IRR-Washington D.C. Mid-Year Viewpoint 2015 Local Market Report - Multifamily
The Washington metro area has undergone an unprecedented boom in the multifamily sector, and most signs suggest that the current supply/demand imbalance will persist well into 2016. The three-year supply pipeline peaked in late 2014/early 2015 at just over 40,000 units. With over 10,000 units delivered metro-wide during the first half of 2015, this pipeline has shrunk considerably, and demand is still growing at record levels, especially for Class A apartments in the urban core. However, supply growth has outstripped absorption over the past six to twelve months, resulting in increasing vacancy rates and a small but notable decline in rental rates, at least for Class A properties. Class A effective rents are down by 2% in the District and 1% metro-wide.
Going forward, we project that roughly half as many units will be completed over the coming year as had been delivered during the prior year. Meanwhile, forecasters are projecting stabilized demand going forward to average approximately 10,000 new units per year. Accordingly, market conditions are expected to tighten considerably beginning in late 2016, leading to sustained rent growth and declining vacancies.
In the meantime, however, concessions are likely to spread from lease-up properties into the broader market as managers compete for occupancy, and effective rents are likely to decline further.
Conditions in the Class B/C market are considerably more stable. Rental rates in this sector have continued to increase at a moderate pace, and vacancies have not topped 5% in recent memory. Given the well-documented dearth of affordable housing options in the Washington metro area, this segment of the market is likely to continue to offer investors a stable income stream and steady growth prospects. This stability has led to considerable capitalization rate compression over the past year.
Download the full version PDF of this Local Market Report below to see the charts, graphs, and tables not included above.
IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.