Apartment Rents On D.C.'s Waterfront Rise 6% Even As Area Leads City In New Supply
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Apartment rents in the District rose modestly over the last year, a new report shows, but experienced a surprisingly sharp increase in the waterfront neighborhoods where the most supply is coming online.
Class-A apartment rents in the District averaged $2,602 at the end of Q3, according to Delta Associates, a 1.1% increase from the same point last year. The slow increase coincides with a record surge in apartment supply and represents a reversal from 2017, when rents fell by 3.9%.
Rents rose most dramatically in the submarket that includes Capitol Riverfront, Southwest D.C. and Capitol Hill. The areas experienced a 6.1% increase in rents year over year, according to Delta Associates, bringing its average Class-A rent to $2,564.
The year-over-year rent growth measurement only counts buildings that were open at the end of Q3 2017, so the delivery of hundreds of luxury units at The Wharf in Q4 did not directly skew the numbers upward. The Southwest Waterfront development is one of several projects that have delivered thousands of units in recent years to the area, including The Yards in the area around Nationals Park.
Those neighborhoods have led the District in new deliveries and their apartment pipeline only continues to grow, with new projects moving forward in areas that previously had little development, such as Southwest D.C.'s Buzzard Point. The Capitol Riverfront, Southwest D.C. and Capitol Hill submarket currently has 7,853 units expected to deliver over the next 36 months, according to Delta Associates, up from 5,609 units at this time last year.
"Development continues to be pushing ahead in that submarket," Delta Associates President Will Rich said. "You've got other portions of the submarket starting to bring units online, you have two large-scale multifamily buildings underway in Buzzard Point, where a year ago before Audi Field opened there were talks about having new product, but now developers have pulled the trigger in that area."
Such a rapid supply surge would be expected to have the opposite effect on rents as developers compete for tenants, Rich said. But his team surveyed the five D.C. neighborhoods with the most supply growth, including Capitol Riverfront, NoMa, H Street, 14th Street and Mount Vernon Triangle, and found that rents grew in those areas at a faster pace than the city average.
"Intuitively, you would think that a submarket that has a lot of oncoming supply would have a negative impact on its rent growth, but the opposite seems to be true in Capitol Riverfront as well as the other four submarkets," Rich said. "In all five cases, when the new development of multifamily occurs, a lot of these buildings have ground-floor retail opening and the popularity of the neighborhoods increased at the same time units were coming online."
The construction pipeline across the District continues to grow at a significant pace. Delta Associates projects 15,649 units will deliver across the city over the next 36 months, a 12% increase from the Q3 2017 pipeline. After the dominant waterfront area, the submarkets with the most units planned over the next three years include NoMa/H Street and Columbia Heights/Shaw, with 3,998 and 1,905, respectively.
This supply growth will have to be met with robust demand levels to keep rents stable, but absorption figures indicate that is possible. The District absorbed 3,726 Class-A units over the last 12 months, roughly 2% more than the prior year.
The D.C. suburbs are experiencing the opposite absorption trend from the District, as D.C. surpassed Northern Virginia as the regional leader in total number of units absorbed. Northern Virginia's Class-A absorption decreased by 39%, while Suburban Maryland experienced a 14% drop in absorption.
Rich said those drops are largely a function of the suburbs having fewer new units opening for renters to absorb, while options in the District continue to grow.
"There has been a slight decrease of the number of units coming to market in Northern Virginia and Suburban Maryland," Rich said. "But absorption of units per project continues to be quite strong, within the range it's been for the past five to six years, so that really hasn't changed much."