Strong employment growth, sustained high interest rates and a challenging single-family homebuyer market have driven strong multifamily demand in the Mid-Atlantic market, with all of the region’s markets posting positive rent growth and increasing occupancy for the second quarter, according to Newmark's Mid-Atlantic multifamily report.
Rents rose across the region by between 1.5% and 3.5%, and average annual growth is expected to remain positive over the next two years. Hampton Roads and Richmond posted the strongest five-year average rent growth at 6% and 5.9%, respectively, while Baltimore posted 4.2% and Washington posted growth of 3.5%. The Washington, D.C., metro is the largest in the region with 700,000 units of inventory and recorded the highest effective rents at $2,240 per unit.
Multifamily occupancy in all four Mid-Atlantic markets was above 95% during the second quarter.
Richmond has the largest construction pipeline relative to inventory, with 5,243 units under construction, representing 4.4% of current inventory. Washington is next with 17,310 units under construction, or 2.5% of current inventory.
Multifamily sales volume in the region slowed during the second quarter following record-breaking volumes during 2021 and 2022, likely due to elevated interest rates. Notable multifamily transactions during the quarter included the sale of West End 25 in Washington for $186 million, or $657,000 per unit, and Banyan Grove at Towne Square for $69.5 million, or $241,000 per unit.
Digging deeper into metro-level demand drivers, the report said Washington continues to have a tighter labor market despite a slight increase in unemployment. The construction, along with education and health sectors, boosted job growth in the region, while the information and business/professional segment saw employment decline. Apartment absorption in the metro outpaced deliveries through the first half and is on pace to surpass the 10-year average of 12,638 per year, said Newmark.
Unemployment also climbed slightly in Baltimore to end May at 3.2%, but that remains 100 basis points below the national average. Occupancy in the market remains high, and absorption has increased for three years, underpinning the market’s strength. Baltimore accounted for nearly three-quarters of multifamily construction activity during the second quarter.
Meanwhile, the Hampton Roads unemployment rate continues to outperform the national average at 3.7%, led by the trade/transportation/utilities and government sectors. Absorption outpaced a significant uptick in deliveries last year, a trend that continues this year, although deliveries have slowed. Three submarkets achieved rent growth of greater than 3% over the past year, including Virginia Beach East, Virginia Beach West and Southern Norfolk.
Richmond’s unemployment rate outperformed the national average at 3.4%, with education/health and government jobs seeing growth in the market. Annual rent growth has moderated in the market since reaching record highs in 2021. After experiencing negative absorption in 2021, the Richmond market has returned to strong positive absorption.
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