The vacancy rate for apartment units in Metro Richmond in the first quarter of 2010 was the highest it has been in five years, reports the real estate research firm Reis Inc.
The 8.7 percent vacancy rate is up from 6.9 percent in the first quarter of 2009 and 6.2 percent in 2008, Reis found.
The rising vacancy rate comes at a time when rent prices are declining. Reis said average asking rent dropped to $787 in the first quarter this year from $798 a year ago.
This continues a trend where the asking rent average dropped to $784 for all of 2009 from $794 in 2008.
While the numbers aren’t encouraging, it isn’t stopping developers from pursuing projects. Dominion Realty Partners is renovating the John Marshall Hotel building into 238 units, Gilbane is planning 160 units at Foushee and Canal streets, and Fountainhead and the WVS companies are planning 170 units at the Reynolds North Plant, just to name a handful of projects in the pipeline. More than 600 units are under construction or planning in Shockoe Bottom.
“A lot of developers are optimistic and forward thinking,” said Matt Duffy, who oversees acquisitions and finance for Rogers Realty Advisors, a real estate investment bank in Henrico. “A lot of these assets have been on the drawing board for many years and just now coming to the market.”
Duffy said the volume of new projects is an encouraging sign, since it is the first property type to make a comeback from a decline in commercial real estate investment.
“A lot of people are comfortable with underwriting apartment deals where you can analyze things and very quickly change strategy,” said Duffy.
Rents can be changed as needed, while for retail or office space, owners rely on a small number of tenants with long term leases, he said. Another part of the equation sparking multifamily activity is the availability of government backing for apartment projects from Fannie Mae, Freddie Mac, HUD, and VHDA.
One potential problem, Duffy said, is if too many of the projects come on line at once it could drag occupancy and rents down even further until job growth brings more tenants. But he said it is more likely that apartments will be delivered in a more piecemeal fashion, and some projects might not get financing at all.
“It is still a challenging environment,” said Duffy, “Banks are not underwriting deals or extending capital like they were several years ago. Unless you are Tier A client it is hugely unlikely you will receive an acquisition loan, let alone a construction loan.”
Patrick McCloud, president of the Central Virginia Apartment Association, said part of the reason for the rising vacancy rate is that property owners have been reluctant to drop rents.
“Companies that were the quickest to come off rents were the quickest to maintain occupancy,” said McCloud, “Now people realize what’s going in on the market they are more aggressive where they put their rents.”
McCloud said he expects rents in Shockoe Bottom to become very aggressive in light of the large number of units coming to the area.
According to the Reis report, the Northside/Laburnum submarket had the highest vacancy in the first quarter at 12.7 percent. Southside/Broad Rock had the cheapest average rents at $541 a month. The Far West End had the lowest vacancy at 6.2 percent. The Fan/Downtown had the highest average rents at $890 a month.
Previously on Richmond BizSense:
Al Harris covers real estate for BizSense. Please send news tips to [email protected].
The vacancy rate for apartment units in Metro Richmond in the first quarter of 2010 was the highest it has been in five years, reports the real estate research firm Reis Inc.
The 8.7 percent vacancy rate is up from 6.9 percent in the first quarter of 2009 and 6.2 percent in 2008, Reis found.
The rising vacancy rate comes at a time when rent prices are declining. Reis said average asking rent dropped to $787 in the first quarter this year from $798 a year ago.
This continues a trend where the asking rent average dropped to $784 for all of 2009 from $794 in 2008.
While the numbers aren’t encouraging, it isn’t stopping developers from pursuing projects. Dominion Realty Partners is renovating the John Marshall Hotel building into 238 units, Gilbane is planning 160 units at Foushee and Canal streets, and Fountainhead and the WVS companies are planning 170 units at the Reynolds North Plant, just to name a handful of projects in the pipeline. More than 600 units are under construction or planning in Shockoe Bottom.
“A lot of developers are optimistic and forward thinking,” said Matt Duffy, who oversees acquisitions and finance for Rogers Realty Advisors, a real estate investment bank in Henrico. “A lot of these assets have been on the drawing board for many years and just now coming to the market.”
Duffy said the volume of new projects is an encouraging sign, since it is the first property type to make a comeback from a decline in commercial real estate investment.
“A lot of people are comfortable with underwriting apartment deals where you can analyze things and very quickly change strategy,” said Duffy.
Rents can be changed as needed, while for retail or office space, owners rely on a small number of tenants with long term leases, he said. Another part of the equation sparking multifamily activity is the availability of government backing for apartment projects from Fannie Mae, Freddie Mac, HUD, and VHDA.
One potential problem, Duffy said, is if too many of the projects come on line at once it could drag occupancy and rents down even further until job growth brings more tenants. But he said it is more likely that apartments will be delivered in a more piecemeal fashion, and some projects might not get financing at all.
“It is still a challenging environment,” said Duffy, “Banks are not underwriting deals or extending capital like they were several years ago. Unless you are Tier A client it is hugely unlikely you will receive an acquisition loan, let alone a construction loan.”
Patrick McCloud, president of the Central Virginia Apartment Association, said part of the reason for the rising vacancy rate is that property owners have been reluctant to drop rents.
“Companies that were the quickest to come off rents were the quickest to maintain occupancy,” said McCloud, “Now people realize what’s going in on the market they are more aggressive where they put their rents.”
McCloud said he expects rents in Shockoe Bottom to become very aggressive in light of the large number of units coming to the area.
According to the Reis report, the Northside/Laburnum submarket had the highest vacancy in the first quarter at 12.7 percent. Southside/Broad Rock had the cheapest average rents at $541 a month. The Far West End had the lowest vacancy at 6.2 percent. The Fan/Downtown had the highest average rents at $890 a month.
Previously on Richmond BizSense:
Al Harris covers real estate for BizSense. Please send news tips to [email protected].
CBRE had the Q4 2009 final vacancy rate at 9.1%, but projects it to drop to 6.5% by the end of 2010, and decreasing to 4.4% and 3.4% in the following years–let us hope.
good article. It still amazes me, in a sense, how inefficient the Richmond rental market is. I wonder if this supply glut will impact some staid Richmond practices. For example, In Manhattan, where I started out in real estate there is an active rental “brokerage” market, where agents can show rental units from any building and expect to receive a commission. In Richmond, developers seem to tolerate more vacancy and avoid expenses like paying commissions on rentals. In fact, I have met with several developers who seem to prefer higher fixed costs in the form of salary for On-Site Leasing… Read more »
As more units come on line, assuming they have quality construction, renters will have more options and competition shmay drive rents down for a bit. As more people live downtown, then more amenities will locate downtown to serve them. As these amenities arrive, the area will become more attractive to potential tenents. This will allow rents to stabilize and rise. One year blips can be a hardship for the individual investors, but they hardly spell doom for the market in general. Downtown Richmond is thriving and growing. Now if there was just even one middle school to send your kids… Read more »
If I was a Shockoe or downtown developer, I would do what I can to make sure that mass transit is there-
http://www2.timesdispatch.com/rtd/news/local/article/GRTC08_20100607-222404/349715/
I would be more than a little concerned about passenger rail bypassing downtown-
http://www2.timesdispatch.com/rtd/news/local/article/RAIL05GAT_20100605-150001/349248/