty One ....................................................................................50,000 Liberty Two ....................................................................................50,000 Liberty Three..................................................................................75,000 1403 Greenbrier Parkway (Gateway Bank) .................................75,000 CLASS B Atlantic Business Center ...............................................................60,000 Battlefield Corporate Center..........................................................98,000 Battlefield Lakes Tech Center I .....................................................38,500 Battlefield Lakes Tech Center II ....................................................29,000 Battlefield Lakes Tech Center III....................................................18,000 Battlefield Technology Center ....................................................... 51,578 Battlefield Technology Center .......................................................97,000 Battlefield Technology Center II (MCI) .......................................... 81,478 Branch Executive Quarter-Hamilton ............................................. 11,600 Branch Executive Quarter-Jefferson ...........................................23,838 Branch Executive Quarter-Madison..............................................16,788 Chelsea Commons WCMB...........................................................12,400 1580 Crossways Blvd ...................................................................10,800 Crossways Commerce Center II ................................................145,300 Crossways Commerce Center ......................................................45,000 Crossways I.................................................................................. 137,007 Crossways II (flex) ..........................................................................84,751 Crossways III ..................................................................................61,992 Dominion Business Center............................................................20,000 Eden North Center.........................................................................18,700 Greenbrier Business Centre (flex) .................................................91,561 Greenbrier Circle Corporate Center ............................................233,138 Greenbrier Executive Center II.......................................................26,870 Greenbrier Point II ..........................................................................16,000 Greenbrier Tech Center One (flex) ................................................ 95,414 Greenbrier Tech Center Two (flex) ................................................82,340 Hanbury Office Park ......................................................................24,000 Hanbury Road Business Center......................................................9,000 Independence Technology Center I ..............................................98,000 Rose and Womble Business Center.............................................13,432 SunTrust Bank Building .................................................................23,000 737 Volvo Parkway........................................................................36,000 Volvo Park (Progressive Drive) ......................................................52,000 Volvo VII..........................................................................................13,000

Greenbrier Business Center ..........................................................50,000 Greenbrier Square .........................................................................26,250 Heritage Bank Building..................................................................12,654 Riverwalk Professional Bldg ..........................................................10,000 Woodbrier Terrace .........................................................................10,000 Wright Building...............................................................................12,000 CLASS C 2125 Smith Avenue.......................................................................42,423 Knells Ridge Plaza .........................................................................15,500 Old Greenbrier Village....................................................................34,015 OWNER OCCUPIED Cox Communications ..................................................................150,000 Dollar Tree ...................................................................................300,000 FBI Building .................................................................................131,000 First Data........................................................................................42,557 Household Finance ........................................................................60,000 HR Realtors Assoc. Bldg. (638 Independence)...........................40,000 Panasonic Call Center ...................................................................55,000

HILLTOP/OCEANFRONT CLASS A Camelot Professional Center.........................................................40,725 984 First Colonial Road.................................................................24,000 1181 First Colonial Professional Ctr...............................................16,150 First Colonial Professional Plaza (1157)........................................14,000 Hilltop Medical Center (Republic Rd).............................................17,500 1321 Laskin Road .........................................................................18,844 Mill Dam Medical Center...............................................................28,295 Pavilion Center (Towne Bank) ....................................................... 85,177 Potter Professional Center.............................................................27,500 Sentara Medical Office Building ...................................................60,000 William E. Wood Building ..............................................................20,000 CLASS B Beach Health Pavilion....................................................................57,800 Beach Tower ..................................................................................23,000 Birdneck Office Park.......................................................................10,182 Birdneck Square .............................................................................17,285 Colonial Mill Professional Center ..................................................23,555 Damalas Centre.............................................................................16,900 844 First Colonial Road ...............................................................15,575 968 First Colonial Road.................................................................12,400 1101 First Colonial.........................................................................24,000 First Colonial Medical Center ........................................................22,300 General Booth Professional Center .............................................. 11,000 Gibson Pavilion...............................................................................30,000 1439 M. Great Neck Road ...........................................................10,200 Heritage Commons ....................................................................... 11,000 Hilltop West Executive Center .......................................................23,000 1092 Laskin Road.........................................................................18,240 1206 Laskin Road Executive Center ...........................................33,000 Louisa Avenue Building One ......................................................... 11,000 Louisa Avenue Building Two ......................................................... 11,000 Louisa Avenue Building Three..........................................................8,195 Mill Dam Crossing ........................................................................22,037 Rudd Building.................................................................................13,000 Sandpiper Key Associates Bldg ....................................................32,000 CLASS C Great Neck Professional Bldg .......................................................20,000 Oceana East...................................................................................10,360

CORPORATE LANDING CLASS B Executive Center at Corporate Landing .....................................45,000” Princess Anne Executive Park .................................................... 59,756” Verizon Building..............................................................................10,000 OWNER OCCUPIED Al-Anon ..........................................................................................30,000 Liberty Tax Service .......................................................................30,000 GEICO.......................................................................................... 250,000

KEMPSVILLE CLASS A Chadwick Building .........................................................................80,000 Grayson Building............................................................................42,000 Metroplex 1....................................................................................35,000 CLASS B 1201 Lake James Office ..............................................................12,000

3386 Holland Road .......................................................................20,000 5301 Providence Road (Providence South).................................12,000 Arrowhead Office Court ...............................................................10,000 Atrium of College Park Square .....................................................36,379 Central Park I (552 Central Dr).....................................................18,000 Central Park II (544 Central).........................................................43,000 College Park Square III .................................................................. 30,150 Courtyard at Providence.................................................................17,879 Fairfield Square..............................................................................12,933 Holland South ................................................................................14,843 Holland/Taft Professional Center ................................................. 11,850 Kempsville Office Park...................................................................30,722 Oxford Square................................................................................13,544 Woolpert Building...........................................................................36,700

LYNNHAVEN CLASS A Chase Building............................................................................... 31,910 Lynnhaven Commons Complex....................................................25,000 Lynnhaven Commons (office bldg.)..............................................26,000 Lynnhaven II ...................................................................................36,000 Lynnwood Plaza..............................................................................87,157 Marsh Landing................................................................................62,117 Oceana Center One.......................................................................39,928 Oceana Place.................................................................................75,369 Park West AMSEC ........................................................................ 66,180 Pinehurst Centre .........................................................................103,000 Reflections I....................................................................................62,924 Reflections II...................................................................................73,676 Reflections III ..................................................................................67,000 Reflections IV .................................................................................80,000 Viking Building................................................................................18,900 Windwood Center..........................................................................78,348 CLASS B 2700 International Parkway..........................................................53,000 Advanced Technology Building .....................................................32,000 Basgier Bldg. I................................................................................18,200 Basgier Bldg. II...............................................................................20,000 Bennett Office Building (120 S. Lynnhaven) ................................10,522 Commercial Place..........................................................................36,400 Gateway Bank Building (641 Lynnhaven .......................................8,000 Lynnhaven Corporate Center ........................................................36,046 Lynnhaven Corporate Center II .....................................................40,300 Lynnhaven Executive Center .........................................................18,000 Lynnhaven Five ..............................................................................24,549 Lynnhaven North ...........................................................................10,000 Lynnhaven Professional Center.....................................................12,000 Lynnhaven Station .........................................................................26,226 Parkway Center 3 and 4 ...............................................................64,567 Parkway Center I & II......................................................................32,112 Parkway III (Unisys) ......................................................................50,428 Parkway West (flex).......................................................................41,563 RBM Building ..................................................................................14,170 Sabre Street I .................................................................................68,000 Sabre Street II ................................................................................60,000 Sabre Street III ...............................................................................40,000 Sabre Street IV...............................................................................40,000 South Lynnhaven Business Park ..................................................40,000 U.S. Commerce Center (Tidewater Tech) ...................................26,819 Yorktown Commerce Center(228 N. Lynnhaven) .......................30,529 OWNER OCCUPIED Cenit Bank Bldg.............................................................................40,000 Global Technical Systems .............................................................46,000 Hall Automotive..............................................................................29,865 SAIC ...............................................................................................60,000

PRINCESS ANNE CLASS A 1925 Glenn Mitchell Drive (Sentara) ............................................40,000 1950 Glenn Mitchell Drive (Sentara)............................................70,000 1975 Glenn Mitchell Drive (Sentara)............................................70,000 828 Healthy Way (Bon Secours)..................................................84,600 OWNER OCCUPIED LifeNet Health Inc. (Concert Drive) ...............................................42,000 Operation Smile .............................................................................72,300

LITTLE NECK CLASS B 3300 Building (Virginia Beach Blvd.)............................................ 11,000 Kingâ&#x20AC;&#x2122;s Grant Office Building ..........................................................13,000

Little Neck Office Park (3300 Bldg.) ............................................33,000 Little Neck Office Park (3300 South............................................50,000 Little Neck Office Park (3400 Bldg.)............................................22,000 Little Neck Towers .........................................................................48,860 Lynnhaven Station 101 North Lynnhaven ....................................28,000 NEXCOM Building..........................................................................75,000 NEXCOM Expansion......................................................................18,000 Plaza Trail Office Building ..............................................................15,975 Rose Hall Commons......................................................................12,266 Rose Hall Professional Center.......................................................20,000 Rosemont Interstate Center ..........................................................41,400 Rosemont Interstate Center II .......................................................51,835 Rosemont Interstate Center III*.....................................................38,000 Sun Building................................................................................... 11,600 Transouth Building (3615 VB Blvd) ..............................................12,500 CLASS C Birchwood Office Park ................................................................. 11,688 Byler Building .................................................................................16,592 OWNER OCCUPIED Plan-It Building...............................................................................24,000

MILITARY CIRCLE CLASS A Riverside Commerce Center (120 Corporate Blvd.) ....................70,000 Riverside Corporate Center ...........................................................86,682 CLASS B 150 Corporate Drive (Previous FBI). ............................................50,000 Centura Bank Building...................................................................40,442 Circle East ...................................................................................... 41,047 College Park Executive Center......................................................20,000 I.T.T. Building ..................................................................................49,379 Sentara...........................................................................................45,000 CLASS C Executive Office - Janaf ...............................................................28,800 Janaf Office Building ..................................................................... 37,329 OWNER OCCUPIED Portfolio Recovery Building............................................................34,850 Union Mission (former VA Natural Gas)........................................75,403

NEWTOWN/WITCHDUCK CLASS A AAA Headquarters ........................................................................ 47,045 Amelia Building ..............................................................................64,660 Amerigroup Building I ..................................................................106,000 Amerigroup Building II .................................................................106,000 BB&T Building................................................................................30,000 Expressway Corporate Center ......................................................85,658 Gallery I ..........................................................................................30,000 Gallery II..........................................................................................30,000 Greenwich Center .........................................................................56,000 Greenwich Commons....................................................................55,000 Greenwich Station .........................................................................29,000 Halifax Building ...............................................................................71,100 Mass Mutual Building....................................................................45,500 Smithfield Building .......................................................................145,000 Verizon Center..............................................................................135,000 Westmoreland Building .................................................................83,436 CLASS B 144 Business Park Drive................................................................17,000 168 Business Park Drive...............................................................19,300 184 Business Park Drive............................................................... 27,784 209 Business Park Drive .............................................................. 11,250 232 Business Park Drive ..............................................................14,000 396 Witchduck Road ...................................................................12,000 6330 Newtown Road.....................................................................55,181 American Teleservices Building ....................................................12,232 Azalea Village.................................................................................20,000 BCF Building ..................................................................................24,000 BPC Building .................................................................................. 29,074 Colonial Corporate Center............................................................. 41,772 Commerce Centre (200-259 Expressway Ct) ............................35,500 Commonwealth Building ...............................................................10,000 Interstate Corporate Center...........................................................30,000 Parliament Drive Professional Bldg...............................................10,000 TRC Center I ..................................................................................62,000 TRC Center II..................................................................................36,884 TRC Center III.................................................................................52,000 Witchduck Crossing.......................................................................15,326

CLASS C Witchduck Office Court ................................................................18,000 OWNER OCCUPIED Cox Cable Building.........................................................................45,000 Cox Expansion ...............................................................................25,000 Copy Data (Ikon)............................................................................20,000 Lendman........................................................................................10,000 Newtown Square...........................................................................78,000

PEMBROKE/CENTRAL BUSINESS DISTRICT CLASS A 249 Central Park Avenue..............................................................59,000 Convergence Center......................................................................85,000 Convergence Center II...................................................................85,000 Convergence Center III ..................................................................99,000 Corporate Center VI.......................................................................59,000 Five Columbus Center ...................................................................20,000 Fulton Bank Plaza..........................................................................90,315 One Columbus Center.................................................................134,000 OSS Building (former Ticketmaster) ............................................30,000 Six Columbus Center.....................................................................36,000 Southport Center ...........................................................................65,000 Town Center (222 Central Park) ...............................................256,900 Town Center North Tower .............................................................53,000 Two Columbus Center.................................................................109,000 CLASS B 4701 Columbus.............................................................................32,000 4705 Columbus Street 33,000 4801 Columbus Street 40,000 Corporate Center I .........................................................................51,000 Corporate Center II ........................................................................52,475 Corporate Center III .......................................................................51,000 Corporate Center IV.......................................................................76,012 Holland Commerce Center............................................................30,000 Holland Office Park........................................................................32,000 Independence Business Center ....................................................62,000 Technocenter I ..............................................................................50,000 Independent Plaza .........................................................................36,655 Pembroke Bldg. (4425 Corporation Lane)...................................70,760 Pembroke Office Park ................................................................ 294,000 Prism Plaza ....................................................................................32,000 Southgate Centre...........................................................................43,200 Southport Business Center (Baskin Bldg.....................................20,683 Southport Trade Center(flex).........................................................30,883 Thalia One......................................................................................18,408 Thalia Professional Center.............................................................15,000 The Meadows................................................................................32,433 VST Building...................................................................................25,000 CLASS C 4224 Holland Road ........................................................................10,104 Dragas Office Park ........................................................................30,896 Haygood Buildings .........................................................................22,392 Haygood Executive Park 36,472 Holland Plaza Office Building .........................................................14,513 Old Donation Executive Park.........................................................20,347 Larkspur Village ..............................................................................16,184 Pocahontas Center.........................................................................17,800 OWNER OCCUPIED Alantec Financial Fed Credit Union...............................................12,000 AVIS..............................................................................................168,000 Coastal Training Technologies.......................................................60,000 Commonwealth College 30,000 Electronic Systems Building ..........................................................10,000 ISC..................................................................................................40,000 QED Building..................................................................................30,000 REIN Building .................................................................................24,500 Virginia Natural Gas Building.........................................................48,242

PORTSMOUTH CLASS A BB&T Building (500 Crawford).....................................................35,327 Harbourfront Corporate Center (801 Water St)...........................53,000 Mast One .......................................................................................60,000 CLASS B 307 County Street......................................................................... 13,475 355 Crawford Street Building .......................................................79,367 600 Crawford Street ......................................................................16,171 Boyette Professional Center..........................................................13,000 Bristol Square ................................................................................10,800

Towne Bank Building (200 High St) .............................................34,000 JJH Building....................................................................................17,563 New Kirn Building ..........................................................................44,000 PortCentre I (flex).........................................................................100,000 Port Trade Center ..........................................................................14,223 The Seaboard Building ..................................................................65,000 Wachovia Bank..............................................................................48,000 CLASS C Crawford Executive Center............................................................20,340

SUFFOLK CLASS A JTASC Building ...........................................................................408,365 (Multiple Buildings) CLASS B Bridgeway Technology Center ....................................................125,000 Bridgeway Technology Center II....................................................67,500 Bridgeway Technology Center III...................................................72,384 Brinkley Building ............................................................................20,500 Brinkley Building II........................................................................ .21,000 Harbour Breeze Professional Center ...........................................52,265 Harbour View Medical Arts Center............................................... 47,000 Harbor View Professional Center (1033 & 1035)......................23,000” Konikoff Medical Office Building ................................................. 22,675” Lakeview Technology GSA Center..............................................110,000 Lakeview Tech Center II .............................................................86,400” Main Street Center ........................................................................13,800 Washington Street Center.............................................................12,000 OWNER OCCUPIED Rubicon NGP - Lakeview Technical Center ..............................351,075 Lockheed Martin ...........................................................................50,000 Overton Building ............................................................................12,940 Rose & Womble Building...............................................................25,000 Towne Bank Center....................................................................... 19,318

DOWNTOWN HAMPTON CLASS A Harbour Centre ............................................................................158,855 CLASS B 10-16 W. Queens Way.................................................................. 11,238 47 W. Queens Way .......................................................................12,500 Mill Point Center.............................................................................10,000 One Mallory Street.........................................................................14,000 CLASS C 55 W. Queens Way ........................................................................12,132

DOWNTOWN NEWPORT NEWS CLASS B 2600 Building ...............................................................................118,018 Wachovia Bank Building.................................................................17,846 OWNER OCCUPIED Newport News Shipbuilding, Bldg. 520-521...............................50,000

HAMPTON ROADS CENTER CLASS A 6 Manhattan Square ..................................................................... 30,106 1001 N Campus Parkway ............................................................19,000 Allstate Building ..............................................................................17,000 HealthNet Building .........................................................................60,482 Lakefront Plaza I ............................................................................77,442 Morgan Marrow Building...............................................................12,000 Olympia Place ................................................................................72,395 Oxford Plaza...................................................................................64,297 Parkway Executive Center.............................................................45,000 Research Quad - Building One .....................................................60,000 Research Quad - Building Three ................................................100,000 CLASS B 400 Butler Farm Road ..................................................................96,446 404 Butler Farm Road ..................................................................54,715 421 Butler Farm Road ..................................................................56,515 Hampton I.......................................................................................68,532 Hampton II......................................................................................67,000 Hampton III.....................................................................................45,000 Hampton Technology Center ........................................................56,575 NDS Building..................................................................................35,000 Raytheon ........................................................................................50,000

Research Office Building ...............................................................30,000 CLASS C NASA Langley Research Center....................................................11,790 3217 Armistead Avenue ...............................................................24,043

COLISEUM CENTRAL CLASS A Claiborne Building (Regional Mall Office) ...................................150,000 Executive Tower...........................................................................134,164 Pinewood Plaza .............................................................................77,500 CLASS B 2115 Executive Drive.....................................................................62,000 2310 Tower Place .........................................................................10,500 Bank of America Building..............................................................14,434 Colony Square of Hampton...........................................................30,050 Riverdale Complex.......................................................................168,000 Sheraton Office Bldg. ....................................................................12,673 Todds Lane Professional Center ...................................................12,500 West Telemarketing.......................................................................55,855 OWNER OCCUPIED Langley Federal Credit Union ........................................................72,800

NEWMARKET CLASS B Newmarket Building ......................................................................21,262 NetCenter.....................................................................................546,171 UPS Call Center ...........................................................................103,000 CLASS C Rouse Tower ................................................................................150,000 OWNER OCCUPIED NN Shipbuilding Employee Credit Union.......................................15,000

OYSTER POINT CLASS A 601 Thimble Shoals Boulevard.....................................................30,000 Atrium at Oyster Point ...................................................................62,971 Cedar One......................................................................................15,467 Cedar Two......................................................................................27,000 Contemporary Cybernetics ...........................................................60,000 Ferguson Corporate Center II......................................................150,000 Fountain Plaza One .....................................................................100,000 Fountain Plaza Two .......................................................................80,000 Fountain Plaza Three.....................................................................80,000 Langley Federal Centre .................................................................51,982 Merchants Walk.............................................................................28,000 One City Center .............................................................................70,000 One Oyster Point............................................................................36,226 Oyster Point Interstate Center .......................................................64,000 Patrick Henry Corporate Center....................................................98,883 Riverside Health Center Building (Warwick) ..............................104,500 Peninsula Professional Building.....................................................30,800 Rock Landing Corporate Center II ................................................33,476 SunTrust Building .........................................................................100,955 Symantec Corp. Building.............................................................100,000 Tower Park (733 &735 Thimble Shoals) .....................................31,667 Town Center One...........................................................................60,000 TowneBank Center ........................................................................60,000 Two City Center .............................................................................63,600 Two Oyster Point.............................................................................39,137 Turner Bldg. (1060 Loftis)........................................................... 21,000” Wachovia Building .........................................................................42,921 William E Wood Building (1030 Loftis) . . . . . . . . . .26,000 CLASS B 11790 Jefferson Avenue...............................................................20,662 745 Bluecrab (flex) ........................................................................16,000 BB&T Plaza (603 Pilot House) .....................................................37,348 Cale Colony 17 ...............................................................................17,000 Canon Place...................................................................................26,000 Comb-Bay Park .............................................................................32,000 Dunwoody Place............................................................................19,798 Executive Center............................................................................95,399 Fishing Point Complex(flex) ...........................................................50,000 International Distribution Center....................................................36,000 McCale Professional Park .............................................................40,000 Middle Ground Business Center ...................................................62,000 Oyster Point Center .......................................................................44,000 Oyster Point Business Center .......................................................25,000

Oyster Point Place (flex) 38,000 Oyster Point West ........................................................................176,560 Park Central Executive Center ......................................................54,425 Park Place (751 & 753 Thimble Shoals) .....................................25,000 Peninsula Business Center I (flex)..................................................21,817 Peninsula Business Centre II (flex) ...............................................40,475 Peninsula Business Centre III (flex) ..............................................60,000 Rock Landing Corporate Center IV ...............................................18,125 Rock Landing Corporate Center ....................................................18,125 Technology Center (flex)................................................................81,000 Thimble Shoals Business Center (flex) ........................................55,377 Thimble Shores Lakefront .............................................................25,000 CLASS C 714-716-718 Clyde Morris Blvd...................................................15,000 Drucker & Falk Building.................................................................30,000 Pilgrim Landing ..............................................................................10,650 Regent Park ...................................................................................25,000 OWNER OCCUPIED Applied Research Center ............................................................121,000 Fountain Plaza Two .......................................................................80,000 Muller Martini Building...................................................................24,000 Peninsula Retail Credit...................................................................30,000

SUBURBAN NEWPORT NEWS CLASS B Bay Savings Bank Building............................................................18,000 Colony Square of Denbigh II.......................................................... 26,100 Denbigh Professional Park ............................................................40,598 Ferguson Enterprises.....................................................................75,800 MCI Building...................................................................................60,000 Tidewater Tech (616 Denbigh Blvd) .............................................15,778 CLASS C Mariner Building.............................................................................26,000 Teagle Building...............................................................................22,000 OWNER OCCUPIED CNU Building..................................................................................40,000

WILLIAMSBURG/JAMES CITY/YORK COUNTY CLASS A 263 McLaws Circle.......................................................................26,967 Atrium Building...............................................................................24,000 Casey New Town - SunTrust.........................................................60,000 Courthouse Green .........................................................................30,000 Design Center ................................................................................13,700 First Union Center..........................................................................32,000 Langley Federal Credit Union ........................................................20,000 Williamsburg Commerce Center...................................................32,000 Palladian Office Building................................................................21,000 Patriot Park Business Center ........................................................24,000 Sentara New Town Medical Building ...........................................50,000 Sun Trust (Courthouse St.) ...........................................................60,000 William E. Wood Building ............................................................20,000” CLASS B 104 Bypass Road...........................................................................11,100 7601 George Washington Memorial Highway ...........................10,000 Chartertowne Professional Center ...............................................12,800 Greens Springs Office Park...........................................................37,000 Kristinsand Office Park..................................................................15,221 Packets Executive Center..............................................................23,000 Quarterland Commons Office Condos ......................................120,000 Rivergate Center ............................................................................36,000 Wachovia Bank..............................................................................10,500 Williamsburg Office Park...............................................................79,600 Disclaimer: The information in this report is deemed reliable.

The Old Dominion University E. V. Williams Center for Real Estate and Economic Development makes no representation or warranty as to its accuracy.

OFFICE SUBMARKETS 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. York County 57

Get Smart about business.

Local business news at your fingertips 24/7.

m.insidebiz.com

RESIDENTIAL

2013 HAMPTON ROADS R E A L E S TAT E MARKET REVIEW

New Residential Market Author Data Analysis/ Layouts

Blair Hardesty Belliveau Residential DataBank

Existing Residential Market Author Data Analysis/ Layouts

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 individuals, organizations and the CREED IPAC and Council Advisory Boards.

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 makes any representation or warranty as to its accuracy.

2013 RESIDENTIAL 59

2013 RESIDENTIAL

General Overview he Hampton Roads Residential market statistics covered in this report analyze the new home building industry and the existing home sales activity for the year 2012. Included are the cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg, and the counties of Gloucester, Isle of Wight, James City, and York.

The new homes portion of the report also includes information for Franklin and Southampton, while the existing homes section of the report contains additional information on Surry, Matthews and Currituck. The new construction data contained in this report was gathered from the actual deeds recorded and from the building permits issued by each city or county. The sales data and existing home closings data was gathered from the Real Estate Information Network (REIN).

NEW CONSTRUCTION The best characterization of residential new construction in Hampton Roads in 2012 is that it was a year of transition from a bottoming market in 2011 to a clearly defined upturn in 2012. Permits, closings and revenue were all up double digits compared to 2011, signaling the beginning of the upward trend that has been long awaited. Though we are still a long way from the lofty numbers of the boom years, the lines on the graphs are now headed in the right direction.

The single laggard of the four metrics of permits, closings, sales price and revenue is sales price. Average sales price edged slightly lower by 1.1% in 2012. However, prices have been declining at a slower pace over the last four years and have been fairly stable for the last two years. There are two main reasons for the decline: One, an oversupply of similar products in the same submarkets resulting in price competition among builders; and, two, attractive land deals inked by builders in 2011 and early 2012 who have passed some of those land savings on to the customer in the form of lower prices for to be built homes, while still providing generous living space comparable to past years.

Inventory levels in most price ranges are at multi-year lows for the second straight year and, in some price ranges, are completely depleted. Hampton Roads is a market that responds well to a robust “spec” building environment due to the large number of military transferees that want to get settled quickly and are not always willing or able to wait for a five to six months or longer build time. One of the big challenges for builders in 2013 will be the restoration of healthy inventory levels through well managed “spec” building programs. In order for that to happen, the builders must be willing to risk it and the banks must agree to lend for these programs. We remain optimistic that both of these opportunities will become a reality in 2013.

Pent up demand and a continued improvement in the economy will drive the further growth in sales numbers that is anticipated for 2013.

The local building industry has emerged from the market “adjustment” process a much leaner and stronger industry with valuable lessons learned and the industry is determined to move forward toward a new prosperity.

60

2013 Hampton Roads Real Estate Market Review

Class A Market Statistics 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Permits

6902

7147

7696

7233

4917

3331

2852

3054

2777

3290

Closings

4831

5445

5085

4828

4114

3297

2746

2405

2345

2714

$244,235

$295,474

$364,792

$397,131

$387,781 $362,260

$322,661

$320,556 $309,658

$306,341

$1,180

$1,609

$1,855

$1,917

Avg Sales Price Total Revenue (millions)

$1,595

$1,194

$886

$771

$726

$831

THE TEN YEAR TREND. . .

The run-up to the market peak that occurred from 2002 to 2004-2005 was followed by several years of declines in permits, closings, sales price and revenue. In 2010 and 2011, there were clear signs that the downward trend was leveling off toward a market bottom from which a recovery could take place. 2012 provided further confirmation of a 2011 bottom and showed the beginning of a clear upward trend in permits, closings and revenue. Prices, on the other hand, are continuing their leveling off process and no upward trend has been established.

FROM THE PEAK TO THE PRESENTâ&#x20AC;Ś Permits down 57% with 4,406 fewer permits issued in 2012 versus 2005 Closings down 50% with 2,713 fewer closings in 2012 versus 2004 Average Sales Price down 23%, a $90,790 decline from 2006 to 2012 Total Revenue down 57%, a decline of $1.1 billion in 2012 compared to 2006

2013 RESIDENTIAL 61

2013 RESIDENTIAL

2012 VERSUS 2011 CONSTRUCTION ACTIVITY

by Product Type Detached Detached permits were up 22.5% to 2,448. Closings increased by 22.0% to 1,833 led by successes at Turtle Creek in Newport News, Parkside at Bennettâ&#x20AC;&#x2122;s Creek in Suffolk, and Village Bend in Virginia Beach. The average sales price declined 3.1% to $335,452 and detached revenue increased by 18.2% to $614.9 million.

Attached - Multistory Multistory condominiums were the only product type to have a decrease in permits and closings for the year with a permit decline of 31.4% to 72 and a closing decline of 20.6% to 127. This is due to the closeout of Southmoor at Ridgely Manor in Virginia Beach and the lack of new multistory projects. The average sales price increased 4.5% to $273,065 and revenue declined 17% to $34.7 million.

Attached - Multiplex Multiplex permits were up 33.6% to 203. Closings were up 21.8% to 235; this is due to success by the Dragas Companies in three Chesapeake communities that accounted for 49.8% of the 2012 multiplex condo closings.

Average prices were up 3.5% to $225,474 as a result of increased competition in this market segment. This group experienced the largest increase in revenue, up 26.0% to $60 million.

Attached - Townhouse/Duplex Townhouse/Duplex permits were up 8.8% to 567. The largest increase was in Chesapeake where permits increased by 25 to 91. Closings were up 5.9% to 519, led by successes at Meridian Parkside in Newport News and Riverwalk Townes in York County. The average sales price held steady with 0.4% decline to $248,287 and revenues increased 5.5% to $128.9 million.

Hampton Roads Product Mix 2012 Closings

67%

19% 9% 5% Detached

62

Town/Dup

2013 Hampton Roads Real Estate Market Review

2012 VERSUS 2011 NEW CONSTRUCTION ACTIVITY

by City Permits Permits were up in nine cities in Hampton Roads. The largest gainer was Chesapeake, up 26.5% to 820 permits issued. The largest percent increase was in Portsmouth where permits increased 53.3% to 69. Permits were down in three cities. The largest percentage decline was Williamsburg, down 57.1% to 15 permits issued. The largest reduction in the number of permits issued occurred in Newport News, down 60 permits for the year.

Closings Closings were up in 2012 compared to 2011 in all cities except for Isle of Wight and Williamsburg. Although Gloucester had the largest percentage increase with 54.1%, Chesapeake had the largest number increase, up 88 closings for a 15.3% increase. Isle of Wight had a slight decrease of three closings, down to 61 closings recorded for 2012. Williamsburg had a decrease of 45.5% to 18 closings.

Average Sales Price The average sales price increased in more than half of the cities/counties. The largest increases were in Portsmouth and Williamsburg, up 9.6% and 9.8% respectively. York County had the largest decrease, down 14.6% to $274,673. Virginia Beach had the highest average closing price for a new home in Hampton Roads during 2012 at $392,591, and Portsmouth had the lowest average closing price at $208,828.

Revenue There were revenue increases in ten cities. Gloucester had the largest percentage increase up 57.6% to $13.9 million. Suffolk had the largest dollar increase up $21.2 million to $85.8 million in revenue for 2012. The largest percentage and dollar value decrease occurred in Williamsburg with a 40.1% decrease in revenue to $5 million, a $3.4 million decrease compared to 2011.

City/County CHES

Closings

Avg Sales Price

2011 2012 % Change 2011 2012 % Change 648

820

26.5%

576

664

15.3%

2011 298,111

Revenue

2012 % Change 286,174

-4.0%

2011

2012 % Change

171,711,923 190,019,811

10.7%

I of W

83

96

15.7%

63

61

-3.2%

299,641

297,404

-0.7%

18,877,380

18,141,648

-3.9%

NORF

209

289

38.3%

150

211

40.7%

291,322

305,020

4.7%

43,698,277

64,359,317

47.3%

PORT

45

69

53.3%

52

62

19.2%

190,488

208,828

9.6%

9,905,385

12,947,317

30.7%

SUFF

259

347

34.0%

218

288

32.1%

296,342

297,842

0.5%

64,602,533

85,778,385

32.8%

543

613

12.9%

542

546

0.7%

375,595

392,591

4.5%

203,572,317 214,354,950

5.3%

25.0% 1,601 1,832

14.4%

320,030

319,651

-0.1%

512,367,815 585,601,428

14.3%

VBCH Total Southside

1,787 2,234

GLOU

105

122

16.2%

37

57

54.1%

238,463

244,014

2.3%

8,823,119

13,908,800

57.6%

HAMP

168

157

-6.5%

130

146

12.3%

260,309

262,657

0.9%

33,840,178

38,347,946

13.3%

JCC

351

453

29.1%

325

368

13.2%

327,752

311,446

-5.0%

NNEWS

226

166

-26.5%

143

191

33.6%

221,557

240,051

8.3%

35

15

-57.1%

33

256,770

281,842

9.8%

8,473,424

105

143

36.2%

76

102

34.2%

321,584

274,673 -14.6%

24,440,398

6.7%

744

882

18.5%

287,338

278,694

18.5% 2,345 2,714

15.7%

309,658

306,341

WMSBG YORK/POQ Total Peninsula Total Hampton Roads

990 1056 2,777 3,290

18 -45.5%

2013 RESIDENTIAL

Permits

106,519,476 114,612,062 31,682,667

45,849,825

7.6% 44.7%

5,073,164 -40.1% 28,016,658

14.6%

-3.0%

213,779,262 245,808,455

15.0%

-1.1%

726,147,077 831,409,883

14.5%

63

2013 RESIDENTIAL

HAMPTON ROADS 2012 TOP SUBDIVISIONS For 2012, the number one subdivision for permits was Kings Pointe at Western Branch in Chesapeake with 96 permits, including 72 non-elevator served multistory condominium permits and 24 four-plex condominium permits.

The number two subdivision for permits was Culpepper Landing in Chesapeake which had 72 permits issued during the year. There were 39 detached permits issued to 10 builders, 12 multiplex permits issued to Kotarides Builders, and 21 townhome permits issued to ABT Custom Homes.

The top subdivision for closings in 2012 was Culpepper Landing in Chesapeake with 61 closings and $18,092,198 in revenue. There were 30 detached closings by eight builders; Vintage Homes had the most detached home closings at Culpepper Landing with 10 closings recorded and an average sales price of $380,453. Kotarides Builders had 10 multiplex closings recorded with an average price of $164,999 and ABT Custom Homes had 21 townhome closings with an average price of $237,901.

Turtle Creek by Ryan Homes in Newport News was the number two subdivision with 59 closings recorded.

These closings had an average price of $282,296 and total revenue of $16,655,447. Colonial Heritage by Lennar Corporation in James City County was the number three builder for closings and revenue during 2012 with 57 closings and $19,928,888 in revenue. There were 55 detached closings with an average price of $353,617 and two duplex closings with an average price of $239,990.

East Beach was the number one subdivision for revenue in 2012. There were 45 closings recorded for $23,375,659 in revenue. There were 27 detached closings with a total revenue of $15,521,759 by 13 builders; Seaside Builders was the most successful detached builder with six closings and $3,039,790 in revenue. There were 12 multistory condominium closings at East Beach Villas with an average price of $415,333 and six townhome closings by L R Hill Custom Builder with an average price of $478,317. Sherwood Lakes in Virginia Beach was the number two community for revenue in Hampton Roads with $20,961,556 in revenue divided between Home Associates of VA with $13,705,660 and HBD Building with $7,255,896.

CLOSINGS

PERMITS

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

64

Permits Subdivision Issued Kings Pointe, C 96 Culpepper Landing, C 72 Colonial Heritage, J 59 Turtle Creek, N 59 Village Bend, V 58 The Grove, C 52 Sherwood Lakes, V 47 Lakes Of Jolliff, C 47 Whitehall, J 46 Parkside, S 44 Settlement At Powhatan, J 43 East Beach, R 42 Graystone Reserve, S 39 Eagle Pointe, C 38 Sajo Farm, V 36

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

Closing Subdivision Recorded Culpepper Landing, C 61 Turtle Creek, N 59 Colonial Heritage, J 57 Meridian Parkside, N 55 Kings Pointe, C 54 Sherwood Lakes, V 52 Whitehall, J 46 East Beach, R 45 Sajo Farm, V 42 Parkside, S 42 Oakbrooke Crossing, C 41 Village Bend, V 40 The Grove, C 39 Hampshire Glen, H 38 Settlement At Powhatan, J 35

Average Price $296,593 $282,296 $349,630 $206,519 $172,876 $403,107 $232,738 $519,459 $385,335 $380,822 $183,306 $360,276 $203,860 $275,822 $331,745

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

Subdivision East Beach, R Sherwood Lakes, V Colonial Heritage, J Culpepper Landing, C Turtle Creek, N Sajo Farm, V Parkside, S Heritage Park, V Village Bend, V Settlement At Powhatan, J Meridian Parkside, N Whitehall, J Hampshire Glen, H Greensprings West, J Lakes Of Jolliff, C

Total Revenue $23,375,659 $20,961,556 $19,928,888 $18,092,198 $16,655,447 $16,184,050 $15,994,503 $14,721,919 $14,411,055 $11,611,065 $11,358,545 $10,705,948 $10,481,230 $9,741,304 $9,709,682

2013 Hampton Roads Real Estate Market Review

HAMPTON ROADS 2012 TOP BUILDERS Ryan Homes was the top builder in Hampton Roads for permits, closings and revenue with 238 permits issued, 242 closings and $72,036,822 in revenue. Ryan Homes is actively building in 15 new communities in Hampton Roads.

Their top subdivision was Turtle Creek in Newport News with 59 permits, 59 closings and $16,655,447 in revenue.

The Settlement at Powhatan was their number two subdivision for permits, closings and revenue with 17 detached permits and 18 townhome permits. There were 18 detached closings and 13 townhome closings recorded for $9,847,885 in revenue.

Chesapeake Homes was the number two builder in Hampton Roads for permits with 172 issued in 11 subdivisions during 2012. Graystone Reserve in Suffolk had the most permits issued with 39.

HHHunt Homes was the number two builder for closings and revenue with 165 closings recorded and $38,167,764 in revenue. HHHunt Homes had closings in eight communities in Hampton Roads during the year, including six detached and two attached. Their top subdivision for 2012 was Meridian Parkside in Newport News with 55 closings and $11,358,545 in revenue.

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

Permits Builders Issued Ryan Homes 238 Chesapeake Homes 172 Dragas Companies 164 HHHunt Homes 151 Terry Peterson Res 79 Platinum Homes 77 Ashdon Builders Inc 69 McQ Bldrs & Dev Inc 61 Lennar Corp 59 Napolitano Ent Inc 59 Virginia Ent Inc 56 Pace Constr & Dev Corp 55 Bishard Dev Corp 53 Franciscus Co Inc 53 Hearndon Constr Corp 52

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

Closing Builders Recorded Ryan Homes 242 HHHunt Homes 165 Dragas Companies 142 Chesapeake Homes 129 Terry Peterson Res 76 Platinum Homes 64 Bishard Dev Corp 58 Lennar Corp 57 Napolitano Ent Inc 55 Ashdon Builders Inc 54 Pace Constr & Dev Corp 53 Hearndon Constr Corp 53 McQ Bldrs & Dev Inc 52 Franciscus Co Inc 50 Virginia Ent Inc 48

Average Price $297,673 $231,320 $184,948 $281,324 $298,650 $299,857 $322,061 $349,630 $350,906 $286,781 $310,197 $269,122 $288,329 $220,929 $317,344

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

Builders Ryan Homes HHHunt Homes Chesapeake Homes Dragas Companies Terry Peterson Res Lennar Corp Napolitano Ent Inc Platinum Homes Bishard Dev Corp Summit Constr Corp Pace Constr & Dev Corp Ashdon Builders Inc Home Associates Of Va Virginia Ent Inc McQ Bldrs & Dev Inc

Total Revenue $72,036,822 $38,167,764 $36,290,809 $26,262,672 $22,697,429 $19,928,888 $19,299,850 $19,190,837 $18,679,562 $16,509,431 $16,440,465 $15,486,164 $15,379,160 $15,232,515 $14,993,106

65

2013 RESIDENTIAL

CLOSINGS

PERMITS

2013 RESIDENTIAL

EXISTING HOMES The Hampton Roads existing residential real estate market showed signs of continued stability throughout 2012 that started in 2011. Existing home closings picked up from where the leading indicators left off at the end of 2011.

Closings of existing homes continued to rise through all four quarters; however, a fair number of these were of distressed homes. Overall, the region showed positive signs as inventories dropped, closings rose and sales of distressed properties also decreased. $250, 000

$219 ,900

20,881

$208,000

$200, 000

$205,000

14,265

14,517

15,526

$157 ,900

$130,000

$185,000

15,017

$182,500

16,249

18,572

$194 ,500

16,612

18,430

19,604

20,000

15,000

$224 ,900 $215,000 21,890

23,209

24,207

25,000

$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

$64,100

5,000

$50,000

9,809

8,614

7,483

2003 2004 2005 Exis ng Ac ve Homes for Sale Exis ng Home Median SP

10,077

2002

9,055

2001

6,982

2,801

2000

4,313

3,831

2,093

4,873

2,015

5,538

$49,300

2010

2011

2012

$0

0 2006

2007 2008 2009 Exis ng Home Closings HUD Median Household Income

At 2012 year end, active inventory of existing homes for sale in the region fell 13.1% as compared to 2011. There were only 7,483 existing homes for sale at the end of 2012 as compared to 8,614 existing homes at the end of 2011. As a result of the decrease in inventory and an increase in closed sales, the Hampton Roads’ monthly supply of inventory fell to 5.53 months as compared to 6.88 months in 2011 which was a 19.62% yearover-year decrease. Most experts view a healthy market as between six to eight months’ supply of inventory.

Existing home closings increased 8.2% in 2012 to 16,249 from 15,017 in 2011. Virginia Beach continued to have the largest percentage of the total existing home closings at 31% which was equal to the 31% measured in 2011. Chesapeake came in second at 15% and Norfolk was third with 13% of all existing closings. On the Peninsula, Newport News had the highest percentage increase with 9.0% of the total existing closings followed by Hampton at 7.1%.

The median sale price of existing home closings increased by a modest 1.37% at 2012 year end from $182,500 to $185,000. Since the peak median sales price in 2007 of $224,900, the region’s median sales price for existing homes has fallen 17.7%.

Several cities experienced increases in their median sales prices of existing homes for 2012 year end: Norfolk at 3.5%; Chesapeake at 3.3%; Virginia Beach at 2%; and Williamsburg at 17%. James City County continued to have the highest median existing home sale price at $277,000, up $500 from 2011. York County also continued to have the second highest median existing home sale price at $260,500, down $2,500 from 2011.

Cities that experienced the greatest decreases in their median sales prices of existing homes for 2012 year end: Newport News at -4.8%; Suffolk at -4.8%; and Portsmouth at -3.2%.

Portsmouth had the lowest median sales price for existing homes at $107,000 which was down $3,450 from 2011.

66

2013 Hampton Roads Real Estate Market Review

Detached existing home closings comprised 12,693 units or 78.1% of all existing home closings, an increase of 775 units from 11,918 units in 2011. Most cities and counties in the Hampton Roads region showed year-over-year gain of 8.0% or greater of detached existing home sales with the exception of Portsmouth with a 2.8% loss and Newport News with a 2.3% loss. For cities with more than 100 sales reported in 2012, James City County had a 30.47% gain in existing home closings. Isle of Wight had the second greatest percentage gain of 18.99% in existing home closings.

Attached existing home closings posted more gains in 2012 than for 2011. Attached existing home closings for 2012 included 3,556 units or 21.9% of all existing home closings, an increase of 457 units from 2011 for a year-over-year gain of 14.7%. James City County had the largest year-over-year gain of 107.14% from 2011. Portsmouth also showed a significant gain of 35.16% from 2011 (123 units sold in 2012 compared to 91 units in 2011). Virginia Beach came in with a healthy 13.88% gain over 2011 (1,871 units in 2012 compared to 1,643 units in 2011). Of the total existing home closings (attached and detached) for Hampton Roads, the city with the largest percentage of attached existing home closings for 2012 was Virginia Beach with 36.6%.

$135 ,000 $110 ,450 $107 ,000

$279 ,000 $263 ,000 $260 ,500

$251 ,500 $215 ,500 $215 ,000

$230 ,000 $215 ,000 $219 ,600 $173 ,500 $137 ,000 $125 ,000

$212 ,000 $209 ,900 $199 ,000

$270 ,000 $238 ,000 $265 ,000 $164 ,900 $140 ,000 $145 ,000

$130 ,000

$172 ,250 $153 ,200 $145 ,800

$215 ,000 $165 ,000

$256 ,000 $235 ,000 $230 ,000

$150 ,000

$155 ,000 $135 ,750 $135 ,000

$198 ,350 $184 ,500 $180 ,000

$213 ,750 $199 ,000 $200 ,000

$200 ,000

$100 ,000

$50,000

$0 CHES

CURR

GLOC

HAMP

IWCJ

CC

MATC

NNEW

NORF

POQP

ORTS

UFFS

URCV

BCHW

MBGY

ORK

Distressed homes, as defined in this report, are those that are bank owned, government owned or short sales.

Throughout the year, distressed home sales comprised between 24.22% and 28.05% of the total existing home sales in the region ending the year at 28.05%. Virginia Beach, Chesapeake and Norfolk showed the most activity pertaining to distressed existing homes at 7.86%, 4.78%, and 3.94% respectively.

This is largely due to the population densities within these cities.

2013 RESIDENTIAL

$250 ,000

$230 ,000 $211 ,000 $218 ,000

$300 ,000

$295 ,000 $276 ,500 $277 ,000

$350 ,000

67

2013 RESIDENTIAL Distressed homes in the Hampton Roads region also comprised between 24.4% and 37.18% of closed existing home sales during 2012 on a monthly basis. The peak for these sales was in January. The percentage tapered off sharply beginning with May at 26.26% to the low in August. Following August, the percent of distressed closed existing home sales crept up to 31.71%.

The median sales price of distressed closed existing home sales ranged from $122,750 (November) to $140,000 (July) ending the year at $129,975. For non-distressed closed existing home sales, the median sales price ranged from $182,000 (January) to a high of $220,000 (June), ending the year at $204,900. The end of year difference between distressed and non-distressed closed existing home sale prices was $74,925 or a discount percentage of 36.57%.The average number of days an existing home spent on the market before closing in 2012 was 95 days, a decrease of six days when compared to the 2011 average of 101 days. This reduction is promising and may indicate a normalization of the sales market.

Looking into 2013, there are indicators of growth in the overall homes real estate market in Hampton Roads. All four quarters of 2012 posted very positive returns in the home sales market. Third quarter 2012 posted a 13.33% increase over the same quarter in 2011 (5,510 home sales units vs. 4,862).

The fourth quarter of 2012 maintained a strong increase of 6.41% over 2011 (4,649 home sales units vs. 4,369). In December alone, under contract home sales increased 8.55% or 1,358 home sales units compared to 1,251 units in 2011. The caveat to this growth is centered on economic policies and consumer trust and belief in the economy.

Uncertainty is never good for growth.

68

2013 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

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

Gloucester Hampton James City County Matthews Newport News York County

69

70

2013 Hampton Roads Real Estate Market Review

MULTIFAMILY

2013 HAMPTON ROADS R E A L E S TAT E 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 IPAC and Council Advisory Boards, 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 makes any representation or warranty as to its accuracy.

2013 MULTIFAMILY 71

2 0 1 3 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 account for nearly one half of the regionâ&#x20AC;&#x2122;s apartment units.

Although the area saw stagnant rent growth over the past year and a slight uptick in vacancy rates, the Hampton Roads apartment market remains healthy. Occupancy rates for the overall market are nearly 93%, which is higher than most major metropolitan areas in the southeast. Looking ahead, apartments should see improving fundamentals due to strengthening demand for rentals in lieu of home ownership.

Submarket Percentages

Suffolk 1%

Virginia Beach 26%

Williamsburg 4%

York County 2%

Chesapeake 11%

Hampton 11%

Development activity continues to gain momentum as developers/investors look to take advantage of the increasing demand for rental housing. As of October 2012, there were 2,004 units under construction in the Hampton Roads region; however, this equates to only a 2.1% growth rate in supply over the next 12 to 24 months which will help keep occupancies at or above current levels.

The average quoted rental rate is $931, with one-bedroom rents averaging $831 per month, two-bedroom units averaging $935 per month, and Portsmouth 8% three-bedroom units reporting an average rental rate of Newport News 22% $1,129 per month. Average rental rates from existing Norfolk inventory increased by $9.51 in the last twelve months.

15% Although the area did not see any significant drop in rents during the recession of 2008 to 2010, which other cities experienced, the Hampton Roads region has not benefited, in terms of rent growth, from the migration away from homeownership and toward rentals that many other cities have experienced over the past two years.

72

2013 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. Although current development activity is being slowed by tighter lending restrictions, there are 2,000 units expected to come on line within the next 18 months. There are another 3,500 units in some level of planning, many of which are waiting to secure financing.

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

2013 MULTIFAMILY 73

2 0 1 3 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. With the slow down in the overall housing market, residential permits issued fell to 5,223 in 2009 which is less than half of the activity at the peak of the market in 2005.

Multifamily permit activity, which includes rental and for-sale units, surged from 2002 to 2005. Total multifamily development peaked in 2005 with over 3,000 new units permitted. However, much of the permit activity up until 2009 had not been rental apartments, but instead for-sale condominiums and townhouses, especially in recent years when a decline in interest rates made it easier for many people to get into the for-sale arena.

Multifamily development and apartments in particular, saw a surge in activity in 2011 with more than 2,400 units permitted compared to only 761 units in 2010. Permit activity remained strong in 2012, although, below 2011 levels, with more than 1,700 multifamily units permitted.

Table II Annual Multifamily Permit Activity

74

2013 Hampton Roads Real Estate Market Review

Table III Multifamily Permits Issued Past Year

APARTMENT DEVELOPMENT ACTIVITY As of the 4th quarter of 2012, there were 2,004 apartment units under construction within fourteen communities in the Norfolk-Virginia Beach-Newport News market. There are an additional 3,502 apartment units proposed to start construction within the next year. Chesapeake, Virginia Beach, Newport News, and Norfolk are the most active areas for new apartment development with twenty-one communities either underway or in planning.

2013 MULTIFAMILY

Table IV Apartment Development Activity (October 2012)

75

2 0 1 3 M U LT I F A M I LY

DEMAND Based on historical performance, the Norfolk-Virginia Beach-Newport News area is expected to absorb between 600 and 900 units annually. The collapse of the housing markets nationwide and the weakening economy caused a significant drop in demand for all types of housing in 2008. The area experienced a surge in demand for rental units in 2009 and 2010. This was due in part to the depressed for-sale housing market and householder preferences switching from ownership to renting.

The area recorded only modest levels of demand in 2012 with only 439 units absorbed. This was less than one-third the rate of absorption occurring in 2009 and 2010. The slowdown in demand is due in part to the same force, depressed for-sale housing market, which bolstered demand in the prior two years. Only this time, home prices have stabilized and mortgage rates have dropped to such low levels that ownership is looking more financially appealing than it did in 2009 and 2010. In addition, some distressed single family and condominium properties have moved into the rental pool, adding a new source of supply to compete with apartments for renters.

Demand remains strongest in the Chesapeake area followed by areas of redevelopment in Norfolk and Virginia Beach. 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 long term.

Table V Absorption

76

2013 Hampton Roads Real Estate Market Review

Table VI Submarket Absorption 2012

VACANCY The overall vacancy rate for the Norfolk-Virginia Beach-Newport News market as of October 2012 was 7.3%, up from 6.3% in 2011. Vacancy rates are expected to remain in the 7% range through 2013.

Table VII Overall Vacancy

2013 MULTIFAMILY

Most submarkets experienced a slight rise in vacancies over the past year. Chesapeake, Newport News and Virginia Beach experienced the largest rises in vacancies due primarily to the amount of new supply entering those markets. Although vacancy rates rose modestly in the past year, the areaâ&#x20AC;&#x2122;s vacancy rate remains lower than most other cities in the southeast. The Hampton Roads region has, historically, 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.

77

2 0 1 3 M U LT I F A M I LY Table VIII Submarket Vacancy Rates

RENTAL RATES As of October 2012, the average rental rate in Norfolk-Virginia Beach-Newport News was $931.

Table IX Average Rental Rates (New & Existing Communities)

AVERAGE RENTS Average overall rents ranged from a low of $823 in Newport News to a high of $1,042 in Chesapeake. Newport News, Portsmouth, Suffolk and Norfolk all reported rents lower than the regional average, while Hampton, Williamsburg, Virginia Beach, York and Chesapeake all reported rents higher than the regional average.

78

2013 Hampton Roads Real Estate Market Review

Table X Average Rent by Submarket â&#x20AC;&#x201C; October 2012

MANAGEMENT There were over 480 conventional apartment communities with more than 50 units surveyed in the Hampton Roads region. Of the 95,000+ apartment units surveyed, the top five firms manage one-third of these units.

Table VII Top 10 Management Companies

2013 MULTIFAMILY 79

2 0 1 3 M U LT I F A M I LY

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. The development that has occurred recently has been focused on redevelopment of older commercial/industrial buildings into rental apartments in and around the downtown area. Occupancy rates in 2012 reached 95% with rents averaging $710 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 nearly 94% in 2012. Rents also showed modest growth over the past year with rents now averaging $880 per month. Developers remain focused on the downtown areas of Richmond, redeveloping former warehouses into upscale apartments.

80

2013 Hampton Roads Real Estate Market Review

Multifamily Submarkets Southside

Peninsula

Chesapeake Norfolk Portsmouth Suffolk Virginia Beach

Hampton Newport News York County Williamsburg

81

Spend more time in your P.J.s and less in your pin stripes.

Come home to York County and conduct business from the comfort of a safe, well-managed community with small-town appeal and big-city convenience.

SINESS S TS YOUR BU O O B Y T N U YOR K CO on pr ov id es C ou nt y lo ca ti rk Yo po rt nt ie en A co nv ac ce ss to th e ic k an d ea sy qu ng si ou eh do m es ti ca lly Li be rt y War s cu st om er s it g in rv se r fo te s an d in te rs ta te t Ro n Mill er no . (A nd Pr es id en ld or w e th w el l! ) an d ar ou nd m fo rt ab le as ut e is ve ry co m m co e ut in th e 5- m

www.YesYorkCounty.com 757.890.3317

Profoundly deaf, Summer lived in silence — until she came to EVMS for a life-changing cochlear implant.

She returned to EVMS for her degree.

Now, she’s a talented physician assistant, listening to patients here in Hampton Roads.

You’re healthier because we’re here.

REAL ESTATE INVESTMENT

2013 HAMPTON ROADS R E A L E S TAT E MARKET REVIEW

Author

Tony Beck Vice President - Southern Virginia First Potomac Realty Trust

Financial Support

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

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 makes any representation or warranty as to its accuracy.

2013 REAL ESTATE INVESTMENT 83

2 0 1 3 R E A L E S TAT E I N V E S T M E N T

General Overview espite the ongoing debate whether the United States government has a spending problem versus a cost reduction problem, in addition to the unknown of the European financial turmoil related to the debt crisis, the US commercial real estate investment market continued to recover in 2012 with multifamily leading the charge again. Historically low interest rates and increased lender confidence supported by Freddie Mac and Fannie Mae made this sector the most active over the past year.

Of the five different asset classes, all have shown a positive trend over the past year with office, industrial, retail, and lodging all falling in behind multifamily.

The Class A office product in primary markets (i.e. New York; Chicago; Atlanta) has been an area where investors have focused. These properties have offered higher yields; however, the slow job market recovery has hampered occupancy and the lingering 2007 debt on distressed properties in the primary markets has prompted investors to start to broaden their search for Class A properties in the secondary and tertiary markets.

The retail sector is in recovery with investment into malls, power centers, and specialty retail anchored by national tenants leading the way. With limited new development in this sector, investors are looking for quality locations with redevelopment opportunity being the trend for the coming year. The hotel and lodging sector leveled off in 2012 with the fear of the economy dropping back into recession. The overall operating fundamentals remained strong and the access to equity and lower cost of capital will assist in a gradual recovery in 2013 and beyond.

The commercial mortgage-backed securities (CMBS) market continued to have the cloud of the 10 year loans that were originated in 2006 and 2007. There is currently just under $1.0 trillion in securitized and non-securitized commercial real estate (CRE) loans that will mature in 2016 and 2017. If these loans were to come due now it would be difficult, if not impossible, to refinance unless the underwriting standards were relaxed and the net operating income of these properties improved or the current loan to value ratio were reduced.

US SALES VOLUMES There continues to be a flight to cash flow, quality, and security of the more institutional grade assets with pricing reaching near 2006 levels. The multifamily and retail (mall) sectors are seeing purchase prices above any previous years high. Apartments and mall properties are up 10% and 8%, respectively from the previous 2007 high and retail (anchored strip centers), industrial, office, and lodging are all showing increase from the lows of 2009 and 2010, but still down 3% from the 22% high of 2006.

84

2013 Hampton Roads Real Estate Market Review

Based on transactions of $25 million and over, the investment sales market continued to see growth in all commercial sectors in 2012 with an approximate increase in sales volume by 19% or total growth of $182 million from 2011 to 2012. Again, as trophy property inventory in primary markets decreases for institutional grade investors, this creates a growing appetite for assets as many investors are looking to profit from the Class A assets into secondary and tertiary markets.

Commercial Property Price Index by Sector Source: Green Street Advisor

U.S. Sales Volume - Buyer Composition of U.S. Real Estate

REITs Users/Other Private Cross border

2013 REAL ESTATE INVESTMENT

Institutional/ Equity Fund Source: Real Capital Analytics

REITS CONTINUE TO PERFORM Since early 2010, real estate investment trusts (REITs) have outperformed the S&P and NASDAQ and have increased the investment in all market segments. Their balance sheets are as strong as ever and with access to equity through the sale of common shares and preferred equity, balance sheets will continue to grow in 2013 and beyond. As the overall market crashed in 2008, most REITs focused on re-capitalizing through the issuance of common stock which, in turn, lowered their ratios. This put most REITs in a strong position in 2012. More acquisitions in the primary markets on trophy properties will continue to follow suit in 2013.

REIT Balance Sheets are in Great Shape With Significant Acquisition Capacity

Source: NAREIT 85

2 0 1 3 R E A L E S TAT E I N V E S T M E N T

HAMPTON ROADS IN REVIEW Like the national trend, Hampton Roads saw an increase in investment activity with multifamily providing three of the top five transactions in 2012, with the anchored retail and the medical office sale rounding out in the top four.

Activity and interest continues into the 1st quarter of 2013 with early announcements of multifamily, office and industrial portfolios being marketed for sale.

Property Name

Property Type

Purchase Price

Size per ft/unit/room

per ft/unit/room

Tapestry Park Apts

Multi-Family

$29,600,000.00

190

$155,789.47

Fort Norfolk Plaza - MOB

Medical Office

$29,200,000.00

195,890

$149.06

Haygood Shopping Center

Retail

$28,000,000.00

174,410

$160.54

The Ashton Portfolio

Multi-Family

$26,640,000.00

370

$72,000.00

Steeplechase Apts

Multi-Family

$25,570,000.00

220

$116,227.27

Lillian Vernon Building

Industrial

$18,200,000.00

868,506

$20.96

Patrick Henry Corp Cntr

Office

$14,100,000.00

99,100

$142.28

Williamsburg Marriott

Hotel/Lodging

$12,000,000.00

295

$40,677.97

Indian River Dist Cntr

Industrial

$11,000,000.00

231,852

$47.44

ATK Blackhawk Building

Office

$10,700,000.00

65,524

$163.30

Muller Martini Building

Industrial

$7,700,000.00

153,890

$50.04

$282,010,000.00

The Hampton Roads area is unsettled more than most regions nationally due to the pending government cutbacks in defense spending and the long running saga of the longshoremanâ&#x20AC;&#x2122;s strike looming over the region. Even with those challenges, the overall local economy made gradual progress with Gross Regional Product expanding at 1.63 percent and regional unemployment of 6.4 percent by year end 2012. The Port of Virginia saw increases in general cargo tonnage and TEUâ&#x20AC;&#x2122;s at 12.2 percent and 9.8 percent, respectively.

2013 will see continued investment activity in the region with the larger institutional investors finding it more difficult to acquire stabilized, trophy assets in primary markets. Hampton Roads may benefit from the need of these institutional investors for placement of cash. If rental and vacancy rates are perceived to have bottomed out in the region, this may be viewed as an opportunity for value adds play in Hampton Roads.

The real challenge for the overall region will be the decisions made on government spending. It is widely anticipated that impending defense spending cuts, as well as reductions in government contract spending, will have a dampening effect on office investment sales in Hampton Roads.

86

2013 Hampton Roads Real Estate Market Review

INVESTMENT - A WORD ON CAP RATES “CAP RATES ARE REALLY, REALLY LOW BECAUSE SO MANY INVESTORS IN THE WORLD SAY ‘I’M TIRED OF TAKING RISK, I WANT TO GO BUY HARD ASSETS.’” - Tony James, President and COO of Blackstone Group, LP, December 2012.

Discussing cap rates can be a dangerous occupation, for many reasons, but the risk can be summed up in a quote from a prominent local Hampton Roads appraiser, who says that cap rates will all come down to what you are capitalizing. Capitalizing fairy tale income will get you fairy tale values. Cap rate statistics are generally averages of averages, pulled from thousands of actual transactions across the country or maybe just a few actual sales in our local market. One hopes that those transactions are arrived at by rational buyers and rational sellers, but, as in most things, rationality cannot be guaranteed, even in real estate sales.

Nevertheless, there are lots of cap rate statistics out there, and there are rational buyers and sellers watching them closely. Over the last year, they have watched them trend lower or hover at historically low rates, as indicated in Mr. James’ quote above. Below are some indications of recent national and local cap rates, derived from a number of credible sources, but remember, they are indications, (averages of averages) and rationality is not guaranteed.

One factor to note: major studies of cap rates focus on cap rates from institutional grade sales in major markets; Hampton Roads sales are typically non-institutional grade and thus will tend to range from 50 to 100 basis points higher than these.

2013 REAL ESTATE INVESTMENT

Multifamily: The popularity of multifamily investments has pushed these cap rates to the lowest of any real estate asset class. Those institutional deals are averaging about 5.75% according to a recent national survey; locally, some Class A apartments have traded at cap rates in the low 6%’s, but more seem to have sold in the high 6%’s to low 7%’s.

Office: Which flavor of office would you like? National CBD? National Suburban? Secondary Market? Flex Warehouse? Depending on how appealing the property, these cap rates are averaging from about 6.7% to 8%; recent sales in Hampton Roads indicate we are solidly at the Secondary Market average of 8%.

Retail: While the numbers for retail are different than office, the pattern is the same: institutional quality regional malls, power centers and strips are trading in the high 6%’s to low 7%’s, respectively, while recent sales in Hampton Roads show cap rates from mid-7%’s to low 8%’s; although, there was a sale last year of a grocery anchored center at a 9.5% cap rate – perhaps a little irrationality in that last one? Whatever you do when trying to bring national or local average cap rates to bear on an individual property, remember the appraiser’s disclaimer cited above: “It all depends on what you are capitalizing!”

Tom Dillon Senior Vice President, Real Estate Financial Services StellarOne

87

E. V. WILLIAMS CENTER FOR REAL ESTATE AND ECONOMIC DEVELOPMENT WWW.ODU.EDU/CREED