Declining multifamily vacancy fuels continued rent growth in Hampton Roads

Fundamentals strengthened in the third quarter as the elevated levels of new supply continued to be absorbed at a steady pace. Vacancy tightened during the third quarter, and the rate has improved by 40 basis points year over year. With renter demand for units elevated and vacancies improving, rents continue to post healthy gains. Average asking rents topped $1,650 per month in the third quarter, after advancing by more than 3.0% annually. Longer term, gains have been more significant; during the past five years, rents across the region have increased at an average rate of 5.1% per year. Development of new units is down from the peak levels recorded in 2024, and a less active permitting environment suggests further slowing in the coming years.

Investor appetite strengthened alongside improving operating metrics. Year-to-date sales volume reached $650 million across more than 20 multifamily transactions, both sharp increases from the same period in 2024. A surge in larger transactions reflects heightened investor interest and is impacting pricing levels. The median sale price advanced 30% over 2024 to $161,500 per unit, with deal flow relatively balanced across Chesapeake, Newport News, Norfolk City, and Virginia Beach. Cap rates remained in a tight 5.25% to 5.5% range, with Class A deals generally trading near the lower end and Class B and Class C assets clustering closer to 5.5%, signaling continued competition for well-located, stabilized communities.

Looking ahead

Looking into 2026, operating conditions are expected to improve as the development pipeline cools. Following a 2024 surge, 2025 deliveries are projected to total about 2,250 units, while permitting has already declined, limiting incremental supply pressure through 2026. With construction projected to decrease significantly, the market is positioned for firmer occupancy. Vacancy is forecast to settle around 5.2% by the end of 2025, and continued absorption of recent Class A deliveries should keep vacancies in the top tier similar to current levels. Rent growth is expected to finish 2025 with a healthy rise, and a tighter new-supply backdrop should help Hampton Roads maintain rent gains above the national pace into 2026.

Sales momentum is expected to carry into 2026. With median pricing rising sharply in 2025 and cap rates generally ranging between about 5.25% and 5.5%, buyers are likely to target assets where net operating income growth can be captured through lease-up, mark-to-market rent, or operational efficiencies. Assuming vacancy holds near the low-to-mid 5% range and rent growth stays positive, Hampton Roads should continue attracting capital seeking durable, coastal markets with demonstrated demand. Transaction volume is expected to remain steady, and the market’s ongoing ability to clear institutional-size deals highlights a healthy appetite for best-in-class properties as well as value-add plays.

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