NORFOLK -- Hampton Roads' once half-empty warehouses are crammed to the ceiling these days - and tha...

1. West Coast port problems a boom for Hampton Roads
warehouses
NORFOLK -- Hampton Roads' once half-empty warehouses are crammed to the ceiling these days -
and that could mean a long-term economic windfall for the region.
But there still two big groups to be convinced. First the importers, who began sending their goods to
East Coast warehouses during the West Coast port slowdown. Then the bankers, who will want to
see if that shift from west to east is permanent.
"Things are ramping up," said Ann Crenshaw, a local real estate attorney with Kaufman Canoles and
president of the Hampton Roads Association for Commercial Real Estate. "I think as the economy
improves and demand continues, we expect this trend to hold."
In 2014, Hampton Roads was home to roughly 108 million square feet of leasable industrial space
located in 2,936 buildings, according to a recent Old Dominion University E.V. Williams Center for
Real Estate and Economic Development (CREED) report.
Industrial space includes everything from warehouses to factories.
Of the industrial warehouse and distribution space available in 2014, the report said about 91
percent of the space was leased -- approaching highs not seen in nearly 15 years.
The glut of empty buildings left vacant in the real estate bust of 2007 is nearly all gone now, and
that could prove challenging for port-related businesses seeking space they need to address
increased volume at the docks.
"Vacancy rates for industrial and distribution space in the region are at historic lows," said William
"Bill" C. Throne, an industrial broker and first vice president of Cushman Wakefield/Thalhimer.
"What we're seeing in the market is that there are few buildings available."
It could get much tighter, given the current momentum at Port of Virginia's Hampton Roads
terminals.
"There's no doubt that the infrastructure and labor issues on the West Coast can be factored into
rise in industrial leasing across the region," said Bobby Phillips, an industrial broker and first vice
president of Cushman Wakefield/Thalhimer. "Supply chain managers are weighing their options and
continue to monitor West Coast port activity closely. ... I think that's having an effect on what's
happening here."
Port powder keg
Increased cargo traffic at the Port of Virginia, coupled with an improving local and state economy, is
also filling up area warehouses, Throne said.
Of the nearly 2.4 million standard 20-foot containers -- TEUs -- that moved through the port's
terminals in 2014, about 1 million were imported, according to Virginia Port Authority (VPA). That's
up 9 percent from the 934,000 imported containers posted in 2013.

2. It also confirms what area brokers have known since last summer -- West Coast shippers are moving
east, and Hampton Roads is a likely destination for their cargo.
"Cargo traffic at the Port of Virginia is up 8 percent in the last 12 months as a result of incremental
influx of container ships from Asia that can't conveniently get into Los Angeles," Phillips said.
During a January port authority board of commissioners meeting, William "Bill" L. Ralph, a maritime
economist with R.K. Johns Associates, told commissioners the recent West Coast ports slowdown
could be an opportunity for growth in Hampton Roads.
With nearly 2 billion square feet of warehouse and distribution capacity within 300 miles of the port,
Ralph said the region is in prime economic position to create industrial clusters that could entice
and pull more growth to the area.
"The Port of Virginia should promote and be a leader in development of logistics center clusters
throughout Virginia," Ralph told board members. "Job creation is an important driver, but the
economic impact created by increased port volume is even more beneficial."
Ralph added that the port's deep channels and the economic impact of the Panama Canal
improvements will further make Hampton Roads an attractive hub.
Those effects may already be occurring across the region.
Overall, the region's industrial improvement was relatively balanced between the Peninsula and
Southside -- although there were some submarkets that significantly outperformed traditional
industrial strongholds.
The greater Oyster Point section of Newport News was noted in the CREED report as a hotbed of
industrial leasing activity, with nearly 97 percent of its reported 4.4 million-square-feet of industrial
space being occupied in 2014.
Vacancy in Hampton, and other areas of the lower Peninsula, has also declined -- another signal of
growth given the submarket's giant inventory of warehouse space that's second to Suffolk.
The lower Peninsula market also shows signs of gaining strength.
Last week, Newport News-based Huntington Ingalls Industries announced that it leased 515,486
square feet of office and warehouse space at 300 and 500 West Park Lane in the West Park
Industrial development off Big Bethel Road in Hampton. Year-to-date, it is one of the largest lease
transactions on the Peninsula.
Williamsburg also posted occupancy gains, according to the report, with nearly 94 percent of the
area's 9.1 million-square-feet of manufacturing and distribution space being occupied last year. A
few large companies, such as Wal-Mart and Anheuser Busch, are responsible for roughly half of the
industrial market share in Williamsburg.
Isle of Wight, despite seeing its industrial occupancy rate decrease 3.3 percent in 2014 to hold at 83
percent, is also poised for growth, the report said.
However, Suffolk --one of the region's largest emerging distribution and warehouse hubs -- saw the
most industrial activity in 2014, according to the report. Nearly 95 percent of its 12.3 million-squar-

3. -feet of industrial space is occupied, especially spaces that exceeded 250,000 square feet.
Throne said much of Suffolk's activity can be attributed to the port.
"When you look at the momentum in Suffolk, a lot of it has to deal with its proximity to the port,"
Throne said. "Almost all of the available warehousing and distribution product in Suffolk was
leased."
Market hesitancy
Despite a large influx of port cargo growth and the rise in industrial occupancy rates, developers
aren't sure about building more.
"The difference between 2002 and now is the volume of TEUs was used as the main guide to
determine how much additional square footage was needed for logistics and distribution centers to
handle the incremental cargo," Throne said. "In today's environment we're not sure that's the only
way to think about it."
That means developers and lenders are waiting to see if the current trend will hold before running
out to file plans and fund new large-scale speculative warehouse and distribution construction.
"It's a wait and see game," Phillips said, adding that some existing sites and buildings may not be
conducive for distributors, forcing some to explore build-to-suit options.
Another factor keeping developers on the fence has been the volume of short-term leasing
agreements completed in 2014. A number of the new warehouse and distribution leases completed
in the region range between one and three years, according to the CREED report.
Brokers say a number of developers are waiting to see if the port will continue its increased
container hauls before deciding to invest millions in new warehouse construction.
"Few real estate developers are ready to build speculatively just yet this time around to support this
new potential influx in containers," Phillips said.
It's a valid concern, given what happened prior to the real estate boom, and its subsequent bust
between 2006 and 2007. But area brokers say the current trend may hold for a while
"The last time congestion was this bad on the West Coast in 2002, some shippers diverted their
cargo ... to the East Coast," Throne said. "Many of those shipments didn't return after the contract
was settled."
O'Neal can be reached by phone at 757-247-4744.
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