CREport: Hampton Roads Multifamily Demand Rebounds in 1H 2023

Hampton Roads, VA

Home to over 1.8 million people, Hampton Roads is the most-populated metro in Virginia and is similar to Washington, D.C. in terms of its major industries, its reliance on federal spending, and its highly educated employment base, which provides the region with a strong degree of resiliency during economic downturns. Like many markets in the U.S., Hampton Roads’ multifamily market experienced a decline in demand in the second half of 2022.

A significant contrast to the high demand observed during the early months of the pandemic. The decline was likely due to the expiration of the state-wide eviction moratorium and federal rent relief in mid-2022. But demand has rebounded in 1H 2023 and showed a return to positive growth, recording over 1,000 units of absorption. As a result, Hampton Roads’ occupancy ticked up to 94.0% at the end of June and above the 10-year average.??

Trendlines

Rent Growth Returns to the Metro in 1H 2023?

The decline in demand and rise in vacancies in 2022 resulted in a slowdown in rent growth and the market even recorded a decline in rents in the fourth quarter for the first time since 2019. The first half of 2023 saw a reversal of the recent declines, as effective rents grew by about 3.7% at the end of June, which aligns with long-term historical norms for the area. The Hampton Roads area promotes affordability as one of its key selling points.

The metro-wide average effective rent was approximately $1,435/month ($1.52/SF) at the end of June, which closely aligns with Richmond. Still, it is more affordable than other nearby markets such as Raleigh-Durham, Charlotte, Baltimore, and Washington D.C. With the metro on pace to see about 1,200 units open their doors by year’s-end, effective rents are on pace to steadily grow by about 3.7% this year.

Steady Construction Maintains Healthy Supply and Demand??

Hampton Roads’ under construction pipeline has been remarkably consistent for several years. Since 2015, about 2,500 units have been under construction, on average, and that remains the case with about 2,770 units underway at the end of June. Hampton Roads hasn’t experienced the same uptick in new multifamily construction as other parts of the region, like Richmond or Washington, D.C. Take Richmond for instance, where new projects are being announced every week, and the number of units underway is still well above historical norms.

From a macro perspective, roughly 2.2% of Hampton Roads’ inventory is under construction, which is a minimal percentage compared to the national benchmark of 5.7%. Norfolk and Virginia Beach continue to attract the majority of development with 1,740 units underway, which accounts for nearly two-thirds of the metro’s under construction pipeline at the end of 1H 2023.

Transactional Trends

Interest in Hampton Roads’ multifamily market was record-setting in 2021 and 2022, with total sales volume surpassing $1.8 billion and $1.6 billion, respectively. While multifamily investors have been active in the last two years, their activity has slowed due to rising interest rates.

The metro recorded sales of more than $527 million at the end of 1H 2023 and is on pace to surpass $1.0 billion for the year. Interestingly though, Hampton Roads has not experienced the same level of slowdown seen in most parts of the country.

Transactional activity in the first quarter of 2023 aligned with pre-pandemic norms, in contrast to a national average of about 40% below pre-pandemic levels. Investors in the area have focused much of their attention on the Virginia Beach submarket, which has seen the most transaction activity in terms of sales volume over the past 12 months and holds the largest inventory of multifamily units in the Hampton Roads market as well.?

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