Nestled along the Virginia waterfront between the Atlantic Ocean and the Chesapeake Bay is a region known as Hampton Roads. There, in a handful of cities stretching from Virginia's Newport News south to Norfolk on down to Virginia Beach, just above the North Carolina border, more than a dozen mixed-used projects are in development.

These projects largely are not the sort of vertical mixed-use centers you find in urban environments. Rather, the majority of the mixed-use projects rising in Hampton Roads cities like Chesapeake, Hampton and Portsmouth are sprawling live/work/play hubs meant to create centers of gravity.

And even with a spate of these projects already operating or in development, local industry pros say the area's population of 1.7 million could still stand to absorb even more of these centers.

The development, in part, is the result of officials in cities around the region doling out millions of dollars in incentives for such projects. And consumers have embraced the concepts. The process has unfolded so smoothly, in fact, that the Virginia Economic Developers Association held its fall conference last year in Hampton Roads in part to showcase the region's leadership in urban and mixed-use development.

“It seems like every community has created or is creating a town center. It's sort of been a bandwagon effect,” says John Lombard, director of the Center for Real Estate and Economic Development at Old Dominion University in Norfolk, Va. “It's been a wholesale movement toward the mixed-use environment.”

In just the most recent quarter, 16 retail centers containing nearly 780,000 square feet came on-line — about half of the entire total square footage for 2007, according to Bethesda, Md.-based CoStar Group Inc., a provider of commercial real estate data. Moreover, another 1.2 million square feet of retail space was under construction at the close of 2007.

One such project is the 4.3-million-square-foot Town Center of Virginia Beach. Construction began in 2000. Once it's completed in 2012, the 17-block, mixed-use project will contain more than 800,000 square feet of retail. The $500 million-plus development has established a downtown in a city that had lacked a true downtown and also serves as a model for other projects in the area. The second phase was finished in 2005, the third phase is under construction, and ground-breaking for the fourth phase is slated for later this year.

Another project in the works is the Marquis, in Williamsburg. The first phase is set to open later this year. At build-out, the two-phase retail project — which combines elements of power and lifestyle centers — will encompass about one million square feet and 238 acres.

In Hampton, work has begun to redevelop Coliseum Mall as Peninsula Town Center. The open-air mixed-use town center, scheduled for completion in 2009, replaces the 35-year-old enclosed mall, most of which has been demolished. The project, with a price tag exceeding $200 million, will feature more than one million square feet of retail, dining, office and residential space on 75 acres.

And in Suffolk, the mixed-use Harbour View Station Town Center will contain about 600,000 square feet of retail, as well as offices, apartments, condos and a hotel. The 3-million-square-foot development is on track to be completed in 2013.

Riptide

While city officials, developers and shoppers are giddy about town centers, some observers express “cautious optimism” about the near-future outlook for the Hampton Roads retail sector as a whole. Spooked by the slumping national economy, some retailers are skittish about committing to deals in Hampton Roads just now.

“A lot of the retailers are evaluating whether there is a true recession or whether this is one that got self-prophesized,” says John Knibb, senior vice president and partner at commercial real estate firm Divaris Real Estate Inc. in Virginia Beach.

Michael Gurley, senior vice president of commercial real estate firm S.L. Nusbaum Realty Co. in Norfolk, says that although retailers aren't calling him as much as they did last year, the ones that are contacting him are expanding selectively — and all of those retailers are forging ahead with deals in Hampton Roads.

A report from Thalhimer/Cushman & Wakefield, a commercial real estate firm in Virginia Beach, calls this trend “cautious expansion.” Even in the face of this “cautious expansion,” some retailers are backing off from deals at the moment because of the rising prices and falling supply of desirable land in the region.

Monty Spencer, senior vice president of Mid-Atlantic Commercial, a real estate services company in Yorktown, says the supply-and-demand curve for land “is way out of whack.” Further hampering the availability of land, Hampton Roads is hemmed in by the Atlantic Ocean and the Chesapeake Bay as well as several rivers. When it comes to financial considerations, “the pencil has been sharpened for everyone,” Spencer says.

For the past several years, however, developers have been penciling in a lot of retail projects. The stepped-up activity was driven by years of pent-up shopping demand. Spencer says many retailers had ignored the region for quite awhile, particularly because they doubted Hampton Roads could sustain higher-end formats.

While the area's retail development flurry has subsided, retailers and developers are still poking around for opportunities. Chris Rouzie, senior vice president of Thalhimer/Cushman & Wakefield, foresees those opportunities being more prevalent for junior anchors and smaller retailers.

Not to be outdone by the town center barrage, traditional developments remain a part of the retail mix in Hampton Roads. In May during the upcoming ICSC RECon in Las Vegas, S.L. Nusbaum will be promoting six new retail developments in Hampton Roads — none of which are town centers. For example, the 510,000-square-foot, mixed-use Landstown Commons is on schedule to be completed this spring.

In shipshape

Although retailers may be anxious about the national economy, observers say Hampton Roads fundamentals remain strong. For one thing, even though the local housing market has cooled, Hampton Roads has largely been spared from the subprime mortgage mess, experts say.

Retail sales in the region are projected to grow 3.6 percent in 2008, down slightly from 3.8 percent last year, according to a forecast from the Hampton Roads Planning District Commission. The region's unemployment rate in December stood at 3.5 percent, below the national figure of 4.8 percent. The commission estimates the jobless rate for 2008 will be 3.2 percent; a report from Thalhimer/Cushman & Wakefield pegs this year's rate at 3.7 percent. The enormous presence of the military, defense contractors and shipping terminals in the region — the Navy alone employs more than 100,000 people — helps insulate the economy from dramatic fluctuations.

Another insulating factor: the region's “hidden income.” Many of the more than 50,000 military retirees who live in the area draw retirement benefits and also earn paychecks from jobs in the private sector. Knibb, the Divaris executive, says national retailers have taken notice of the “tremendous amount of buying power” in Hampton Roads.

Median household income in the region hovers around $55,000, compared with the national median of around $48,000. A report from Old Dominion University estimates total compensation for Hampton Roads military personnel rose 41.3 percent between 2001 and 2006, while compensation for all other Hampton Roads workers increased 22.6 percent.

However, the region's buying power hasn't shielded the retail market entirely from some rough waters.

During the fourth quarter of 2007, the retail vacancy rate crept up to 5.3 percent from 5.1 percent in the previous quarter and from 4.5 percent at the end of the first quarter, according to a report from CoStar.

The amount of vacant sublease space in the Hampton Roads market climbed steadily in 2007, according to the Thalhimer/Cushman & Wakefield report. At the end of the first quarter in 2007, more than 75,000 square feet of vacant sublease space was available. By the end of the year, that figure had surpassed 100,000 square feet. By jumping to 16.7 percent, Hampton Roads had the ninth largest surge in vacant retail space in the country, according to CoStar.

Still, “I don't think we're to going see any bloodletting in the retail side of the business,” says Tony Nero, president of development at Armada Hoffler Development Co. in Virginia Beach.

HAMPTON ROADS

Population: 1.67 million (2007)

Unemployment rate: 3.5 percent (December 2007)

Active-duty military: 94,573 (2007)

Navy's economic impact: $12.6 billion (2006)

Home ownership rate: 68.3 percent (2006)

Median household income: $51,077 (2005)

Per capita income: $33,163 (2005)

Retail sales: $17.7 billion (2006)

Retail rank: Largest market between Washington, D.C., and Atlanta

People per square mile: 694.2 (2004)

Sources: Hampton Roads Economic Development Alliance, Hampton Roads Planning District Commission, Newport News Economic Development Authority, Norfolk Department of Development, U.S. Census Bureau, Virginia Department of Taxation, Virginia Employment Commission, Weldon Cooper Center for Public Service