Hampton Roads to get more retail in 2014, but empty big box a problem

Grocery store expansions and new small strip centers are driving Hampton Roads' retail real estate growth as more national chains are looking to move in. The bad news? The region needs to figure out what to do with all those big box spaces going empty.

"We have a tremendous amount of activity in this market. We are extremely busy on the retail side," David Machupa, vice president with commercial real estate firm Cushman & Wakefield | Thalhimer, told attendees of the Thursday release of the 19th annual Hampton Roads real estate market report by Old Dominion University's E.V. Williams Center for Real Estate and Economic Development.

Kroger opened its first Marketplace store in Virginia Beach in July and two more stores are under construction. Harris Teeter opened at Wards Corner in Norfolk and five Walmart Neighborhood Market stores and another Harris Teeter are under construction in the region, he explained. Simon Property Group, which owns the Williamsburg Premium Outlets, is also pitching another outlet mall at the Lake Wright Golf Course property in Norfolk.

The report tallied 54 million square feet of retail space in 422 properties about a third on the Peninsula as of last year. While the local retail market has stabilized, Machupa said that the region is seeing more chains or established franchise owners move in because the mom and pop stores and restaurants can't get the financing needed to start up. Rental rates are also increasing slightly as demand for limited quality properties increase. The report, based on surveys, doesn't include downtown storefronts.

On the Peninsula, retail vacancy was 11.6 percent last year with the highest retail vacancy in the Denbigh market at 25 percent. Kmart announced it was closing its Oriana Road store there. Sears and Kmart continue to struggle financially and so remain as concerns, he said.

Less desirable big box properties entering the market pushed up the region's overall rental vacancy rate from 7.9 percent in 2012 to 8.4 percent in 2013. These spaces, defined as more than 23,000 square feet, comprised 40 percent of the total retail vacancy in Hampton Roads, Machupa said. He expects big box space to increase the overall retail vacancy rate this year as some are functionally obsolete and need to be refurbished or adapted for other uses.

Even so, he said the Peninsula has typically fared well in retail with more growth coming with Settlers Market near New Town in James City County as it turned around after going through foreclosure. Whole Foods and a bevy of new-to-Hampton Roads retailers are expected to open at the Newport News Tech Center marketplace in 2015. The Patrick Henry-Oyster Point-Kiln Creek market has the lowest Peninsula vacancy rate of 3.8 percent, as stores want to be near other retail, he said.

A look at the housing market

The new home residential world really, really has done an amazing recovery," said J. Van Rose, president of Rose & Womble's New Homes Division.

In 2013, building permits in Hampton Roads increased 4.7 percent, new home closings increased 5.9 percent and the average sales price increased 3.8 percent, Rose said. Even so, builders are having trouble find available lots to construct homes, as development stalled during the recession. He said the price of lots and the cost of construction are also increasing.

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Hampton Roads to get more retail in 2014, but empty big box a problem