Experts: Local real estate outlook still bleak

J. Scott Adams joked Wednesday about how much fun it was to sell commercial real estate in Hampton Roads three years ago.

More than $1 billion of properties with prices of $5 million or more were sold in 2007, and "those of us in investment sales were struggling to keep up," Adams, an executive with the brokerage firm CB Richard Ellis of Virginia Inc., recalled during a real estate forecast held by Old Dominion University's E.V. Williams Center for Real Estate and Economic Development.

The fun evaporated as sales of larger commercial properties plunged to $139.5 million last year, Adams told a gathering of brokers and bankers at the Ted Constant Convocation Center. The outlook for 2010 remains almost as bleak, he said.

"There's a massive amount of stress on the people who make our industry go," Adams said. That's partly because of tight credit conditions and the number of commercial real estate loans coming due during the next four to seven years, he said.

Prospects for other classes of real estate, including industrial, retail and residential, aren't much brighter, brokers and executives said during the program. Vacancy rates for factories and warehouses in the region are still climbing, and "we've got to wonder, 'Has the wave really crested?' " said William C. Throne, a commercial sales and leasing broker with Thalhimer/Cushman & Wakefield. An oversupply of industrial space in Hampton Roads will linger partly because it remains so difficult to finance sales, he said.

In the office sector, a vacancy rate of 10.9 percent for downtown Norfolk office space compares favorably with rates for markets elsewhere in the region. But that's going to change when 250,000 square feet of space opens in the Wells Fargo Center later this year and tenants move from their existing buildings, according to Craig Cope, vice president and city manager of Liberty Property Trust.

The 14.5 percent vacancy rate for Hampton Roads' overall office space also compares favorably with the 19.3 percent rate for Richmond and an 18.7 percent vacancy rate for Raleigh, N.C., Cope said.

While access to credit is key for most real estate activity, the dearth of credit has hit retail properties especially hard, David Machupa of Thalhimer/Cushman & Wakefield told the gathering. That's because the reduced availability of credit is crimping consumer spending, and that in turn hobbles shopping-center tenants, he said.

Conditions could have been worse. The demise of electronics retailer Circuit City and the departures of other retailers last year were partially offset by the arrival of pharmacy chain CVS and the expansion of supermarket chain Harris Teeter, Machupa said.

In the residential sector, sales prices are still being squeezed by the wave of foreclosures coming onto the market. Foreclosures and other distressed sales accounted for almost 20 percent of home sales in the region last year, the Williams Center for Real Estate said in its 2010 market report released Wednesday.

"Foreclosures have become the Achilles' heel" of Hampton Roads' home sales, "and there is no sign that it's going to disappear," J. Van Rose Jr., president of Rose & Womble Enterprises and Rose & Womble Realty Co.'s New Homes Division, said in a forecast for residential sales. A sustained upturn in the region's home sales will require job growth, he said.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com