August 20, 2024

With Absorption Elevated, Multifamily Rents Gain Ground in Richmond

Q2 2024

The first half of 2024 was a period of recovery in the Richmond multifamily market. Absorption was elevated while construction was limited, tightening the vacancy rate and sparking rent growth. Apartments in Richmond posted net absorption of nearly 2,300 units in the first half of the year, nearly doubling the total from the same period in 2023. Strengthening renter demand led to healthy rent increases in recent months, following some modest contraction at the end of last year. High levels of absorption and low totals of new deliveries have helped to push the vacancy rate down, dropping 80 basis points over the past 12 months.

Sales velocity in the Richmond multifamily investment market has been light year to date, following a short-term spike in activity during the fourth quarter of 2023. Despite strong property performance in several submarkets, many investors are still waiting on the sidelines. With only a few properties trading to this point in the year, the mix of assets that have sold is impacting pricing. Year to date, nearly all of the rental communities that have been acquired have been Class B or Class C assets. This followed a period in the final few months of last year when a few Class A properties sold. This trend is reflected in recent pricing; the median price during the past year is $168,900 per unit, down 13 percent from the area’s peak recorded in 2022.

Looking ahead

The Richmond multifamily market should remain in a healthy position through the end of 2024, as rent growth maintains an upward trajectory and vacancy is expected to end the year at a net improvement. While these two primary measures of performance are poised for continued steadiness, the pace of deliveries will accelerate in the second half after minimal inventory growth year to date. Still, deliveries for the full year are expected to total 2,800 units, or roughly half of the 2023 total. Demand is expected to remain strong enough for most new units to be absorbed and for operators to continue to implement rent increases.

Steady operating fundamentals may spark an increase in transaction activity in the Richmond multifamily market. Investors should be drawn in as the region consistently proves it can absorb the new units that are added to inventory while rents post above-average growth. In recent quarters, transactions have been limited and largely concentrated in Class C assets. Historically, the transaction mix has more closely matched the overall inventory. Sales velocity may pick up modestly in the second half of the year, though volume is expected to remain low until 2025. After a year of trending higher at a fairly gradual pace, cap rates appear to have stabilized, and any declines in interest rates in coming periods could spark more deal flow.

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