Virginia Beach, Virginia
“Neptune City” is Ahead of the Curve, and That Could be Good News for Investors
by Carole VanSickle Ellis
In Virginia Beach, Virginia, a lot of real estate metrics are heading down – but it is not the bad news you might think. In fact, Virginia Beach, also known by the nicknames “Neptune City” and “The Resort City,” could represent an exciting new market for real estate investors looking for opportunities in 2021’s white-hot housing sector.
Recently dubbed one of the three “least competitive markets” in the country based on average down payment, length of time spent shopping around for a mortgage, and credit scores of homebuyers, Virginia Beach topped the list for a lack of competition. Riverside, California and Atlanta, Georgia, were second and third, respectively, and boast some of the most accessible real estate for comparable markets in the country as well as remaining relatively friendly to real estate investors. Virginia Beach also posted median list prices of “just” $305,000 at the end of April 2021, making it the fourth-most affordable housing market in the country. The average homebuyer in Virginia Beach can expect to dedicate just over 22 percent of their annual income to housing costs. Only Fort Wayne, Indiana; Wichita, Kansas; and Detroit, Michigan, can offer better numbers than that, and none of them offer the prime outdoor recreation options available “where Chesapeake Bay meets the Atlantic Ocean,” as local VB businesses like to boast. Finally, Virginia Beach housing starts were also trending downward at the start of Q2 2021, with Redfin reporting a drop of 10.5 percent year-over-year in the area. Redfin chief economist Taylor Marr credited the drop to the fact that cities with declining numbers of housing starts tend to “have less vacant land available and less space zoned for housing development.”
So, why are these downtrends potentially good news for real estate investors? In the parlance of today’s housing analysts, the Virginia Beach real estate market is both “attainable” and highly desirable due, in large part, to the market’s forward movement through the “boom” that has left many areas of the country grasping desperately for both affordable and attainable housing and brought it out on the other side with relatively positive metrics for both. Thus, the downward trends actually place VB ahead of the housing cycle the rest of the nation is experiencing and positively position real estate investors to take advantage of a market with solid grounding ahead of the national curve.
“Attainable housing” is a general description applied to nonsubsidized housing accessible to households earning between 80 and 120 percent of an area’s median income. Homebuyers seeking attainable housing tend to not only fall into a “gap” as far as availability of desirable housing is concerned, but they also tend to place a higher priority on trending homebuyer preferences than many developers and builders expect. This means that if homebuyer preferences are trending toward walkability or proximity to recreational greenspace, then a homebuyer with the ability to acquire attainable housing will opt to rent housing that meets their preferences rather than buy a property that does not do so. Although the COVID-19 pandemic and subsequent housing inventory crunch may have lessened that tendency slightly, markets like Virginia Beach that offer attainable housing that meets these buyers’ preferences are optimized for the post-pandemic market. Investors able to acquire existing inventory and upgrade that inventory are likely to find themselves with a highly desirable portfolio on their hands whether they elect to fix-and-flip or rehab-and-rent.
Virginia Beach’s Strong Support for the Employment Base Says It All
Although Virginia Beach, like much of the country, took an economic hit during the near-national lockdowns in response to the COVID-19 pandemic, the area has recovered rapidly since late summer last year. In October 2020, the area posted unemployment around 6.6 percent; by March 2021 that number had fallen to 5.8 percent and has periodically dipped lower. Although Virginia Beach mayor Bobby Dyer warned in early May that the area might continue to see relatively higher unemployment rates than other cities in the region, he credited ongoing unemployment benefits rather than a lack of opportunities for employment for that relatively high metric.
“The blessing and the curse was the unemployment,” Dyer explained in a round table discussion with other mayors and public officials. “People elected not to go back to work even though they had the opportunity.”
Businesses in the Virginia Beach area are both hiring and thriving, despite some worker reluctance to fill open positions. The area’s top employers are highly recession-resistant, which further solidifies the local economy. Local military bases are responsible for more than 10,000 civilian jobs, while a variety of healthcare and health science companies create another roughly 10,000 positions. Virginia Beach is a hub for international commerce, with 20 internationally based firms locating their headquarters or North American headquarters in the area, and Fortune 500 companies Dollar Tree and Huntington Ingalls both have their headquarters in the area.
The Virginia Beach Economic Development Council (VBEDC) cites the city’s “numerous advantages for most companies” new to the area as a major reason the local economy continues to grow. Annual business license fees are capped at $50 for each of the first two years of operations; the state has a relatively low corporate income tax of 6 percent and has maintained that rate since 1972; and Virginia Beach offers $1,000 in tax credits per job created after the first 50 positions within a 12-month period. In a bid to attract more headquarters and larger employers, the state also offers discretionary incentive grants to companies “creating significant headquarters, administrative, or service sector operations,” the VBEDC reported.
The results of these efforts are clear. CNNMoney.com Report ranked the city second on its list of “Most Business-Friendly Cities in America,” while Governing Magazine awarded it the same title in its own publication. Recently, agricultural startup Sunny Farms LLC announced it would build a $59.6 million hydroponic operation in the area, creating 155 jobs and opening one of the largest greenhouses on the East Coast. Sunny Farms selected Virginia Beach based on a $600,000 grant from the state opportunity fund, $100,000 from another state development fund, and the array of incentives and tax credits offered by the city and state. In a bid to keep Virginia Beach talent local, workforce initiatives like the Virginia Talent Accelerator Program work with companies like Sunny Farms to attract businesses and spur them toward hiring local talent on all levels.
The VABeachBio Accelerator is another example of the VBEDC’s efforts to attract beneficial businesses and employers to the area. Touted as “a way to attract a booming, high-salary industry to the area,” the accelerator offers 5,700 square feet of office and lab space, wet and dry labs, a biosafety level 2 lab space (this allows for study of moderate-risk infectious agents and toxins), and high-speed internet. It is worth noting that the Virginia Beach metropolitan statistical area (MSA) has one of the most robust telecommunication infrastructure systems in the country, according to the local economic development office. The accelerator will also offer mentoring opportunities, access to capital, sponsorships, networking events, and professional services.
The Future Looks Bright in Neptune City
It is unclear exactly when Virginia Beach received the nickname, “Neptune City,” but the presence of a 13-ton bronze sculpture of King Neptune, ancient Roman god of the sea, on the Virginia Beach boardwalk certainly drives the nomenclature home. However, the statue is not the source of the nickname, but rather an “honor” bestowed on the local oceanfront by local volunteers grateful for the nonprofit Neptune Festival organization, which has been hosting events, including the annual, award-winning Neptune Festival Boardwalk Weekend that generates a reported $23.5 million in economic impact, since 1973.
Although the Neptune Festival was canceled in 2020 due to COVID-19 for the first time in its nearly five-decades history, the event is back on for 2021. Organizers expect more than 400,000 attendees for the three-day festival, which has historically created not only massive economic impact, but generated more than $1 million in tax impact for the area as well. The return of the festival is symbolic of the area’s larger recovery and continued momen-tum forward during and after the COVID-19 pandemic, but by no means the only example. With Virginia Beach poised for a post-pandemic comeback, investors need only decide which investment strategy fits best for their personal long-term goals for their portfolio and the unique aspects of this market.
Sidebar 1:
Virginia Beach Hospitality Industry Poised to Bounce Back
As the country begins to emerge from the “COVID cocoon” that kept it largely sequestered for much of 2020, markets like Virginia Beach, Virginia, hopefully eye the summer tourism season as another step toward full economic recovery. However, some local businesses are having a surprising problem: They have more available positions than workers to fill them. In Virginia Beach, the local convention and visitor’s bureau (VBCVB) and local hotel and restaurant associations are hoping to solve the problem with a virtual job fair designed to lure potential employees into vacancies in the local tourism industry. Local hotels say they have been actively recruiting employees for a full year in preparation for the 2021 season.
“Tourism is vital to our local economy,” said Stacey Shiflett, executive director of the local restaurant association. “We are eager to help our hotels and restaurants get fully staffed.” Virginia Beach boasts year-round tourist traffic in large part thanks to its famed seven beach districts: Sandbridge, Chesapeake Bay, Town Center, Pungo, Oceanfront, the ViBe Creative District, and Inland district.
Starting in the summer of 2020, the Virginia Beach visitor’s bureau also teamed up with its counterpart in Norfolk, Virginia, to attract locals into the outdoors and to bolster the tourism industry as COVID-related uncertainty continued to affect travel patterns. The result of this teamwork, a marketing campaign titled, “Together at Last,” was designed to jumpstart the hospitality and tourism rebound “at home” by encouraging locals to explore the area through the “At Last” program. More than 60 businesses participated in the initiative.
Sidebar 2:
A Brief Overview of Virginia Beach’s Short-Term Rental Policies
Virginia Beach, Virginia, like most attractive destinations, has its share of short-term rental properties. In the past, owning a short-term rental like an Airbnb in the area has been extremely profitable. In fact, rental-data provider Mashvisor has routinely ranked the area in its “Top 10 Beach Destinations for Buying a Vacation Rental,” citing the “amazing boardwalk” and predicting that beachfront rentals, in particular, are likely to “give real estate investors even higher return rates than the market average.” The result, naturally, has been a high volume of acquisitions by investors in the area.
However, the prevalence of such short-term rental options is, local policymakers say, creating a problem for homeowners and resulting in a variety of safety issues, particularly in the case of the large, oceanfront homes in the area. City manager Patrick Duhaney has responded to these concerns by suggesting that the city hire two employees to “keep tabs on issues that arise with rentals during nights and weekends,” fund the acquisition of new software for rental monitoring, and provide the money to set up a 24/7 hotline for residents who wish to file complaints about short-term rentals in their neighborhoods. Even prior to Duhaney’s proposed policies, the Virginia Beach city council had been dedicating a great deal of time and energy to regulating short-term rentals via registration requirements, limits on rental contract volumes, caps on the number of guests permitted in homes, and parking space restrictions.
Despite the city’s best efforts to contain the short-term rental explosion, Virginia Beach Airbnb rentals retained an occupancy rate around 93 percent. “This should not come as a surprise, seeing as Virginia Beach attracts tourists all year long with nearly 40 miles of beach, rich history, arts, and other family attractions,” wrote Mashvisor analyst Eman Hamed. The result has been a boom in vacation rentals that has left many residents pleading for more regulation (preferably placing hard limits on the number of short-term rentals or even eliminating them) and many investors in the area feeling targeted by “inequitable” treatment from the city, which already has a stringent permitting process in place.
“In my opinion, it is not…a fair process in the way the city council has gone about just addressing these applications,” said Scott Westfall, a broker for CGP Real Estate whose client had fulfilled all the requirements for short-term rental approval only to be denied because multiple neighbors sent letters to the city council requesting the application be denied. At present, the process is highly discretionary, and investors cannot be sure prior to purchase if their application will be approved or revoked through a review process at some point in the future. Westfall said it will be important for Virginia Beach to reach a compromise that allows investors to operate short-term rentals without this level of unpredictability and risk. “Travel is moving toward Airbnbs, and if there is not that type of housing, we are going to start losing tourists and tourism dollars,” he warned.
3-Bedroom Single-Family Rental Prices
Virginia Beach is the most populated city in the Virginia Beach-Norfolk-Newport News VA-NC
MSA with an estimated 2019 population of 449,974. It is also the largest city in VA by total area (497 sq mi) and third largest by land area (249 sq mi). The 2020 3-bedroom SFR rental prices averaged $1,535 for the MSA, up 2.4% from 2019. Top end rent areas in Virginia Beach are in zip code 23459 with an average rent of $2,032 (up 3.46%) and zip code 23451 at $2,027 (up 9.75%). The least expensive zip codes are 23462 at $1,605 and zip code 23452 at $1,635.
5-Year Rental Price Increases
In the last five years, 3-bedroom SFR average rental prices over the Virginia Beach-Norfolk-Newport News VA-NC MSA have increased by 17.4% from $1,307 in 2015 to $1,535 in 2020.
In Virginia Beach, 5-year rental price increases have increased the most in zip code 23464 by 15.08% and in zip code 23455 by 14.8%. The zip codes with the smallest increases were 23461, by 5.78%, and 23460 by 7.03%.
Rent-To-Income
As of the most recent census data available, Virginia Beach has a median household income of $76,610, slightly more than the State of Virginia which sits at $74,222 and the Unites States overall at $68,703.
Spending 30 percent of monthly income on rent is a good benchmark, and eight zip codes in Virginia Beach fall into that category. The two zip codes above 30% were 23459 at 40.53% and 23451 at 32.95%. The lowest R/I ratios were in 23456 at 19.86% and 23464 at 25.18%. Data was not available for zip codes 23461 and 23460.
Yields
The 2020 median home price in Virginia Beach was $280,800.
Gross Rental Yields (GRY) across the top 200 U.S. markets average 8.6%. The current average GRY in the Virginia Beach-Norfolk-Newport News VA-NC MSA has an overall average yield of 8.42%. The two highest yield zip codes in Virginia Beach are 23453 and 23462 at yields of 7.69% and 7.71%, respectively. Dark purple sections represent yields at 12%, light purple areas have moderate yields of 9%-10%. Finally, white shaded areas have yields around 7.0%.
