As Richmond continues to grow, its relative value points to prosperity in the market for years to come. Having grown our company in Richmond, we’ve witnessed the transformative momentum and tremendous change firsthand. Specifically, the diverse employment base has continued to expand through economic strength and migration trends, increasing not only population but also multifamily demand and asset performance.
Strong economics support Richmond’s stability. Richmond’s diverse employment base empowers a resilient market with high-growth potential. The MSA is home to 11 Fortune 1000 companies and a robust private sector, encompassing hospitals, energy companies and financial services. The economy is stabilized by the presence of many institutions of higher learning, along with substantial medical and life sciences users. Numerous major corporations have announced or recently completed large expansions. These include CoStar’s new $460 million corporate campus (2,000 jobs) and The LEGO Group’s new $1 billion, 1.7-million-square-foot production facility (1,760 jobs).
As Virginia’s state capital, Richmond has a large government presence, including the Richmond Federal Reserve Bank and the U.S. Fourth Circuit Court of Appeals. The city is also actively engaged in creating public-private partnerships — including the “Diamond District,” a 67.5-acre parcel redevelopment into a mixed-use entertainment district, and “City Center,” 9.4 acres in the heart of downtown that will soon be transformed into a mixed-use urban destination.
With low taxes, a business-friendly government and a solid transportation network, the area is growing at a rapid pace. All of these factors combined with a mild climate and substantial tourism have resulted in an exceptionally strong and resilient economy.
For many years, there has been a migration away from gateway cities to smaller, more suburban areas. Richmond has benefited from this migration, which was accelerated by the pandemic. Remote work opportunities have made relocations more viable. Also, Virginia’s capital offers acclaimed entertainment and dining experiences, as well as lush natural settings and a vibrant arts scene for a high quality of life and affordable cost of living.
Similarly, the “sister city trend” in which smaller metro areas gain overflow population from a nearby larger metro, can be seen with Richmond and Washington, D.C. Significantly less traffic and a cost of living approximately 36 percent lower, according to Bankrate.com, are major advantages for the Richmond area.
In addition, the median home price in Richmond is approximately $334,000 compared to $625,000 in Washington, D.C., according to Zillow. The average rental rate for a one-bedroom apartment in Richmond is $1,348 compared to $1,983 in Northern Virginia and $1,886 in suburban Maryland, according to Yardi Matrix.
Recent data supports these migration trends. The Richmond metro was the fastest growing of Virginia’s five metropolitan areas between 2020 and 2022, including a growth rate that was three times faster than that of Northern Virginia (2.1 percent as compared with 0.7 percent), according to the University of Virginia’s Weldon Cooper Center. The Richmond area also includes four of the five fastest growing counties in Virginia since 2020.
Not only did Richmond have a higher growth rate, but migration from Northern Virginia to Richmond increased by approximately 40 percent compared to the mid-2010s. Furthermore, U.S. Census data shows that the city’s population growth of 2.45 percent for the 20- to 34-year-old age cohort significantly outpaced the national average of 1.51 percent between 2016 and 2021.
According to CBRE, Richmond “posted the strongest quarterly asking rent gains of any major market in the country in the second quarter.” Greystar reported that its development, The Otis in Scott’s Addition, signed 75 leases in May 2023, a record-setting level for the firm. Capital Square’s new Scott’s Collection multifamily development has gained over 50 percent of its residents from zip codes outside of the Richmond metro as well.
These factors contribute to robust asset performance across central Virginia. The average rental rate in the Richmond MSA has risen more than 33 percent from first-quarter 2019 to first-quarter 2023, according to Yardi Matrix. The MSA has seen at least a 5 percent rental increase in four of the past five years. These upward trends are expected to continue, with 3 percent or greater increases in rental rates projected for each of the next three years, while occupancy rates are projected to stay above 94.5 percent.
Richmond’s strong asset performance and positive economic trends have attracted many buyers, including Starwood, Angelo Gordon and Greystar. Greystar and Capital Square are jointly developing a large multifamily community in the Scott’s Addition neighborhood of Richmond.
The substantial growth in multifamily investment sales from 2016-2022 further displays the growing presence of the MSA.
In conclusion, high-quality projects coming on line as well as positive demographic and asset performance trends have transformed Richmond into an institutional-quality market attracting both national and international participants. The future is exceptionally bright in Richmond for the multifamily market.
— By Louis Rogers, Founder and Co-CEO, Capital Square. This article was originally published in the August 2023 issue of Southeast Real Estate Business.