D.C.-Area Apartment Rents Rise 16% As Strong Demand Brings Down Vacancy
The D.C. rental market roared back this quarter as some of the region’s largest employers began calling back workers and hiring back some of those who had been laid off.
Rents increased 16% across Class-A and Class-B apartments throughout the metro area, and vacancies either remained the same or declined in every single submarket in D.C., suburban Maryland and Northern Virginia, according to Delta Associates President Will Rich.
“Those rent increases are unprecedented in the 30-plus years we've been tracking the market in Washington,” Rich said.
The stabilized vacancy rate across all classes of apartments in the D.C. area fell to 2.5% last quarter, down 190 basis points from one year earlier, according to Delta Associates. For Class-A apartments specifically, the vacancy rate fell 170 basis points to 3.2%.
Rich said falling vacancy rates were one of the first indicators his team saw as proof of the market emerging from the pandemic. While he expects some fluctuation over the next several quarters, he said high absorption will likely continue to keep vacancies low as demand remains strong in the area.
“[Renters] are coming back,” Rich said. “They're not necessarily coming back to the office, but they're coming back. They want to be in this region.”
The rent increases tracked by Delta Associates in the D.C. area last quarter were above the national average of 15.2% that RealPage reported for Q1. National net demand for apartment space also reached a new record high for the 12 months ending in March, RealPage reported, indicating robust demand from a resurgent labor force.
That job market resurgence is occurring in D.C., where hard-hit employment sectors like hospitality are adding jobs the fastest, according to Delta Associates, despite still operating with leaner payrolls than pre-pandemic. The government and professional services sectors have already added jobs in the area above their pre-pandemic levels.
Meanwhile, Delta Associates found that the D.C. area as a whole added 133,200 jobs in 2021, the highest number ever recorded.
Those dynamics will likely lead to high rates of rent increases until the market reaches pre-pandemic levels, Rich said, after which growth will continue but slow to a more modest pace.
“The District still has some catching up to do with rents,” Rich said. “I think the market is correcting itself from the roller-coaster ride that we've been through in the past few years.”
That catch-up is likely coming soon. In D.C. as a whole, rents are at 97.8% of March 2020 levels, with Upper Northwest being the first neighborhood to surpass its pre-pandemic rent levels.
Some of the submarkets within D.C. seeing the highest growth are those rebounding from a pandemic-induced decline in renters. The submarket that includes Capitol Hill, Capitol Riverfront and Southwest led the metro area in absorption, with more units absorbed than all of suburban Maryland, according to Delta.
The area's pipeline is still due for some massive projects. Last week, a joint venture between four firms announced the first phase of The Stacks, which will deliver 1,100 units to Buzzard Point once completed in 2025, has received the financing it needs to begin construction. Another megaproject, The Wharf's second phase, is also scheduled to open later this year, and its residential buildings have already begun lease-up.
But the center of gravity in new development may be shifting. Rich points out that the Capitol Riverfront is nearing full build-out. As that density completes, he expects developers to shift their focus toward less-developed areas in Northeast D.C.
“Developers are always looking for the next hottest neighborhood,” Rich said. “Now that the Capitol Riverfront area is getting close to build-out, there's still new opportunities.”
Many of those new opportunities are in the NoMa/H Street submarket, which led D.C. in deliveries with 1,641 units. The 36-month development pipeline in NoMa/H Street is also the highest in the District: 5,556 of the 15,810 units in D.C.’s pipeline are in NoMa/H street.
As the multifamily market continues its recovery, Rich said he believes that the fundamentals like absorption will return to something more closely resembling their pre-pandemic rates.
“The fundamentals of the market haven't necessarily changed,” Rich said. "Within the past couple of quarters, the market's been on the path to normalcy."