Mention “rising secondary multifamily markets in the Southeast” and what might come to mind are markets such as Charlotte, Raleigh, Nashville or Orlando. A less discussed candidate is Richmond, which has a case to be considered the multifamily sector’s best-kept secret. It’s a secondary market that’s moving forward full steam ahead for two primary reasons: supply and demand.
More people = demand
According to the 2020 Census, the population of the city of Richmond stood at 232,226, a 12.7 percent increase from the 204,375 reported in 2010. Richmond is the county seat of Henrico County, which had a population of 333,766 as of 2020. This is an 8.6 percent increase over the 2010 population count of 307,201. More residents are moving to Richmond, mainly for one reason: jobs.
But the metro has other appealing factors as well, incuding its geographic location and low costs of living and doing business. In addition to being the site of growing employment centers, Richmond is proximate to major East Coast cities. New York City, Philadelphia and Washington, D.C., are easily accessible via train or airplane.
But Richmond is relatively affordable, especially compared to other Mid-Atlantic markets and gateway cities on the East Coast. With a corporate tax rate of 6 percent and electric rates 30 percent below the national average, the metro serves as an ideal option for businesses. On a larger scale, the State of Virginia is considered a favorable location for businesses as Forbes magazine recently ranked Virginia as the No. 4 best state for business.
Ramping up supply
According to the Berkadia Mid-Year 2021 Multifamily Report, 3,946 units have been delivered so far this year in Richmond. The report also indicated that occupancy for the first half of 2021 was 96.6 percent.
The ongoing demand for housing is exerting upward pressure on rent growth in the metro area. According to the Berkadia report, five out of the eight submarkets in metro Richmond had an 11 percent increase or more in effective rent growth from mid-2020 to mid-2021. Overall, greater Richmond’s effective rent growth increased 9.5 percent year-over-year.
What’s going up?
The Berkadia report indicated that the two submarkets experiencing a great deal of construction activity are Tuckahoe/Westhampton and Chesterfield County. Of the units currently under construction in the metro Richmond area, 38.5 percent are going north in Tuckahoe/Westhampton.
Another submarket of interest to developers is the Scott’s Addition Historical District. Located in the northern sector of downtown Richmond, Scott’s Addition offers many amenities such as breweries, bars and dining and entertainment options. The interesting aspect of this quickly growing submarket is that much of the multifamily action occurring consists mainly of historic renovations and conversions. There is a limited supply of Class A, highly amenitized project deliveries.
This is changing, however. One of Capital Square’s currently under-construction projects in this submarket is 1601 Roseneath, a 350-unit multifamily development situated above ground-floor retail at a “Main and Main” intersection. This project is under development within the Scott’s Addition designated opportunity zone in a partnership between Capital Square and Greystar.
Level 2 Development and SJG Properties out of Washington, D.C., are also planning to build in this submarket, having acquired 3.3 acres for a planned $80 million mixed-use multifamily project.
Will it continue?
We anticipate the greater Richmond market will continue to outperform its secondary peer markets in the Mid-Atlantic because of its employment opportunities and the new supply in the development pipeline.
Employers are flocking to Richmond due to the low costs of living and doing business. Furthermore, these employers are reaping the benefits of a highly educated workforce. Amazon is planning a new distribution center with plans to hire 1,000 people. CarLotz, which is opening a new headquarters in Richmond, will add 200 new jobs to the economy, while biotech firm Aditx, which is building a new facility, plans to hire 300 staffers.
Capital Square is active in Richmond, and so are other developers. Robinson Development Group launched work on Metropolis at Innsbrook, which will offer 700 apartment units and 13,000 square feet of commercial space. WAM Associates and WVS Cos. are finishing up the 220-unit Innslake Place. Additionally, Lingerfelt CommonWealth Partners filed plans with Henrico County to develop 1,400 multifamily units over the next several years. Thanks to continued housing demand, there is no imminent threat of oversupply.
In short, more people are coming to take advantage of more jobs, and these jobs are paying more money. These factors amount to more people with more money seeking to rent apartments, which will ultimately help ensure a strong multifamily sector for Richmond.
— By Whitson Huffman, Chief Strategy & Investment Officer, Capital Square. This article was originally published in the August 2021 issue of Southeast Real Estate Business.