Third quarter strong for Va. CRE market, Realtors group says

Virginia’s commercial real estate market showed signs of strength in the third quarter, according to a report released Monday by Virginia Realtors.

Office markets in Northern Virginia, Richmond and Hampton Roads have been more resilient than smaller markets, with a key factor being the strength of the high-end Class-A office space market. It’s in demand as companies are looking for buildings with a wide range of amenities and flexible spaces in order to bring workers back post-pandemic, according to the trade association.

Office employment is outperforming other sectors of the state’s economy and the professional and technical services sector, a critical segment for office demand in Northern Virginia and Hampton Roads, is continuing to add jobs, according to the report.

The Northern Virginia office market is seeing obstacles with occupancy, but Hampton Roads is not facing the same headwinds, according to the report. Hampton Roads has seen positive net absorption in four of the past five quarters. Richmond also has witnessed steady gains in occupancy during the past three quarters.

In the third quarter, an estimated 5.4 million square feet of office space was under construction across the state and the pace of new construction activity has remained steady in Northern Virginia, Hampton Roads, Richmond and Charlottesville.

Neighborhood retail has also performed well, while big box stores are struggling, according to the report.

Statewide, net absorption of retail space has been up for two quarters in a row, following five consecutive quarters during which the pace occupied by moveouts outpaced space taken by new tenants. In Northern Virginia, 450,000 square feet of retail space was absorbed for the second consecutive quarter.

Retail demand is resilient in Richmond and Hampton Roads markets. However, the third quarter brought negative net absorption in the Blacksburg, Charlottesville, Harrisonburg and Lynchburg markets.

Retail vacancy saw the strongest movement in Northern Virginia, where vacancy rates are below pre-pandemic levels. Vacancy rates also are lower in Richmond and Hampton Roads, but higher in smaller markets.

The industrial market is still the hottest segment of Virginia’s commercial real estate market, according to the Virginia Realtors report. Large warehouses are in demand, but there are challenges for businesses seeking niche, small warehouses and flex space. Construction of new industrial and warehouse space has not kept up with demand, and two challenges have been the rising cost of materials and the lack of construction labor.