Class A Apartment Absorption in DC Area Remains High, But For How Long?

• October 13, 2016

by Nena Perry-Brown

Rendering of Union Terminal, a planned mixed-use development in DC.

The absorption of Class A apartments in the DC area remained above-average for the seventh consecutive quarter, according to a new report, but a steady stream of new supply is leading to rising vacancy rates and stagnating rents across the area.

According to the most recent quarterly report from Delta Associates, 10,247 Class A units were absorbed between September 2015 and September 2016 compared to 10,150 units delivered. The high levels of both absorption and deliveries have created a competitive market where despite high demand, vacancy rates have increased since last year and annual rent growth is below the five-year average.

In the District, Class A rents rose by 2.8 percent, but slowed in Northern Virginia to 1 percent over the past year, and decreased by .7 percent in suburban Maryland. Meanwhile, vacancy rates rose above 4 percent in both DC and Northern Virginia.

“This ‘new normal’ level of apartment absorption since 2014 has been tempered somewhat in the past couple of quarters,” the report stated. “While job growth is strong and supply remains plentiful, the wave of new Millennial households, which helped the region absorb a record 13,429 apartments in calendar year 2015, appears to be slowly subsiding. We project annual demand averaging 9,300 Class A units over the next three years with 2016 being the strongest year within the projection period.”

Here is a quick snapshot of average rents for high-rise Class A apartments in DC area sub-markets, as defined by Delta:

• Alexandria: $2,122 per month
• Central (Penn Quarter, Logan Circle, Dupont Circle, etc.): $2,928 per month
• Upper Northwest: $2,943 per month
• Columbia Heights/Shaw: $2,734 per month
• NoMa/H Street: $2,416 per month
• Capitol Hill/Capitol Riverfront: $2,320 per month
• Rosslyn-Ballston Corridor: $2,403 per month
• Silver Spring/Wheaton: $1,947 per month
• Bethesda: $2,612 per month
• Upper Georgia Avenue: $2,167 per month

Note: The rents are an average of studios, one and two-bedroom rental rates at new buildings in the DC area.

Definitions:

Class A apartments are typically large buildings built after 1991, with full amenity packages. Class B buildings are generally older buildings that have been renovated and/or have more limited amenity packages.

This article originally published at http://dc.urbanturf.com/articles/blog/class_a_apartment_absorption_still_exceeding_rate_of_delivery/11774