Underpinned by healthy fundamentals, Richmond has seen ever-growing rents since the beginning of the year, yet remains significantly more affordable than other Mid-Atlantic markets. To meet increasing demand, development activity is also booming across the metro, with more than 11,000 units underway as of August, according to Yardi Matrix data.
Capital Square is among the companies that have been most active in the metro in the past few years. Recently, the firm broke ground on Scott’s Collection III, the 72-unit, final component of a three-property project in Richmond’s historic district of Scott’s Addition.
Multi-Housing News asked the company’s chief strategy & investment officer, Whitson Huffman, to share details about the market’s development hot spots, and let us in on the firm’s projects and plans.
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How has the Richmond multifamily market performed in the first half of 2021? What is fueling the metro’s growth?
Huffman: The first half of 2021 has been exceptionally strong in Richmond. We’ve seen outstanding rent growth across all asset classes and strong occupancy, as well.
Going back, 2020 was a great year for Capital Square, even with the unique challenges of the pandemic. What we’re seeing in 2021 is a trend of rents growing at a meaningful level. Thus far in 2021, rent growth has been astonishing.
Job growth and geography are main drivers for the Richmond multifamily market. Richmond is near employment centers, such as New York, Philadelphia and Washington, D.C., which are easily accessible by train or airplane. Even in a remote, work-from-home type of model, cities like Richmond have benefited, broadly speaking. Richmond has white-collar employment, with plenty of jobs. This puts more demand on housing, leading to more pressure on rents, especially relative to other gateway cities.
What sets Richmond apart from other Mid-Atlantic markets?
Huffman: Affordability is the main aspect. Richmond is relatively affordable compared to other gateway cities. With 10 Fortune 100 companies and seven Fortune 500 headquarters, the employment base in Richmond is relatively strong.
Further differentiating Richmond from other Mid-Atlantic markets, is the area’s low cost of doing business. The corporate tax rate is 6 percent and the electric rates are below 30 percent. As the capital of Virginia, Richmond benefits from the continued growth of Northern Virginia and Washington, D.C. These factors, coupled with an educated labor pool and strong ties to the federal government, give Richmond a competitive advantage over other Mid-Atlantic markets.
Why is Richmond a good multifamily investment market today?
Huffman: Richmond has a growing population and a relatively low cost of living, especially in comparison to other nearby primary markets. Additionally, Richmond has not experienced oversupply. Supply is nicely matched to demand in the area and rent growth is consistent. There’s been a lot of construction in Richmond, with no vacancy softness.
Further proving Richmond’s dominance in the multifamily investment realm, according to CBRE, the Richmond multifamily market was considered the COVID-19-era winner, with the strongest quarterly asking rent gains of any major market in the country during the second quarter of 2020. The market’s performance during the pandemic is a testament to its stability.
What areas/submarkets of the metro are garnering attention from developers nowadays and why?
Huffman: We’re very active in the Scott’s Addition Historic District. As the fastest-growing neighborhood in Richmond and one of the highest performing markets in the region, Scott’s Addition offers many amenities, entertainment options, bars and dining. Furthermore, Scott’s Addition is a qualified Opportunity Zone, where Capital Square currently has four multifamily projects under development.
The suburbs of Richmond also continue to be active, especially from a development perspective, and they’ve performed well during the pandemic. For example, Manchester, just across the bridge from Richmond, has been experiencing a lot of multifamily development. Essentially, the entire Richmond metro is a liquid market from a construction perspective. There is significant demand for multifamily units in the region.
How has the pandemic impacted your development activity?
Huffman: Fortunately, there hasn’t been too much of an impact. The pandemic delayed the exact start date on some projects by a few months, mainly because of the supply chain. We experienced some issues getting raw materials and goods, but we had a ready and able base of construction lenders and plenty of investors from the equity side. Despite the pandemic, our development projects have been on schedule and on budget.
Tell us more about the project you’re developing in partnership with Greystar at 1601 Roseneath Road. What makes it unique?
Huffman: The Otis at 1601 Roseneath Road is an institutional multifamily development in Scott’s Addition, scheduled for completion by the end of 2022. This is a unique and attractive development because of its 350 units above ground-floor retail, at a “Main and Main” intersection, in one of the hottest neighborhoods in Richmond. Also, there hasn’t been much new development in this submarket. There’s been a lot of historic renovation and conversion, but limited supply of highly amenitized, Class A properties.
With our firm’s local market knowledge and Greystar’s premier development experience, once completed, The Otis at 1601 Roseneath Road will be a game-changer for the area. The 350-unit luxury multifamily community will complement the other projects that Capital Square is developing in the area and will ultimately help us enhance the neighborhood.
What are your immediate plans for multifamily development across the Richmond market?
Huffman: Capital Square has been very active in this market, especially in Scott’s Addition. We have two projects that are in active planning, with one breaking ground sometime next year. Once we break ground on that project, we’ll have five Class A multifamily communities that are either delivered or under construction in that submarket. We are pleased to serve as a part of the revitalization of Scott’s Addition and to help drive economic growth as well as job creation right here in our backyard.
How do you expect the Richmond multifamily market to perform in the short and long term?
Huffman: I anticipate that over both the short and long term, the Richmond multifamily market will perform exceptionally well. It will outperform peer markets in the Mid-Atlantic. Not only do we expect the job growth to continue on an upward trajectory but new apartment supply and more institutional investors jumping into the market will help propel rent growth.
I do think we’ll see cap rates in Richmond continue to compress, as investors look for other ways to get high quality deals. This will bring cap rates more in line with other high-growth markets in the Southeast.
To explain it simply, there is an influx of people coming to Richmond, who are making more money, ultimately leading to more people seeking apartments, who can pay higher rents.