Rents For D.C.'s Newer Apartments Flagging At Pre-Pandemic Levels While Suburbs See A Spike
Throughout most parts of the District, rents for Class-A apartments are hovering below pre-pandemic levels, according to Delta Associates’ Q1 multifamily report.
That is in sharp contrast to suburban Maryland and Northern Virginia, where Class-A multifamily rents are up 10.2% and 8.8%, respectively, since March 2020. Class-A rents in the District grew by 1.4% year-over-year compared with 3% in suburban Maryland and 4.2% in Northern Virginia.
“Rents in the District did not fully recover from the pandemic, especially for Class-A product,” Delta Associates President Will Rich told Bisnow. “Only two submarkets in the District actually have rents now that are higher than they were in March of 2020, so the District has not recovered as quickly as the suburbs.”
A number of factors work into this disparity. D.C.'s stabilized vacancy rate for Class-A apartments stands at 6.2%, compared with 3.6% in both suburban Maryland and Northern Virginia.
Meanwhile, supply is soaring. Class-A deliveries in the District are up by 47% year-over-year, accounting for more than half of the new developments in the region.
“There’s just a lot of product that’s hitting the market all at the same time, and so therefore you see a pretty concessionary market, just as all that product is trying to get absorbed and get stabilized, and that’s holding down the rent increases,” said MRP Realty principal Matt Robinson, whose firm has apartment projects in Capitol Riverfront, NoMa and Edgewood.
Class-B rents in the District, on the other hand, tell a drastically different story, with year-over-year rents rising 9.1% this quarter. Rich said that is partially due to the macroeconomic environment, as the impact of high inflation and rising interest rates have led renters to look to save some cash.
“There is an uptick in demand for Class-B products with this current state of the economy,” Rich said. "Even though the rate of inflation is starting to decrease, it is still causing economic strain for many households."
"Housing is a major component of our monthly expenditures," he added. "So one way to help control the impact of inflation is to find places that are more affordable."
He said Class-A rent growth is likely to remain slow throughout the year, with supply continuing to come online.
“There are a significant amount of new projects that are expected to come into the market in the next 12 months, so that is going to continue to put upward pressure on vacancy in the short run, and rent growth will likely be muted in D.C. compared to the suburbs due to that increased competition," Rich said.
Some parts of the suburbs are seeing a wave of development, however. In Northern Virginia, an Amazon-driven construction boom in National Landing is likely to slow rent growth.
“I expect that due to all that coming supply and new product in that substate area, that rent growth is going to be more moderate in North Virginia over the next 12 months,” Rich said.
Those buildings began construction before the economic headwinds took a turn, but today, factors such as high inflation, rising interest rates and supply backlogs are creating a slowdown in new groundbreakings. Rich predicted that by 2025 and 2026, the slowdown of new development will help stabilize rents.
Robinson said his new buildings have seen a faster leasing pace in the second quarter already. His NoMa development Washington Gateway saw 50 new leases last month, and with that demand, his team is dialing back concessions and starting to raise rents.
"Q2 looks a lot better than Q1, which looks a lot better than Q4," Robinson said.
