Solid Job Growth Brings New Multifamily Development
Hampton Roads, the grouping of cities clustered around the meeting of the Atlantic Ocean, the Chesapeake Bay and the Intracoastal Waterway, is long known for its huge and vital military installations, and its tremendous maritime/shipping industries. The Port of Virginia is one of the busiest ports on the Eastern Seaboard, and is about to become even busier.
At the end of the second quarter of 2012, the port posted a 7.2 percent year-over-year increase in cargo. Furthermore, with the widening of the Panama Canal, there will be a new breed of container ships carrying vastly more cargo than conventional ships. Only a few ports will be able to handle those ships, and Hampton Roads is the first to be ready. This increase in container shipments through our 55-foot, ice-free harbor will be an economic boon for Hampton Roads.
The military has had, and will continue to have, a major impact on the local economy. However, there has been a concerted effort among all the cities of Hampton Roads to diversify the economic base. Technology-driven industries, including healthcare, modeling and simulation and research and development are all growing industries in the region. Seven of the world’s 10 largest aerospace and defense related companies are located in Hampton Roads. With the expansion of research and development centers such as Jefferson Lab and NASA Langley Research Center, the area has one of the largest concentrations of scientists in the country.
Employment in Hampton Roads is clearly on the rise. According to the Virginia Employment Commission, civilian non-farm employment is just over 760,000 jobs, an increase of approximately 20,000 jobs on a seasonally-adjusted, year-over-year basis. As of June 2013, the civilian unemployment rate in Hampton Roads stood at 6.4 percent, well below the national average of 7.8 percent. Sequestration has had little effect on the region, at least thus far. New multi-family properties are being delivered, and unprecedented demand is fueling absorption.
The Huntington-Ingalls shipyard in Newport News, the largest civilian employer in the state, has recently posted healthy profits and announced new contracts for shipbuilding, totaling $5.3 billion. That brings the total backlog of work for the company to $20.7 billion, of which $13.7 billion is funded. This backlog provides a cushion of sorts for the company, insulating it for several years from potential impacts of sequestration. Another major regional employer, Canon, has announced a $27 million expansion to their Newport News Copier plant. These and other civilian job announcements are serving to quell concerns over sequestration.
The apartment market here is good and getting better. It is, and has been for many years, the leader among its Southeastern peer markets in average rents. The average among all ages and sizes of apartment properties (other than senior or subsidized housing) is $946, according to Real Data. Rents here are higher, by $78 per month, than Raleigh/ Durham, and nearly $104 over the average in Charlotte. It is, by a slim margin, the third-best Southeast MSA in occupancy, at 94 percent.
Rent growth in the MSA has been steady, but less than spectacular. Rents increased in the last year at a rate of only 1.3 percent, according to Real Data. What must be remembered, however, is that some nearby markets are still returning from deep rent declines during the recessionary period. Not so in Hampton Roads. The most notable decrease was from second quarter 2008 to second quarter 2009, when overall average rents went down from $876 to $869. Rents have shown a slow but steady growth since then.
In the last six months, vacancy dropped from 7.3 percent to 6.0 percent. And in that time, 880 units were added to the supply but 1,756 units were absorbed, indicating the strongest demand ever. But for the new units in lease-up, the vacancy rate of stabilized units was 5.5 percent, according to Real Data.
The pace of apartment development has increased in Hampton Roads, but not nearly at the pace of other markets such as Raleigh and Charlotte. Hampton Roads currently has 3,800 units under construction and another 2,800 planned. This will result, when all are completed, in a 7.1 percent increase in our multifamily stock. The total number of units being built and proposed in Charlotte would be a whopping 18.7 percent and in Raleigh it would be more than 19 percent. It appears that new unit growth in Hampton Roads is quite moderate, and there is clear indication that it will be moderate in the future. The number of units under construction today is significantly higher than the number of units proposed, for the first time in many years. This is evidence of a combination of substantial barriers to entry and good common-sense planning.
With supply moderation, home prices rising, mortgage standards remaining strict and the penchant for younger people to rent rather than buy, we believe a healthy multifamily market is in store for the foreseeable future.
— Dan Johnson, senior vice president, and Hank Hankins