A new town center and increased office park activity signal an end to the area’s ‘deep freeze’
- July 28, 2010
Two years ago, residents on the Peninsula side of Hampton Roads couldn’t dine out at Frank Beamer’s American Grill. The restaurant, owned by renowned Virginia Tech football coach Frank Beamer, is one of many new retail establishments at Hampton’s $300 million Peninsula Town Center. Opened in March with 1.1 million square feet of upscale retail, office and luxury apartments, the center — which replaced the aging Coliseum Mall — is the most visible sign of new growth in the Peninsula’s commercial market.
Shoppers have streamed to the eclectic mix of 70 stores and restaurants set amid a backdrop of fountains and green space. So far, 90 percent of the center’s shops are leased, while 55 percent of the office space is filled, and all 158 apartments have been rented, according to Yaromir Steiner, CEO of Steiner + Associates. His Columbus, Ohio-based firm teamed with Mall Properties, the original developer of Coliseum Mall, to design Town Center.
“We’re delighted about it,” says Hampton Economic Development Director James Eason. “It’s doing very well.”
Besides Beamer’s restaurant, there’s a CineBistro, a movie theater/gourmet dining experience/bowling alley, unique to the Hampton Roads market. Coming soon is a major office tenant. Bryant and Stratton College will open its third Virginia campus at Town Center late this summer, above a Barnes & Noble.
The activity is a welcome thaw from what had been a down market. “The Peninsula up until January or February this year was in an almost two-year freeze,” acknowledges William Hudgins, president and CEO of Harvey Lindsay Development Services Group in Newport News.
Now, though, business is picking up in the area’s major office parks. And a slew of corporate investments are expected to generate new jobs, a positive harbinger for retail and commercial growth.
According to second-quarter figures from CoStar Group Inc., a Bethesda, Md.-based real estate research firm, the Peninsula’s office market of more than 13 million square feet had an overall vacancy rate of 12.3 percent at the end of the quarter, slightly lower than the 12.8 percent for all of Hampton Roads. Year-to-date net absorption during the second quarter (square feet leased less the amount of vacated space) was negative 46,603 square feet. About 76,332 square feet of new space remained under construction.
On the retail side, CoStar reported a lower vacancy rate. For the second quarter, the Peninsula had a 6.8 percent rate, compared with 7.1 percent for the Southside of Hampton Roads.
Real estate executives are encouraged by new leases in two of the area’s prime office areas. Oyster Point, Newport News’ 850-acre office park, is home to more than 1,400 businesses and 17,400 workers. “We’ve seen good activity there in the last couple of months,” says Hudgins.
One of the largest lease signings, according to CoStar, was a 10,500-square-foot deal for the Federal Emergency Management Agency, a government agency.
A mile away, City Center — a 52-acre, mixed-use development in the center of Oyster Point — also is rebounding from the recession. “Large parts of City Center projects had been put on hold for the last year, but they’re being put back together,” notes Hudgins.
City Center’s newest office building, Town Center One, opened last year and is 50 percent occupied. One of the major tenants is the 14-university Atlantic 10 Conference, which moved its headquarters from Philadelphia to Newport News last fall. “We offered them a package of things they really wanted,” says Chris Morello, administrator of development projects for the Newport News Department of Development. “They fell in love with the locale.”
Hudgins says other major tenants are close to signing leases. A major international defense contractor is expected to open marketing offices in Town Center One, while another company will likely lease 7,000 square feet on the office’s first floor. “Office demand is the strongest component of City Center,” says Hudgins. As such, he anticipates construction will start on one or two new office buildings in the next year.
Despite the good news, there’s no denying that the recession brought several projects to a standstill. Plans to redevelop Riverdale Plaza next to the Peninsula Town Center have been put on hold while the developer works to get financial commitments. An effort to build a major hotel near Hampton Coliseum also stalled when the developer was unable to obtain financing.
The slow economy also played havoc with Newport News’ Patrick Henry Place, a 52-acre mixed-use project. “The developer is waiting for the market to change a bit so he can start up with residential and retail,” Morello says.
Commercial developments also slowed in the Williamsburg area. “New development activity in Williamsburg has essentially stopped,” says James R. Joseph, senior vice president with Harvey Lindsay Commercial Real Estate in Norfolk. “It’s a combination of overbuilding and the recession.”
Settler’s Market, a partially completed mixed-use development in James City County, was recently returned to the lender. Still, Joseph sees stirrings of new activity.
Much of the Peninsula’s fiscal viability rises and falls with the fortunes of Hampton Roads’ largest private employer, Northrop Grumman Shipbuilding. Thanks to a $14 billion contract to build eight nuclear-powered submarines between 2011 and 2019, the company plans to add 2,000 employees over the next few years. Northrop Grumman also is investing $25 million to expand its apprentice school between 2012 and 2016. Plus, it has joined forces with Areva NP in a $363.5 million investment to build heavy components for nuclear power plants. Whether all these projects pan out, however, remains to be seen since the company announced in July that it has hired advisers to explore options for its shipbuilding business, including a possible sale or spinoff of the shipyard in Newport News.
Areva is building a 368,000-square-foot plant and office building in Northrop Grumman’s North Yard that’s expected to bring at least 540 new jobs to the area by 2013. “Areva will diversify downtown Newport News,” predicts Hudgins, who says the company was attracted to the area because of rail and water access. “Downtown Newport News is no longer a commercial center. It’s a job center.”
Jobs are also coming to Newport News through the expansion of Canon Virginia. It opened a new 700,000-square-foot facility at Oyster Point in May 2009. All told, Canon’s projects in Newport News and in Gloucester will add more than 1,000 employees to the Peninsula work force.
Also expanding is Liebherr Mining Equipment Co. A Newport News fixture since 1970, the German firm employs more than 450 people and will invest $15 million over three years to double production and add 80 employees. Plus, an upgrade at the Thomas Jefferson National Accelerator Facility is expected to result in about 100 new jobs. “We continue to see expansions despite what the rest of the economy is doing,” says Morello.
That bodes well for the area and provides an incentive for developers such as Steiner. “Town Center by its openness becomes the glue that holds the area together,” he says. Although Town Center’s revenue has exceeded expectations, Steiner cautions that the true test will be over the long term as the remaining 30 to 40 percent of the complex is completed. “We certainly believe it will be the hub of the city of Hampton’s economic and civic activity.”
Real estate executives expect the ongoing success of Peninsula Town Center and City Center, as well as corporate expansions, to buttress the region’s economic thaw. “There’s a certain degree of cautious optimism,” Hudgins says. “I think we’re getting off the mat, and maybe it will be business as usual by the end of 2010.”