by Andrew Little, Special Correspondent

No one should be humming the lyrics to rock band My Morning Jacket’s 2008 song “I’m Amazed” as interest rates on commercial mortgages march higher.Yet those in the midst of refinancing or closing a loan were rudely awakened to that fact earlier this month when data confirmed what we already know: The economy is picking up steam.The unfortunate side effect to a stronger economy for real estate investors is that long-term interest rates move up.With economic growth, however, the good news is that developers should be in a position to charge more rent. And if Richmond multifamily units or office space are any indication, that is what developers are doing.Multifamily rates in the city of Richmond have increased 19 percent in the last five years, according to data from CoStar Group, which purchased in 2014. In the last year, rates have accelerated 2.04 percent, and now average $1.50 a square foot per month.

Just focusing on newly constructed apartment units, the increases are even more startling. For the newest product, average monthly rents have increased 23.66 percent in the last five years and 3.85 percent in the last year, and now average $1.62 a square foot per month.Office rents also have seen a strong increase at the same time vacancy rates have fallen.Average office rents in the Richmond area in the fourth quarter of 2013 were $16.95 a square foot and vacancy rate was 9.4 percent, according to data from commercial real estate brokerage Cushman Wakefield|Thalhimer.The latest data show rents are up 11.7 percent from 2013 and now average $18.94 square foot across the region while vacancy rate has dipped to 6.7 percent.Across the country, office vacancy rates have fallen to their post-crisis lows of 10.2 percent, according to a recent release from real estate valuation advisory services firm Situs RERC.Historically, when vacancy is this tight and demand continues to be strong, landlords are able to push rents more aggressively.

In the Richmond region, this potential is more acute because there is little new supply and current A and B class rents are well below newly constructed office building rates.While multifamily demand for units correlates to increases in population and household creation, office supply and demand is more difficult to predict.There were 22,159 building permits issued from 2013 to 2017 in the city of Richmond and the surrounding counties of Henrico, Chesterfield, Powhatan, Hanover and Goochland, according to data from the U.S. Department of Housing and Urban Development.

Of those, 6,235 permits were for multifamily units.During that same time period, according to data from the University of Virginia’s Cooper Center, the population of those localities grew by 48,521 people.From a historical perspective, the number of units added was much greater than what would typically be justified. In the Richmond region, the average household size is 2.42, so keeping to that ratio, only 20,050 units should have been added, not 22,159.Since multifamily is so strong and homes are still selling a good clip, it would appear that the Richmond region’s residential real estate is not overbuilt.

That would lead to the conclusion that the region is adding an outsized number of young people, which brings the average household formation number down.This assumption is supported by job growth numbers in the region over the same period. Employment has grown by 42,334 people over the past five years, according to data from the Bureau of Labor Statistics. The entire region has nearly 700,000 non-farm employees now.It is not a huge leap to conclude that good job growth leads to population growth, which are good for both multifamily and office properties.Excellent mortgage rates also are good for both multifamily and office properties.

John B. Levy & Co. partner and investment banker Andrew Little can be reached at