Virginia multifamily housing market shows signs of cooling

After a big spike in construction and rent prices during and immediately following the pandemic, Virginia’s white-hot multifamily housing market is beginning to cool down.

Construction pipelines are shrinking, and while rents are still rising, the rate of increase is lower than in previous years. But industry analysts say that this isn’t a sign of a failing market — it’s normalization.

“I would say that the market is still doing well relative to the rest of the nation, but is slowing down from its peak,” says Melina Duggal, senior director of market analytics for Arlington County-based real estate analytics provider CoStar.

This year, the number of new housing units delivered in Virginia is expected to drop to 9,539 units, down from 14,569 last year and 13,616 in 2023, according to CoStar, which further predicts that only 7,985 units will be delivered statewide in 2026 and 5,374 in 2027. The total inventory of multifamily units statewide for the second quarter was 705,516, up 2.5% from the same period last year.

Virginia Beach-based real estate development and management company The Breeden Co. has built eight multifamily developments that it owns and manages in Virginia since 2020, adding a collective 1,404 units to the state rental marketplace. A ninth project in Fredericksburg is slated to add 112 units next year. Together, the projects are valued at nearly $370 million.

Breeden’s chief operating officer, Jake Marshall, says he feels good about the market when it comes to operating multifamily properties and leasing to renters, but is “a lot less optimistic” about the construction side these days. “Just given where construction costs are now, what cost of capital looks like, a lot of times it’s almost cost-prohibitive,” says Marshall.

Developers and economists point to rising costs, tighter financing and overall economic uncertainty as obstacles contributing to a slowdown in multifamily construction.

Marshall estimates there’s been a 30% rise in construction costs since the pandemic, driven by labor shortages, regulatory changes and inflation. The uncertainty of fluctuating materials prices due to tariffs, he adds, could make developers more cautious in their approach to undertaking new projects.

A few years ago, during the pandemic, developers benefited from near-zero interest rates. However, rates have since climbed, making it more challenging for projects to get off the ground, notes Virginia Realtors Deputy Chief Economist Sejal Naik.

Natalie Mason, executive vice president and co-head of development at Glen Allen-based real estate company Capital Square, which develops and manages multifamily properties across the nation, says the firm has remained active even as many multifamily developers have faced significant slowdowns.

“We’ve seen a tremendous cooling of multifamily construction starts over the last two years,” Mason says. “…It’s really the elevated interest rates that brought new multifamily construction starts almost to a halt in a lot of places.”

Capital Square has kept projects moving by raising money through the federal Opportunity Zone program, which offers tax benefits to investors backing projects in economically distressed areas.

The firm is a major multifamily developer in Richmond’s trendy Scott’s Addition neighborhood, where Capital Square has delivered four apartment buildings since 2021. A fifth project, slated for completion this fall, will bring Capital Square’s total presence in the neighborhood to over 900 units and will increase Capital Square’s entire Virginia multifamily portfolio to more than 6,300 units.

But Mason says Capital Square’s pace of multifamily development could also slow in the future if financing challenges persist, although she noted that the company will still aim to start at least two new projects per year and will continue to utilize Opportunity Zones to navigate the challenging financing environment.

Absorption trends

CoStar measures rental demand through unit absorption, a measure of how quickly available properties are being leased. Virginia experienced strong absorption in 2024, with 13,078 units absorbed, CoStar reports. However, the real estate analytics company projects a slowdown in absorption in the coming years for Virginia, due to weaker forecasts for employment and household growth resulting from factors such as federal job cuts and reduced migration into the state. The forecast is for 9,823 units to be absorbed by the end of 2025 and 6,970 units in 2026.

Virginia Realtors’ Q2 report for the year, which draws data from CoStar, already reflects this decline, with the second quarter showing renters statewide absorbed 3,931 units — down from 4,515 in the same quarter last year. Naik attributes the year-over-year slowdown to a drop in rental churn, with people “staying where they are” instead of switching to new housing arrangements.

Absorption has varied regionally. Northern Virginia and Richmond led the state’s metro areas, with 1,603 units and 1,218 units leased, respectively, in the second quarter of the year. Meanwhile, Virginia Realtors reports that multifamily markets in less populous areas, such as Blacksburg and Winchester, experienced negative absorption in the second quarter of 2025.

High mortgage rates and home prices are keeping people in rentals, says Naik, and the resurgence of return-to-office mandates is making it more difficult to relocate.

On average, Marshall says, “it would cost you $1,200 a month more to own a house than it would to rent an apartment, which gives apartment operators a lot more pricing power than probably historically they’ve had.”

Virginia Realtors reports that the state multifamily vacancy rate was 6.1% in the second quarter of 2025, slightly down from 6.2% for the same period last year. The rate has fluctuated between 5.9% and 6.5% since the fourth quarter of 2022.

The trade association reported that Richmond had an 8.3% multifamily vacancy rate in the second quarter this year, while Lynchburg’s stood at 10.9%. Those were among the highest in the state, but they correspond with a wave of new units delivered in recent quarters — projects that began in 2022–23 and are just now hitting the market.

Going forward, Naik expects vacancy rates to normalize as construction activity slows.

Cushman & Wakefield | Thalhimer reports that there have been 23 multifamily developments delivered in the Richmond area since the start of 2024, adding more than 4,840 units.

While a wave of new units on the market is raising the vacancy rate, some apartment complexes are still filling up quickly, says Liz Greving, an associate director of research for Cushman & Wakefield | Thalhimer. For example, one of the major multifamily projects to spring up in the Richmond area last year, a 275-unit apartment community called Novel Scott’s Addition, is already mostly leased, with rents ranging from about $1,600 to more than $3,200. The property was developed by North Carolina-based Crescent Communities and is managed by Thalhimer Multifamily.

Mason with Capital Square says she too has observed rent growth picking up everywhere, including Richmond, with Capital Square seeing “solid occupancy” of its units. “Indicators,” she says, “are showing that we’re hopefully turning a corner here.”

Meanwhile, markets like Hampton Roads and Northern Virginia had second- quarter vacancy rates of 5.6%, below the state average.

Cushman & Wakefield | Thalhimer reports that Hampton Roads experienced minimal multifamily construction deliveries so far this year, with just 68 units delivered through the end of the second quarter, all in Norfolk.

“I think in Hampton Roads the issue is always availability of buildable sites,” Greving says. “They’re so landlocked there.”

However, Hampton Roads does have some big multifamily projects in the pipeline. One of them, slated for completion by the end of the year, is the 309-unit Atlantic Park Living, part of the $350 million Atlantic Park surf park development in Virginia Beach from Venture Realty and music superstar Pharrell Williams.

Rising rents

CoStar reports that the average market rent statewide for Q2 was $1,930, representing a 2.4% year-over-year increase. However, it still reflects a cooling trend compared to the double-digit percentage rent hikes Virginia Realtors reported in 2021 and early 2022.

Unlike parts of the Sun Belt, which experienced a significant surge in supply that led to negative rent growth, Duggal says, Virginia’s supply increase has been more manageable. With supply and demand in “decent balance,” she says, landlords are still able to increase rents.

Charlottesville led the state with a 4.9% annual rent increase, which Naik attributes to a relatively limited delivery pipeline. Richmond, on the other hand, experienced the slowest growth in rent increases at 2%, primarily due to the influx of new supply.

“When there’s more spaces available, there’s less chance of rents going up because there’s so many options for people,” Naik says.

Austin Pittman, director of development at Norfolk-based Lawson Cos., a developer and manager of affordable multifamily housing complexes, states that while market-rate development has clearly slowed, the affordable housing sector hasn’t been impacted as significantly because there is still a substantial need for it.

“We’re still encountering the same issues that the market rate developers are encountering,” Pittman says. “We just have a different set of tools to offset those issues.”

Lawson, which has 5,500 units under management in Virginia and 1,200 in development, specializes in providing multifamily housing at a reduced rate with the help of the federal Low-Income Housing Tax Credit program. Lawson rents apartments to people earning 60% or less of the area median income.

One example of continued strong demand is Lawson’s 342-unit community in Prince William County, The Landing at Mason’s Bridge, which was fully leased just one month after its completion in May. Rents there range from $1,599 to $1,876.

Pittman maintains that the biggest problem facing the multifamily housing market everywhere is a lack of affordable options.

“That’s something that we really need as a country and as a community to take a look at and resolve,” he says.

Despite the challenges facing new multifamily construction, Greving believes that this year’s continued rent growth reflects sustained consumer demand for multifamily housing. While construction starts were elevated during the pandemic, she says, it’s now “normalizing a bit.”