Apartment Developments Have Reached a New Peak in Richmond
With easy access to the James River, hiking trails and a burgeoning culinary scene, the Richmond region has won numerous accolades for its quality of life. The city remains a top destination for college graduates and young professionals, as well as families and retirees. Apartment demand is fueled by both a growing millennial population and increasing number of empty-nesters who are downsizing. Renters continue to seek accessible apartment communities that are highly walkable with comfortable amenities. As a result, both urban and suburban markets are experiencing an influx of rental demand.
The Richmond apartment market continues to experience rising rental rates and interest from out-of-town investors. Apartment rents in Richmond have increased every year since 2012 but remain relatively affordable. The average effective rent reached $1,113 per unit after increasing approximately 3.8 percent over the past 12 months.
Accordingly, developers and investors have responded to the steady demand and continue to be bullish on the Richmond market, especially for apartments. There are currently more than 4,000 apartment units under construction, marking a post-recession peak for construction activity. Apartment sales have accounted for more than 50 percent of all commercial real estate transactions during the first half of 2019. Additionally, institutional investment has accelerated in recent years and is responsible for nearly 53 percent of all apartment sales in 2019.
Where will growth occur?
New neighborhoods and redevelopments will be needed to support additional growth. Discussions continue about the future of the Boulevard near The Diamond and the Richmond Coliseum downtown as potential redevelopment projects. While these two potential mega-projects continue to be deliberated, several submarkets are already benefitting from recent growth. Apartment demand is fueling development in activity in Scott’s Addition, Manchester and Midlothian.
Scott’s Addition, the former industrial area near the historic Fan and Museum districts, has emerged as a hotbed for breweries, restaurants and nightlife. City residents have flocked to Scott’s Addition to live closer to the social hub, while staying near key employment areas. Mixed-use developments, such as The Spur, are also beginning to provide more office space to bring even more Richmond-area residents to the neighborhood.
Another transitioning industrial area, Manchester is located south of James River from the Central Business District. Steeped in history, Manchester was an independent city until 1910. Today, many warehouses have been converted to apartments, condos and creative office space, while developers continue to break ground on new projects that are adding to Richmond’s skyline.
Part of the western suburbs of Richmond and south of James River, Midlothian is the highest-income trade area in the Richmond MSA. Midlothian has experienced considerable retail development in recent years. Apartment development is now following as the suburb continues to attract area residents.
Steady growth ahead
Richmond exhibits strong market fundamentals that will sustain consistent levels of growth. The economic and demographic profile of Richmond has created structural demand for multifamily product. Sellers will benefit from increased values and yields on multifamily properties, while investors in search of value-add opportunities may have difficulty significantly raising rental rates. The influx of new deliveries is introducing new amenities and contemporary design due to landlords competing for high-end tenants and rental rates. Property management services will also feel the strain of new supply, adding operational risk for new deliveries.
However, the capital of CNBC’s “2019 Top State for Business” has developed a diverse economy and is expected to sustain balanced, steady growth for the foreseeable future. New apartment deliveries may provide upward pressure on vacancies initially but are anticipated to be absorbed by new residents who continue to arrive in the metro area.
— By Jonathan Koes, Research Manager at Cushman & Wakefield | Thalhimer. This article originally appeared in the August issue of Southeast Real Estate Business.