Contact Us

D.C. Apartment Rents Fell 3.9% In 2017 As Rare Drop Continued In Q4

D.C.'s apartment market finished 2017 with rents falling for the third consecutive quarter as the ongoing supply boom has created heated competition among landlords. 

Brookland press balconies
The balconies at Brookland Press, a newly delivered building offering concessions in the submarket with D.C.'s highest 2017 rent drop

Rents for Class-A multifamily properties across the District fell 3.9% from the end of 2016 to the end of 2017, according to Delta Associates, bringing the average Class-A rent to $2,491 per month.

This stretch represents the first time since 2009-10 that D.C. rents have declined for three straight quarters. Rents dropped by 1% year over year in Q2, the first decline in over two years, and then fell again in the third quarter by 1.3%.

The drop in rents coincided with the delivery of 4,789 Class-A apartment units across the District in 2017, a 45% increase from 2016. The rapid pace of supply growth is expected to increase even more this year, with Delta projecting the completion of 5,972 units in 2018. Given that continued delivery boom, Delta Associates President Will Rich predicts rents will decline another 2% or more this year. 

"With the number of units that came online in this past year, and rents declining and vacancy increasing in most submarkets, it would be likely in 2018 with more product coming online that rents would fall as well," Rich said. 

While George Mason University economist Stephen Fuller has warned that the D.C. Metro area is experiencing a net outmigration in the tens of thousands, a trend that could further exacerbate rent decline in a fast-growing apartment market, the District's population is still rising and demand for apartments has remained strong. D.C. recorded a positive net absorption of 3,618 units in 2017, Delta Associates found, up 41% from the prior year. 

"The issue in the District is more of a supply problem than a demand problem," Rich said. 

Delta Associates Will Rich, Erin Gannon Jonathan Chambers
Delta Associates' Will Rich, Erin Gannon and Jonathan Chambers at the company's Market Overview and Awards for Excellence event in October

The rent drop was most pronounced in the Northeast D.C. submarket, which experienced a 7.9% decline in rents year over year. The submarket includes Ivy City, Edgewood, Brentwood and Brookland but not NoMa or H Street, neighborhoods Delta separates into their own category. 

Concessions such as free months of rent, which are factored into the effective rent numbers Delta reports, have become common in the Northeast D.C. submarket as vacancy rises, Rich said.

"Vacancy is the highest in that submarket of all the ones we track. It's about 10%, which is fairly unusual," Rich said of Northeast D.C. "It's having an effect on rent growth, because in order to stem the increase in vacancy, owners are needing to offer more concessions to keep tenants."

One Brookland apartment building that delivered last year, Douglas Development's Brookland Press, is offering one and a half months free rent, plus a waived amenity fee, as property manager Kettler works to lease up its 296 units. Douglas Development principal Norman Jemal said the building has leased 95 of those units since it began leasing last summer. 

"We're absorbing 290 units, so obviously attracting a velocity is an important thing to us," Jemal said of the concessions. "We're rather happy with the lease-up." 

Jemal said the delivery surge across the District has created a competitive environment among landlords that has kept rents stagnant and prevented them from achieving the growth they aim for. 

"Long term, the market is healthy, but it's going to take a little time to digest and process the new inventory," Jemal said. "The city is a great place to live. It's got a great economy, culture, entertainment, nightlife, it's got everything. It's going to be a very strong market. But I don't doubt there will be growing pains." 

Atlantic Plumbing JBG Smith
JBG Smith's Atlantic Plumbing apartment building in Shaw

The Columbia Heights/Shaw submarket experienced nearly as sharp of a drop as Northeast, with rents falling 7.6% year over year. Rich attributed this to increased competition from emerging submarkets like NoMa and Capitol Riverfront and ride-sharing apps allowing people to access nightlife easier.

"There are other submarkets where the level of amenities that you find in the buildings are comparable to what you'd find in Columbia Heights or Shaw but for lower rents," Rich said. "The bars and restaurants you can experience on the 14th Street corridor are an Uber ride away from these emerging submarkets."

The emerging submarkets still experienced some rent declines, but they were more muted because of their strong absorption. The NoMa/H Street submarket and Capitol Riverfront/Capitol Hill/Southwest D.C. submarkets combined for 70% of D.C.'s apartment absorption in 2017. 

"It's pretty clear people are moving to those areas," Rich said. 

Despite claiming such a large share of D.C.'s apartment demand, those submarkets still experienced rent declines last year. Rents in NoMa/H Street fell 4% year over year, while the Riverfront/Hill/Southwest submarket dipped less than 1%.

This is because these neighborhoods also claim a lion's share of the District's new deliveries, Rich said, and will continue to do so for the foreseeable future, with two-thirds of D.C.'s oncoming supply concentrated in those two submarkets. 

The District's surge of new apartment projects could prevent rent growth past 2018, with a 36-month pipeline of 14,332 units. But Rich said he expects some developers with projects of less than 150 units could decide to convert to condos, given the strength of the for-sale market. If enough rental units switch to for-sale, he said it could help bring back rent growth, but it remains to be seen when this trend of falling rents will reverse. 

CORRECTION, JAN. 16 10 A.M. EST: A previous version of this article misstated D.C.'s 2017 absorption total. The story has been updated.