The Port of Virginia plays a key role in the health of the Hampton Roads economy. The port consists of six different terminals across Hampton Roads sitting on roughly 1,864 acres. According to a 2021 Study conducted by the Mason School of Business at William and Mary, the Port of Virginia accounts for close to $30 Billion in Virginia labor income and nearly $50 Billion in gross state product. The port also employs over 436,000 people in both full and part time jobs. The impact of the Port of Virginia on the local economy cannot be overstated and it’s continued success is imperative for the health of the area’s economy and adjacent industries such as commercial real estate.
The past few years has proved to be an incredible time of growth for the Port of Virginia, and in conjunction, Hampton Roads industrial real estate. The continued achievements of the Virginia Port, including record breaking processing volumes, large improvement projects, and increased market share, has proven to be a primary driver of the surrounding industrial real estate market.
The Success of the Port of Virginia
According to the Port of Virginia’s monthly port statistics, this past January, the port processed 288,388 twenty-foot equivalent units, a 10.1% increase year over year. Loaded exports accounted for more than one-third of that volume, increasing 38.6% year over year to 96,433 TEUs. The port has always had a positive and stabilizing influence on the local economy, especially during economic disturbances such as the Covid 19 Pandemic. From 2018-2021 total TEU’s were up from 2,885,904 to 3,522,834 or a roughly 19% increase in total cargo volume.
The continued developments and infrastructure upgrades to improve port operations, such as a $320 Million project to expand the Virginia International Gateway in 2019, have set the Port of Virginia apart in recent years. Projects such as these allowed the port to better weather the Covid-19 storm and avoid the congestions and long delays that plagued many west coast ports. Among other east coast ports, the Port of Virginia is continuing to increase its market share, boasting about 14% of the total east coast port market share at the end of Fiscal Year 2021, only trailing the incredibly busy New York/New Jersey and Savannah ports.
The port’s recent success can be attributed to its commitment to increase productivity and operations through continuous projects. The continued development of the port is what has and will set it apart from other east coast ports. One large ongoing project is the Norfolk Harbor and Channels Deepening Project which is well underway and will deepen channels surrounding the port to 55 feet and widen ocean approaches to as much as 1,400 feet in some areas, allowing larger ships access to the terminal. Larger ships means more cargo which in turn means more jobs, development, and investment in the area. A majority of the work has been completed, with the Thimble Shoals East Channel expected to be completed this spring and the Thimble Shoals West Channel quickly following with an estimated completion this fall according to Freightwaves. The triumph of the Port of Virginia these past few years is great in itself, but its impact on adjacent industries such as industrial real estate is something else to marvel.
Industrial Real Estate Hampton Roads
The presence of the port attracts many businesses and industries that rely on global trade to the area such as logistics, transportation, and manufacturing companies. These industries create demand for surrounding commercial properties such as warehouses, distribution centers, and offices. We have seen the greatest impact on our industrial sector. Industrial may be the hottest asset class currently in the area with no signs of cooling down. Vacancy has hovered around 2.3% as we have moved into 2023. This historically low vacancy has been driven primarily by very stable demand and little speculative construction. This high demand and lack of supply resulted in industrial rent increases of 25% to 40% in 2022. (Gregg Christoffersen, Market Report).
As the demand for industrial space has been high, the under construction pipeline has been working to keep up with that demand. According to CoStar, there is currently roughly 5.1 million SF of new construction currently underway in the market which is well above historical norms. However, this rise in development may not be enough to curb the insatiable demand for industrial space. Historically, Hampton Roads has been a primarily build-to-suit market with commerce giant Amazon constructing facilities in Suffolk and Chesapeake. Speculative developers have been met with strong pre-leasing activity as tenants are hungry for new, high quality space. According to CoStar, on average, only about 650,000 SF in total has been available on a quarterly basis over the past three years in the market. This should be compared to the roughly 129 million SF of existing inventory and 5.1 million SF of space under construction.
With the expected continued success of the Virginia Port, more national developers and tenants should be expected to flock to the area and with the continued scarcity of existing space, rents should be expected to remain on the uptick. The stabilizing effects of the Port of Virginia should promise smooth sailing for the Hampton Roads industrial market moving into 2023.
Written by Thomas McCoy and William Wilson
