Amid weakening economic conditions, multifamily players are working on recalibrating their investment strategies to minimize the impacts of a possible downturn. While multifamily real estate is generally considered to be a hedge against inflation and rising interest rates, markets with strong demographic and employment trends will see the most stability and growth in the coming years.
Although many investors have focused on rapidly growing Sun Belt metros, there are hot markets outside this region. Consider Richmond, Va. Despite overall softening market fundamentals in the wider Mid-Atlantic region, Richmond demonstrated robust growth in the second quarter, with effective rents increasing 10.3% year-over-year to $1,365 per unit, according to Colliers research.
Thanks to its moderate climate, high quality of life, and more affordable prices, Richmond is becoming a popular destination for retirees. Additionally, due to its growing biotech, manufacturing, and financial sectors, the metro is also attracting young professionals. In 2019, the metro was ranked as one of the country’s top 10 mid-sized cities of the future for its economic potential, human capital, and lifestyle offers, according to Forbes.
High Demand Drives Multifamily Growth
Although Richmond’s economy dipped at the beginning of the pandemic, putting pressure on the property investment markets, thanks to high demand — supported by demographic and job growth — the multifamily market rebounded quickly. The need for rental homes continues to be high in the metro, with the vacancy rate at 5.3% at the end of the second quarter, Colliers noted.
Smaller submarkets posted even higher demand, with locations such as Dinwiddie County and Hanover recording 1.7% and 0.9% vacancy rates at the end of the second quarter. With virtually no new projects underway in these submarkets, vacancy is expected to remain low, creating potentially strong opportunities for rent growth.
Multifamily investment picked up the pace in the second quarter of the year, with deal volume totaling $283.3 million and the average per unit price reaching $181,000. Additionally, despite rising interest rates, transaction volume increased 30% on an annual basis, demonstrating investors’ continued interest and faith in the market, Colliers concluded.