Multifamily Rents Rise Even as New Units Come Online in Hampton Roads

Multifamily operating conditions in Hampton Roads improved during the second quarter. The market recorded more than 2,300 net move-ins during the past 12 months, and strong renter demand has pushed the vacancy rate lower and driven rents higher. The continued strength of renter demand has sparked an acceleration in the pace of new construction, but even as deliveries have increased, market fundamentals have remained healthy. Total deliveries to this point in 2024 have reached more than 2,000 units, ahead of the full-year totals from prior years. The pace of construction will slow in the coming months and sharp declines in permitting and construction starts signal a much more modest pace of supply growth in the coming years.

Total sales in the Hampton Roads multifamily investment market picked up during the second quarter, but transaction volume through the first half of 2024 has gotten off to a slower start than in recent years. Transaction counts in the first half of this year are down roughly 50 percent from the first half of last year with investment activity concentrated in 1970s-era Class C properties. The median price year to date is $117,500 per unit, lower than in 2023, due in part to the mix of assets changing hands. There has been minimal transaction activity at the higher end of the quality spectrum, and these properties have generally traded between $170,000 per unit and $210,000 per unit. Last year, there were a few transactions that closed at higher prices per unit, but a few of these had assumable debt that attracted buyers and offset earlier rises in interest rates.

Looking ahead

The Hampton Roads multifamily market is forecast to record another solid year of property performance in 2024, as renter demand should remain elevated in the face of continued supply growth. Completions are forecast to total approximately 3,000 units by the end of the year, but this will thin out the development pipeline considerably, and with multifamily permitting and starts slowing, the outlook beyond 2024 calls for much more modest construction levels. The local labor market is expected to continue to expand in the coming quarters, fueling further renter demand. Apartment operators will continue to raise rents at a steady pace, with annual rent growth in Hampton Roads being forecast to reach roughly 4 percent in 2024, outperforming the national average.

Investors are showing signs of increasing activity in the Hampton Roads market, though upticks will likely be modest through the end of the year. The momentum that is building in the region is in response to an outlook that calls for persistent renter demand for units, a thinning development pipeline and continued rent growth. In 2024, transaction activity will likely lag levels posted in the past few years, though the transaction mix should largely remain the same. Increasing sales in better performing Class C properties combined with the newly built properties beginning to hit the market will likely increase overall sales velocity in the next 6 to 12 months. Cap rates should remain near current ranges, but will be influenced by the larger interest rate and lending environment. 

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