United States -  Norfolk - Virginia Beach

Overview:

Norfolk is part of the greater Hampton Roads economy, which is largely driven by the government and military sectors. The greater Norfolk area is home to eleven major military installations representing all branches of the U.S. Armed Forces, including the world's largest naval base, Naval Station Norfolk. These military stations, as well as related defense contracting firms, generate significant demand for the market. The healthcare and education sectors, as well as leisure attractions, are the other primary demand generators for the market.

Norfolk has been experiencing growth in recent years, with the opening of the new Chelsea business district and Downtown Arts and Design District in 2013. The healthcare sector is strengthening with the creation of the Bon Secours Cancer Institute at DePaul and the ongoing $199-million expansion of Sentara Norfolk General Hospital, which is expected to be completed in 2020. A $120-million renovation was also completed at Sentara Leigh Hospital in March 2016. The Main, a mixed-use entertainment, meeting, dining, and hotel venue, is anticipated to open in 2017; it will include the 300-room Hilton Norfolk at The Main and the 50,000-square-foot The Exchange conference center. The city is also redeveloping the One and Two Commercial Place office buildings into CityWalk, a residential and office mixed-use development. The project will convert the 24-story Bank of America Building into the Icon at CityWalk, a 275-unit luxury condo residence, and the adjacent building will become The Atlantic, featuring 286,000 square feet of Class A office space. The addition of the Norfolk Premium Outlets and the Waterside Live district, which are both scheduled to open in 2017, should continue to bolster Norfolk as a retail and entertainment destination. In addition, two Hyatt hotels are under construction in Virginia Beach; these represent the first two hotels on the oceanfront in this market.

The market was somewhat slow to recover from the recession, affected by the consolidation of operations at Langley Air Force Base and Fort Eustis in 2010, as well as the closure of Fort Monroe in 2011. Given its heavy dependence on the military, the market was further affected in 2013 by the mandatory budget cuts related to the federal sequestration. Market-wide occupancy declined, although average rate increased slightly. However, demand and occupancy improved in 2014 and 2015, as some military-related tensions eased and average rate continued to increase. Occupancy is forecast to increase as the greater market continues to expand and the economy strengthens. Average rate gains should be realized in the future, as well. We note that the greater Hampton Roads market experienced a significant increase in new supply during the height of the recession. This resulted in declines in revenue and hotel values following the recession. Supply has stabilized in recent years, with only nine new hotels opening in the greater market since 2010, and numerous older hotels closing during that time.

Three hotel sales have been reported in Norfolk since January 2015, with seven other sales reported in the greater Hampton Roads area during the same period. Most of the reported sales were under $70,000 per key. The Holiday Inn Norfolk Airport sold for $68,393 per key in December 2015, while the Grand Ocean Hotel sold for $109,091 per key in January 2015. Following improvements in 2014 and 2015, hotel value growth should be tempered in coming years. Given the lack of new hotel supply in recent years, the market is likely to realize some new supply additions in the years to come. Potential new hotel development and increases in available room nights will ultimately curtail the market's recent strong ADR growth trends, but RevPAR should continue to register modest gains.

* The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset. A good comparison is the Consumer Price Index. While this index provides a reliable measure of the overall rate of inflation in a region, it does not indicate how the price of milk has changed at your grocery store. So how can the HVI be of use to an individual investor? Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent big picture data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

 

Valuation Trends and Predictions:

Norfolk - Virginia Beach United States
Previous Year +1% (50 of 71) +1% (49 of 71)
Growth in 2017 +2% (33 of 71) +2% (36 of 71)
Growth in next 4 years +28% (1 of 71) +12% (32 of 71)

Change In Value For Market:

Norfolk - Virginia Beach RevPar % Change

For more information, please contact:

Janet Snyder
jsnyder@hvs.com
  • +1 972 978-4714 (w)
Mike Bendert
mbendert@hvs.com
  • +1 248 953-7894 (w)
Patricia Shih
pshih@hvs.com
  • +1 404 791-5509 (w)