See below for Andy Little's recent commentary in the Richmond Times-Dispatch.
Simon & Garfunkel sang about it in the 1960s; Crosby, Stills and Nash made a very, very fine songabout it in the ’70s; the Talking Heads tried to burn it down in the ’80s; and Flo Rida welcomed everyone into his just a few years ago.
Of course, each singer was talking about a house or home —something that is getting more and more difficult for people to buy these days, which could explain the phenomenal surge in multifamily demand, particularly in the Richmond area.
The number of new apartment units in the area last year tripled the region’s long-term annual historical average, according to data from commercial real estate analytics and research firm CoStar Group. More than 3,000 multifamily units came on board by the end of last year, the data shows.
Recent statistics on median single-family home price increases,decreasing days on the market, and lack of inventory in the Richmond area show that household formations are on the rise. The lack of places to form them could be a reason why the Richmond apartment market continues to surge.
A recent analysis of data available on Realtor.com indicated that the median increase in listing price in February compared with the same month a year ago showed Richmond ranked No. 21 of the top 100 markets with an 18.78% year-over-year increase.
Interestingly, larger neighboring metro areas of Washington, Baltimore, and Hampton Roads were ranked toward the bottom of the list.
Add the crazy single-family housing market to a recent research study completed by LinkedIn that showed Richmond ranked ninth in the country last year for the largest number of job hires and open jobs, and it becomes clear that people are coming to the city.
Austin, Texas, a leading destination for companies relocating from other states, was ranked first or second in the Realtor.com and LinkedIn studies.
This isn’t a case of “build it and they will come.” Instead, it is a case of we better keep building, because they are coming.
On the other hand, industrial space seems to be exactly a case of “build it and they will come.”
Earlier this month, another large developer announced plans to build a 353,044-square-foot speculative warehouse distribution building. Columbia, S.C.-based Red Rock Developments will team up with Westport Capital Partners LLC to develop the building in the Meadowville Technology Park in Chesterfield County.
Nearly 1.5 million square feet of industrial space was under construction at the end of 2020, 70% of which was speculative and 800,000 square feet had delivered, according to a fourth-quarter industrial sector report by commercial real estate brokerage Cushman & Wakefield | Thalhimer.
Despite the increase in supply, the overall vacancy rate ended the year at 3.7%. Not exactly out of balance, and that property type is surging.
As has been reported nationally and locally, retail and hotel properties are still the most likely to have suffered through the past year, but there are positive macroeconomic signs indicating the U.S. is soon to be on the rebound. Most of that hinges on the successful rollout of COVID-19 vaccines, which, at this point, is baked into optimism.
Certainly, the U.S. Treasury market is reflecting the expectation that boom times are ahead as the yield on the 10-year Treasury continues to surge. Overall, commercial mortgage rates remain very low and are in the 3.25% to 4% range for most long-term fixed-rate loans.
While the 10-year Treasury is up 0.75% since the end of 2020 and long-term rates with it, floating rates, which are generally tied to the federal discount rate, have remained consistently low. The Federal Reserve continues to hold short-term rates steady and is expected to until 2023.
John B. Levy & Co. partner and investment banker Andrew Little can be reached at email@example.com.