Sands Anderson’s Brian Pitney recently had a chance to ask two top commercial real estate brokers from CBRE, Matt Hamilton and Chris Wallace, about the temperature of Richmond’s red-hot multi-family market. They discussed activity in Scott’s Addition, neighborhoods to watch, rising interest rates, and more.
You both represented the seller in a 2.7-acre land deal recently in Scott’s Addition for $10.8 million, amounting to a record-breaking $4 million per acre. Do you see continuing activity and rising prices in Scott’s Addition, or do you expect things to cool down?
Wallace: Yes, still very active. Demand and rent growth are still strong and with the future Diamond District redevelopment, it should remain a premier multi-family development submarket. I do think developers are starting to look to Innsbrook because they can get land at $1 million +/- per acre and still get the same rent numbers.
Hamilton: Yes, the market continues growing and Richmond is one of the nation’s top choices to live based on the overall quality of life. Richmond was one of the only cities to have an increase in multi-family rental rates during COVID and it continues to increase. The Diamond District will only ensure future rental rate increases allowing us to potentially achieve denser 12-story buildings.
What’s the next hot neighborhood for similar development in the City of Richmond?
Wallace: Innsbrook for the reasons stated above. Plus, Henrico County is certainly pushing for Innsbrook to densify, so more to come there for sure.
Hamilton: Virginia Center Commons is also in the future growth plan with its higher density zoning and revitalization of the former mall.
The purchaser of the Scott’s Addition property plans to raze the existing buildings and construct a 350-unit apartment building with some commercial space. How many more apartment buildings can the City of Richmond absorb, and where do you see rents headed?
Wallace: As long as we continue to see migration from the Northeast and D.C. areas, I’m not sure there is a bottom to this development pipeline. With CoStar bringing 2,000+ jobs and other companies looking to establish offices in Richmond, we will see more development. Rent numbers are peaking around $2.30 +/- per square foot, but I do think that an upward trend will continue despite the economic headwinds. I think you will continue to see downtown office buildings being repurposed to multi-family with CoStar’s growth there.
Hamilton: The occupancy rates for the Richmond’s multi-family products remain strong in the high 90th percentile, and the population continues to grow. The larger tier-one cities are talking about Richmond as a destination.
How do you see the rising interest rate environment impacting the commercial real estate market in the Richmond metropolitan area?
Wallace: It will certainly slow things down some, but I do feel Richmond will be somewhat insulated from any major recession. We are an emerging market and historically Richmond has fared pretty well during recessions given the diverse economy and being a capital city. Some of that is wishful thinking on my part, but I do feel relatively confident any recession here will be fairly shallow.
Hamilton: There is a lot of money from out of town looking to enter the market. Rental rates are continuing to increase, however, so are construction costs. Things may hit a slight lull, but there are a lot of opportunities from folks looking to exit some of their real estate holdings to grab cash with a looming “recession”.