Let’s start with 4,308…
That’s the net absorption at mid-year of units totaled within the region, which is broken into the three jurisdictions of the District of Columbia 1,479 units, Northern Virginia 1,025 units, and Suburban Maryland 1,804 units.
The Washington, DC Metropolitan area continued to experience strong multi-family market fundamentals throughout the first half of 2016. Strong job creation coupled with record population growth has led to an increase in demand for multi-family product throughout the region.
With added demand throughout the region, vacancy continued to decline registering 4.6%…
…0.1 percentage points lower than one year ago.
While new supply over the course of the last two years has far outpaced historical norms, demand has also reached record levels. In 2014 and 2015, the overall market delivered over 26,100 units. Tightening among lenders and high construction costs will put a damper on construction moving forward.
Over the next four quarters, anticipated deliveries will top 14,000 units and 2017 will see a return to the historic average with 9,000 units coming online – many of which are in the urban core of the District of Columbia and the new metro-proximate locations in Northern Virginia.
The new product that has delivered in the District has driven the vacancy rate down in the urban core as experienced by the 0.6 percentage point drop year-over-year. The Northern Virginia influx has been delayed compared to Downtown. Northern Virginia has experienced a slight uptick in vacancy of 0.4 percentage points over the last two years as many of the recent major developments have experienced slower lease up.
Concessions in the form of free rent continue to be a large deciding factor for many renters and growth in asking rents continue to outpace growth in effective rents across the metro. Overall asking rents grew by nearly 4.0% while effective rates only grew by 2.85% year-over-year.
The spread between asking and effective rates grows even larger in the top competitive sub-markets of Tysons Corner, DuPont Circle/Kalorama/Adams Morgan, and Bethesda (4.1%, 3.3%, and 2.7%, respectively).
Tysons Corner’s and Bethesda’s disconnects are in large part due to abnormally high vacancy rates within each sub-market. Tysons Corner, at 13.9% vacant, and Bethesda, at 10% vacant, have experienced increased competition between top class properties for the same renters.
As the development pipeline becomes more restrained over the next year, rent growth is expected to experience an immediate impact and is projected to rebound as early as late 2017 and into early 2018, sooner than originally anticipated.
With the development pipeline slowing in the coming the spread between asking and effective rates appears to have hit its max in 2015. The compression between asking and effective rent in the DC Metro has led to effective rent growth of 2.85% year-over-year as of June 2016.
While there may be some short term impact on rental rates due to the final wave of deliveries into 2017, strong effective rent growth should continue to grow stronger in the near future. Many developers are working to get ahead of the curve and beat the Metro’s Silver Line delivery date of 2019.