D.C.-Area Apartment Rent Growth Surpasses 3% For The First Time In 8 Years

Apartment rent growth in the D.C. area surpassed a significant threshold last quarter, a sign that should give confidence to developers dealing with consistently rising construction costs. 

Class-A apartment rents across the D.C. Metro region increased by 3.3% during the 12 months ending June 30, according to Delta Associates' Q2 report. Delta Associates President Will Rich said this is the first time annual rent growth has passed the 3% mark since 2011, as the economy was recovering from the Great Recession.

"Rents have performed quite well," Rich said. "I understand it is more difficult now to make deals pencil due to the increase in construction costs, but this increase in rents over the past 12-month period is an encouraging sign." 

The rent growth was driven by strong region-wide demand for apartments. The Metro area absorbed over 10,000 units, including Class-A and Class-B apartments, for the first time in nearly two years. The District, Northern Virginia and suburban Maryland each absorbed over 3,000 units, and the areas all experienced more rent growth than they have in recent years. 

Northern Virginia recorded the highest rent growth with a 3.5% annual increase as of June, compared to its five-year average of 1.5%. Suburban Maryland rents rose 2.3%, above the five-year average of 0.7%. D.C. rents rose 2.2%, beating their five-year average of 1.5%. 

The Tysons and Crystal City-Pentagon City submarkets experienced particularly high rent growth of 5.2% and 5%, respectively. 

"For Crystal City-Pentagon City, it's still a bit early to tell whether this is due to Amazon, but that could potentially be part of the reason for the rent increase there," Rich said. "Tysons continues to evolve as an area that is becoming more desirable for residents to call home."

A continued surge in development could make it hard for the region to keep rent growth above 3% in the near-term, but supply is expected to slow down after the next two years. 

The D.C region is expected to deliver 13,941 apartments over the next 12 months, according to Delta Associates, a 3,000-unit increase over the past year. But the 36-month delivery pipeline of 37,220 units is down nearly 1,110 units from Q1. 

The submarkets with the largest development pipelines are the Capitol Hill-Capitol Riverfront-Southwest D.C. area, the NoMa-H Street area, the Rosslyn-Ballston corridor and Alexandria. 

"The 36-month development pipeline has reached a plateau, and that's particularly due to some projects that are getting delayed due to the increase in construction costs," Rich said. "With the slowdown in new development that is anticipated beyond the next 24 months, that will help with increased rent growth."