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DC Apartment Owners Prepare For Biggest Quarter Of New Supply On Record

WASHINGTON DC 09.14.2017

7TH ANNUAL FUTURE OF PRINCE GEORGE'S COUNTY

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Jane Cafritz -- Calvin Cafritz Enterprises
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The rapid construction of DC apartment buildings will reach its peak this quarter, with a record number of units expected to deliver throughout the DC Metro area. This has created an extremely competitive environment among landlords, especially in the most supply-heavy submarkets like Capitol Riverfront

NoMa construction
NoMa is among the most active neighborhoods for apartment development, with multiple buildings simultaneously under construction and more on the way.

The second quarter is projected to have 6,914 rental units deliver throughout the DC Metro area, according to Delta Associates' Q1 report. Of those, 3,440 will deliver in the District, 1,995 in suburban Maryland and 1,519 in NoVa.

Within the District, the deliveries are heavily concentrated in the Capitol Hill/Capitol Riverfront/Southwest submarket, with six projects expected to deliver 1,560 units to the neighborhoods this quarter.

DC apartment delivery pipeline

Metro-wide absorption ticked up from Q4, but is still on a downward trend year-over-year. Absorption is dropping the most in the District, with the 2,337 units absorbed over the last 12 months, down 33% from the prior year. 

The supply-heavy Capitol Hill/Capitol Riverfront/Southwest submarket has had growing absorption, up 60% year-over-year, but it is still dwarfed by the amount of new supply the area is preparing to welcome. The submarket absorbed a total of 934 units over the last 12 months, 624 fewer units than are expected to deliver in Q2 alone.

The deliveries over the last year have kept rents flat District-wide and caused rents to tick down 30 basis points in the Capitol Hill/Capitol Riverfront/Southwest submarket. Delta Associates' senior associate Dylan Jones expects that to exacerbate with the new glut of deliveries. 

"I think you'll see zero to negative rent growth in the Capitol Hill submarket for the foreseeable future," Jones said. "I think definitely you’ll see greater concessions because there will be an extremely competitive landscape."

Developers acknowledge the heightened competition in the submarket and are stepping up their game to meet their absorption goals. 

Grosvenor McCaffery F1rst

Grosvenor, McCaffery and Clark Enterprises' F1rst, located next to Nationals Park, began moving in residents on April 1 and now has signed 40 leases and moved in eight tenants. Grosvenor's Jon Carr said the prospective tenants who tour the building often look at three or four other Capitol Riverfront apartments in the same day, but he also sees competition from other popular neighborhoods like 14th Street and H Street.

"It’s a little unfortunate all of this coming in this spurt," Carr said of the neighborhood's delivery surge. "But when we are talking to renters and residents, it’s more of a broader look at what kind of lifestyle these folks are looking for. It's more than just other Capitol Riverfront buildings."  

Carr said Grosvenor is aiming to fill the building in about 12 months. The landlord has offered some incentives to lure tenants but is staying away from lowering rents for competitive advantage.

"The trouble with discounting rent, and why we don’t do it is, somehow it's revaluing the product that you’ve created," Carr said. "There is a lot of supply now and more coming out in the next year and the following year when other projects are complete. What you do is you’re in a consistently discounted cycle and once that runs out, residents leave. The key is to prove the value of product."

Eliot on 4th Forest City
A rendering of Forest City's Eliot on 4th, which will welcome its first residents in May

As Forest City prepares to begin leasing this month and moving in residents in May at its Southwest DC project, Eliot on 4th, vice president of development David Smith said the company is ready for a more competitive leasing environment than some of its previous deliveries in the area.

Arris, part of The Yards development, delivered in March 2016 and is already roughly 90% leased, but Smith is expecting an 18- to 20-month lease-up period for the 365-unit Eliot on 4th. 

"We're poised for it, but it's going to be tough," Smith said. "Rent growth is not going to be what it has been over the last three or four years. We believe that pickup will be slower."

He said the Southwest project has the advantage of being near the Waterfront Metro because it will n'ot have as much competition from Capitol Riverfront buildings and is delivering ahead of other Southwest projects, like The Wharf, which is preparing for an October delivery.

Agora The Collective WC Smith Capitol Riverfront

WC Smith delivered Park Chelsea, the first of its three-phase Capitol Riverfront development The Collective, about a year ago and has leased 85% of its 429 units. It will deliver the 334-unit Whole Foods-anchored Agora building this summer, when it expects leasing activity to be strongest, vice president of marketing and leasing operations Holli Beckman said. She said the company is preparing a strong marketing effort to compete with the coinciding deliveries.

“It’s more about making sure people find us," Beckman said. "We’re going to have to be a little louder, and that requires investment.”  

Because WC Smith plans to hold onto the buildings long term, Beckman said it does not have as much pressure to fill them up immediately. She expects the continued growth of Capitol Riverfront's popularity will allow demand to keep up with all of the new supply.

"What I think is you’ll see a shift in where the populations are in the city," Beckman said. "I think you’ll see a lot of people moving from the one hot neighborhood to the next. Right now Capitol Riverfront is the hottest neighborhood in DC, so I don’t have much concern."