Vacancy Declines in Hampton Roads as First-Half Demand Exceeds New Multifamily Supply

Hampton Roads multifamily market fundamentals remained healthy in the second quarter of 2025. Following a peak in new deliveries in 2024, leasing demand and sales activity remained strong. Net absorption in the first half of 2025 outpaced deliveries by about 300 units, helping improve vacancy. The vacancy rate declined 20 basis points from the first quarter to 5.8%, though it remains 60 basis points above last year’s level. Average asking rents rose to $1,644 per month, a 2.8% annual increase. Despite a slight job market contraction so far in 2025, steady renter demand is supported by a large military presence, university students, and the port economy. Elevated single-family home prices and mortgage rates continue to push many potential buyers into the rental market, sustaining apartment demand.

Multifamily investment sales regained momentum this quarter, with seven notable trades totaling approximately $250 million and a median price of approximately $154,300 per unit. Investor interest strengthened, with cap rates for quality assets holding steady in the mid-6% range. Sales included a wide range of property vintages, from 1965 to 2025, with the average property built in 1994. Sales were evenly distributed across submarkets, with no clear leader emerging. Assumption of a property’s existing debt was involved in approximately half of all transactions, as investors continue to seek lower-interest financing options amid broader economic headwinds.

Looking ahead

The Hampton Roads multifamily market is positioned for continued stability through the second half of 2025 and into 2026. Key demand drivers such as population growth, large military employment, and constrained homeownership affordability are expected to sustain renter demand. On the supply side, the pace of deliveries will slow; completions in the second half will lag the first-half total and supply growth in 2025 will drop more than 40% from the cyclical peak recorded in 2024. With competitive pressures from new supply growth easing, modest vacancy declines in the second half of the year are likely. Operators have proven an ability to implement rent increases in recent periods, a trend that should continue as the vacancy rate tightens.

With supply pressures easing and property fundamentals improving, the momentum generated in the local investment market in recent months will likely carry over through the second half of this year and into 2025. Transaction counts to this point in the year are ahead of the 2024 pace and only slightly lagging levels recorded in 2022 when the market set a local record for investment volume. The current pace of deal flow may prove difficult to sustain, although if proposed interest rate cuts materialize as expected, a less restrictive financing climate could spur additional investment volume. One result of recent increases to supply has been an increased share of Class A properties in the transaction mix, although Class C trades are expected to continue to dominate the market.

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