D.C. Apartment Demand Hits Record Levels As Recovery Accelerates
Well, that escalated quickly.
Apartment demand in the D.C. area skyrocketed to all-time highs in Q2 as people began to move and take advantage of lower rents after the coronavirus pandemic softened the market for several months, new data shows.
Absorption for Class-A apartments in the D.C. Metro area for the 12 months ending June 30 reached a record-high 13,918 units, according to Delta Associates' Q2 Mid-Atlantic Apartment Market Report. The District also recorded a record-high annual absorption of 5,542, crossing the 5,000 mark for the first time, the report found.
"Part of the reason for that [record absorption] is pent-up demand for apartments during the past 12 months, coupled with rents that are much lower now than they were a couple years ago," Delta Associates President Will Rich said. "So if you were looking to rent a unit in the Metro area, and specifically in the District, now is a good time to lock in rents that are significantly lower than they have been in previous years."
The annual absorption statistic represents the total absorption for the past 12 months, meaning it includes the periods in Q3 and Q4 when the pandemic caused D.C. apartment demand to slow dramatically. Rich said this shows how strong the market's recovery has been this year.
"The first three to six months of that 12-month window we’re looking at in terms of absorption, the pandemic was still top of mind, there was no vaccine, and apartment leasing activity was much lower," Rich said. "We’ve seen a huge ramp-up in absorption activity during the past three to six months, which has resulted in record absorption in the metro area and the District."
Bozzuto saw that exact pattern in its lease-up of MRP Realty's Coda at Bryant Street, a 154-unit building on Rhode Island Avenue that began leasing in November. Bozzuto General Manager Sarah Egerton said it only leased a handful of units through February, but the building is now more than 90% leased.
"It started off really slow," Egerton told Bisnow on a tour of the property last week. "Then people got a vaccine, were looking to come back to the city and were looking for a new type of place to live."
This strong demand has helped bring down vacancy in the region's apartment market.
The vacancy rate for Class-A apartments across the D.C. Metro area at the end of Q2 was 3%, down from 5.2% at the same time last year, according to Delta Associates. The District's vacancy rate is 5.1%, down from 6.9% at the same time last year and 10.3% in Q4.
The recovering apartment market has yet to translate to rent increases for D.C.-area landlords, but the decline in rents has slowed after falling by record levels last year.
Class-A apartment rents across the D.C. Metro area decreased by 1.4% for the 12 months ending June 30, compared to a 3.2% decrease for the previous 12-month period. Class-A rents in the District were down 6.6% year-over-year.
This continued decline comes in part because rents are a lagging indicator that typically increase after absorption has picked up, but also because of local restrictions. The District government enacted a freeze on all apartment rent increases as part of its public health emergency, set to expire July 25.
This rent freeze didn't have much of a marketwide impact when demand was plummeting, as most landlords wouldn't have been able to raise rates anyway. But now that apartment absorption has surged, Rich thinks it prevented rent increases that some owners could have made last quarter.
"Given the amount of absorption in the marketplace, rents would likely be higher than they are, but since we have the moratorium in place, that hasn’t happened in D.C.," Rich said.
Looking ahead, Rich expects the strong absorption numbers will continue through the second half of the year, giving landlords the ability to raise rates.
"I expect in Q3 we may see absorption even stronger than in Q2 before it starts to taper off a bit," Rich said. "We will likely see rent appreciation in submarkets in the District in Q3 and Q4 as the moratorium is lifted, and likely in the Metro area rents will be flat to slightly increased from a year ago by the end of 2021."