District Experiences Rare Drop In Apartment Rents Amid Supply Boom
The unprecedented number of apartment units coming to the D.C. market this year is beginning to take its toll on rent prices.
The District will welcome a record 7,054 apartment units this year, most heavily concentrated in the Capitol Riverfront and NoMa submarkets. The second quarter was the year's busiest period for apartment deliveries, creating intense competition among landlords that has made D.C.'s apartments slightly more affordable for renters.
More than 2,400 units delivered in the District in Q2 alone, according to Newmark Knight Frank's Q2 multifamily report. A total of 12,621 units are under construction, promising to continue the heavy supply surge for the next 18 months or more.
"It has been an unprecedented amount of deliveries," NKF researcher Bethany Schneider said. "It seems like every quarter there is a question of, 'When will we be oversupplied? When will the other shoe drop?'"
That question appears to have been answered this past quarter. In the three months ending June 30, the District's effective rent for all classes of apartments averaged $2,124 per unit, according to NKF's report, a 0.8% decrease from the same period in 2016.
"This is really the first indication that the supply is starting to outpace the demand," Schneider said.
The competition is being most felt in the concessions landlords offer, Schneider said, a metric that is factored into the effective rent. Landlords with hundreds of units to fill are ramping up the incentives they offer to prospective tenants. At The Cafritz Foundation's 520-unit Modern at Art Place, D.C.'s second-largest apartment delivery this year, residents have been offered two months of free rent to move into the Fort Totten community.
While the record supply of units has resulted in increased competition and falling rents, Schneider said the strong demand numbers should make landlords more comfortable. The District absorbed 2,604 units in Q2, according to NKF's report, more than double the 1,292 units absorbed during the same period in 2016.
The rent drop is especially notable when looking just at Class-A apartments, the newer and more expensive products. Class-A apartment rents in the District dropped by 1% from Q2 2016 to Q2 2017, according to Delta Associates' Q2 multifamily report. This is the first quarter in more than two years with decreasing rents and just the third quarter since 2010 that D.C.'s annual Class-A rents have fallen.
"This was the first quarter we saw rents decline," Delta Associates President Will Rich said. "Last quarter, rents were unchanged and before that they were increasing."
Looking at rents on a month-to-month basis, it appears the sharpest drop occurred in July. Zumper's newly released August rent report showed D.C.'s median one-bedroom rent fell by 0.5%, while two-bedroom rents fell by 4.3%, the largest decrease this year.
As the District's rental rates begin to fall due to oversupply, conditions are looking better in the suburbs, where the supply influx is more modest. In NoVa, Class-A rents grew by 2% year-over-year, while in suburban Maryland they ticked up by 0.6%, according to Delta's report.
"A year ago at this time, rents were growing at a much faster clip in the District than the other substate areas," Rich said. "Now we're starting to see the impact of new product coming onto the market.