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Multifamily market still going strong through the first half of 2014

nathan edwards, nathan edwards cassidy turley, dc real estate, dc cre news

The Washington DC metropolitan area multifamily market showed no signs of slowing down during the second quarter of 2014.The region is in the midst of a wave of new multifamily construction, evidenced by the 2,951 units completed in the second quarter.  This brings the 2014 year-to-date total to 6,516 completions, already surpassing the 5,818 units completed in 2013.  While there has been much concern about overbuilding, the Washington DC metro has continued to post very strong absorption totals quarter after quarter.The region absorbed a healthy 2,560 units in the second quarter, bringing the 2014 year-to-date total to 4,904 units.This means the region is on pace to surpass its all-time record of 9,373 units absorbed in 2010. 

Only one of the region’s 26 submarkets posted very modest negative absorption during the second quarter, an extremely positive sign for the continued health of the region.  Foggy Bottom, heavily populated by college students, posted a negative 22 units, likely the result of students moving out of the area as the school year ended.  Vacancy in the Washington DC Metro ticked up slightly for a third straight quarter, registering 4.3% in the second quarter. Vacancy rates in Northern Virginia and the District of Columbia also ticked up moderately, registering 4.2% and 5.7%, respectively. However, the vacancy rate in Suburban Maryland declined 0.2 percentage points to 3.6%. The small increases in vacancy are largely a result of the abnormally high number of new units coming online and so should not be a significant concern as the majority of these new units are still in the lease-up stage.

Asking rental rates for the region averaged $1,542 in the second quarter, a 1.6% increase from year-end 2013. With the exception of a slight dip in the fourth quarter of 2013, rents have been increasing steadily for the past four years at an average rate of 0.7% per quarter. Class A properties, with asking rents currently averaging $1,818 per unit, yield a significant premium over Class B/C properties which average only $1,287 per unit. With so much new product coming online, the region has seen a continued flight to quality, with absorption in Class A units far outpacing that of Class B/C units. Many owners are staying on top of this trend by completing renovations on older units in an effort to stay competitive.      

Multifamily investment sales activity registered $1.5 billion through the first half of 2014.  While this means 2014 will not nearly reach the record set in 2013 (when the Archstone Portfolio sale contributed to a staggering $8.0 billion in sales volume), it is still on pace to match sales volume in 2011 and 2012. The District of Columbia led the region through the first half of the year with $596.5 million in sales volume and was also home to a record-setting sales transaction. The Woodley, at 2700 Woodley Road, NW, traded from a joint venture among CIM Group and The JBG Companies to TIAA-CREF for $195 million, or a staggering $919,811 per unit. Northern Virginia has had $385.6 million in sales volume through the first half of the year, while Suburban Maryland has had mostly Class B/C product trade and has registered $480.4 million.   

Sources: Cassidy Turley Research, REIS

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By: Nathan Edwards

Director of Research, Cassidy Turley - Washington, D.C.

nathan edwards, nathan edwards cassidy turley, cassidy turley, cassidy turley research, cassidy turley dc, cassidy turley washington dc

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Contributor: Bethany Schneider, Research Analyst, Cassidy Turley

Follow Cassidy Turley on Twitter: @CassidyTurleyRE

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