Healthy Multifamily Absorption Totals Support Rent Gains in Richmond

Continued renter demand has contributed to stable market fundamentals in recent months. During the first quarter, average rents recorded healthy increases even as an accelerating pace of deliveries resulted in a modest vacancy uptick. More than 1,300 new units came online in the past three months, up from roughly 750 units in the previous quarter. Since early 2023, net absorption has averaged more than 700 units per quarter, while the area vacancy remained steady around 7%. South Richmond, especially in the Old Town Manchester neighborhood, has benefited from strong renter demand, with net absorption totaling approximately 1,000 units since the beginning of 2023. Some of the healthiest market conditions are being seen in the area, where vacancy held steady at 7% over the past year and rent growth remained solid. The submarket has shown meaningful improvement since its peak vacancy of 8.8% two years ago, reflecting ongoing demand and tightening fundamentals.

Transaction activity has been limited so far in 2025, following stronger sales volume in the previous quarter. The only property to change hands during the first quarter, a Class A asset that sold for $305,000 per unit, placing it among the highest per-unit prices recorded in recent years. Over the past year, the median price was $176,000 per unit, closely tracking pricing levels recorded in 2023. Although sales activity has been modest, transactions resumed in South Richmond after a pause. Outside of last year, the South Richmond submarket typically records notable transaction volume. Cap rates across the Richmond area have averaged roughly 6% since early 2024, rising about 50 basis points since the start of 2023.

Looking ahead

Property fundamentals in the Richmond multifamily market are expected to remain steady in the coming quarters, with vacancy projected to remain near its current level and rent growth continuing. The recent pace of deliveries is set to persist throughout 2025, with approximately 4,700 units forecast to come online, exceeding historical averages but below the market’s peak in 2023. Future development is concentrated along a six-mile corridor within one mile of West Broad Street, stretching from Downtown Richmond to the northwest. While completions are on pace to be elevated in 2025, construction activity is expected to return to closer to long-term trend levels in subsequent years. Multifamily permitting has tapered off after surpassing 5,000 units in both 2022 and 2023.

While transaction counts may remain below historical norms, an uptick in sales is expected in the coming months. Stable market fundamentals should attract investment activity in Richmond throughout 2025.  Although new deliveries are forecasted to be elevated, the leasing environment is expected to remain favorable, and operators are likely to continue to implement rent increases, creating opportunities for investors to acquire assets across the quality spectrum. The likelihood of continued cap rate stability reflects growing strength and predictability within the market. Chesterfield County and Western Henrico County are expected to present opportunities in the coming years after limited sales activity in 2024. Property fundamentals have remained solid in these areas in recent periods, and developers continue to be active in both submarkets.

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Contact our Richmond office for more information.