The multifamily rental sector in Virginia posted strong occupancy and rent growth in throughout 2021. Virginia’s rental market is poised for significant growth into 2022, with market conditions that could look similar to the frenzy that has been seen in the for-sale market for the past 18 months.
Several key trends have characterized the state’s rental market in 2021 and will be important to the 2022 rental housing market in Virginia:
Existing renters are not moving. Retention rates in large apartment buildings have hit record highs. As current renters look at their other housing options, they are finding that their best option is to stay put. In typical multifamily apartment operations, a healthy market is one where buildings have between a four and five percent vacancy rate. Before the COVID-19 pandemic, multifamily vacancy rates averaged about six percent statewide in Virginia. In the third quarter of 2021, the average statewide vacancy rate fell to 4.2%. Multifamily vacancy has been declining steadily since the beginning of the year.
Rental bidding wars are the new home price bidding wars. Over the past 18 months, home prices have risen at dizzying rates as prospective buyers have faced stiff competition, bidding wars, and price escalation. Some of that price frenzy in the for-sale market is beginning to show up in the rental market. At the state level, the multifamily rents have been rising consistently throughout 2021. New renters are often facing asking rents that are much higher than what existing tenants are paying, and they may also be competing with two, three, or even more prospective renters who have submitted an application for a unit.
New construction has ramped up, particularly in the state’s urban markets. The construction of new multifamily apartment buildings slowed somewhat during the pandemic, as developers faced spikes in material prices, supply chain bottlenecks, and a persistent labor shortage. In 2021, new construction activity has increased over 2020 and is likely to continue into 2022. Urban markets across the state accounted for more than half of the ongoing multifamily development activity.
The single-family rental market will be very strong in 2022. There are good reasons to expect single-family rentals to be in demand. Millennials are marrying and having children. Fast-rising home prices and high student-debt loads have put homeownership out of reach for many. These families will be looking for rental options that can provide them with a larger home and more outdoor space than an apartment can. An uptick in mortgage rates in 2022 may also add interest to rental housing options. Finally, as people head back to the office full-time or on a hybrid basis, there will be more demand for closer-in rental options.
For more information on the rental housing market in Virginia, check out our most recent apartment market report.
Click here to send any comments or questions about this piece to Virginia REALTORS® Chief Economist Lisa Sturtevant, PhD.