Richmond The Richmond, Virginia, apartment market has remained steady, according to Steven Brincefield, senior vice president at Insignia Thalhimer in Richmond, who reports that overall occupancy in the area has declined from a strong 96.9 percent recorded last year to a mid-year 2001 level of 95.6 percent.

Qualifying the numbers, Brincefield explains, "The increase in vacancy was not entirely unexpected as newly constructed units came on line. Perhaps not expected was the modest amount by which vacancy increased from last year' 3.2 percent to this year' 4.4 percent -- still a very healthy number." This change seems to indicate a consistent pattern of absorption relative to the quantity of new units coming on line, he adds.

New apartment development in the area has occurred with reasonable deliberation, creating a satisfactory equilibrium between new supply and apartment demand. General caution on the part of developers and lenders has guided the pace of construction, calling for more scrutiny of new development project proposals. More particularly, in Richmond and surrounding areas, the lack of readily available sites appropriate for multifamily development has also been a factor in the pace of construction, says Brincefield.

Sales of apartment communities have been brisk as some of the area' major players have opted to leave the Richmond market. Summit Properties, Archstone, GID, Avalon and others have sold or are in the process of selling apartment communities. Some are selling to take advantage of historically low borrowing rates available to buyers -- this increases the price buyers are willing to pay for their investments, Brincefield explains. Others see this as a prime opportunity to leave apartment communities that are 10 to 15 years old and on the brink of a necessary renovation and capital improvement cycle. These apartment buyers are mostly individuals rather than institutions or REITS. Additionally, sellers can use the proceeds from sales to fund new developments in other markets while borrowing rates are most favorable.

Also as a reflection of low borrowing rates, capitalization rates have moved lower, resulting in significantly high purchase prices to these new investors. Capitalization rates for Class A apartment communities in Richmond' prime West End and Southside areas are below 9 percent and are frequently in the low 8 percent range. Rental rates average $656 per month or 75 to 80 cents per square foot for a typical two-bedroom, 800- or 850-square-foot unit. Some higher-end, Class A, 2-bedroom units in prime locations with good amenities are leasing in the range of 95 cents to $1.05 per square foot.

In spite of these sale activities, more than 1,000 new apartment units are under construction and more than 2,000 new units are planned for the future. The Richmond area' strong economic base, coupled with the in-migration of new businesses, favors a continued healthy apartment market.


©2001 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.