Northern Virginia Passes D.C. In Apartment Demand As Area Rent Growth Continues
Apartment rents in the D.C. area grew by more than 2.5% for a second straight year in 2019 as demand soared in Northern Virginia.
The continued growth in rent prices occurred despite thousands of new apartments being added to the market, in part because the area has recorded strong job growth and demographic trends that have increased the demand for apartments.
The D.C. Metro area absorbed 10,960 Class-A apartments in 2019, according to Delta Associates' Q4 apartment market report, a 21% increase from the prior year. This growth was strongest in Northern Virginia, which increased its absorption by 47% to 4,470 units.
"Absorption has been fairly strong in the Metro area," Delta Associates President Will Rich said. "There was a pickup in absorption activity in Northern Virginia that was pretty noticeable, and it overtook the District in number of units being absorbed."
Within Northern Virginia, the submarkets with the most units absorbed were Reston/Herndon, where the second phase of the Silver Line is expected to open later this year, and Crystal City/Pentagon City, where Amazon began hiring people last year at its second headquarters.
"The development patterns that are taking place in Crystal City make it a more live-work-play area versus being an office-dominated submarket that has an underground mall," Rich said. "That area is evolving with new product coming online and Amazon making its presence in the region. All of those things have helped generate demand for multifamily housing."
One Pentagon City building that delivered last year, Kimco Realty's 440-unit project branded as The Witmer, was already 75% filled just 100 days after it began leasing in July, Kimco Senior Vice President Geoff Glazer said at a November Bisnow event.
"That just doesn't happen," Glazer said. "Any other project you're planning for 20 to 30 units per month. To have that velocity, and the headquarters of Amazon and Virginia Tech aren't even here yet, it's only going to make this area stronger."
The District, even though it was surpassed by its neighbor across the river, still recorded a 14% increase in absorption last year, totaling 4,260 units, according to Delta Associates. Suburban Maryland's absorption decreased 2% to 2,230.
The strong apartment demand has helped landlords in the region increase rents despite the continued development boom that added thousands of new units to the market last year.
Metro-wide Class-A apartment rents increased by 2.6% in 2019, reaching an average of $2,132/month, according to Delta Associates. That matches the 2.6% rent growth in 2018, which was the highest rate of increases since 2010.
The District experienced Class-A apartment rent growth of 2.7%, while Suburban Maryland rents rose by 2.6% and Northern Virginia rents increased by 2.5%.
Apartment owners have experienced rising demand and been able to increase rents in part because of the strength of the region's economy. The D.C. area added 52,300 jobs over the 12 months ending Oct. 31, according to Delta Associates, significantly above its long-term average of 41,400. In addition, the share of renter households in the D.C. area has remained above the national average as the area has attracted more millennials.
Developers have seen these trends and are continuing to break ground on more apartments. Delta Associates found that 11,983 units delivered in the D.C. area last year, and an estimated 13,750 units are expected to deliver in 2020.
The supply boom had a downward effect on rents in previous years, but Rich said D.C. rents grew in 2018 and 2019 in part because of the neighborhoods where the development has been concentrated.
The D.C. neighborhoods contributing the largest share of the new supply, the Capitol Riverfront/Capitol Hill/Southwest and the NoMa/H Street submarkets, also added new amenities that made them more attractive to renters. The growing appeal of the neighborhoods has created enough demand to counteract the supply boom and allowed landlords to increase rents, Rich said.
"Something that's unique to those areas is they are becoming more desirable submarkets, and the new product is concentrated in those areas," Rich said.
Even with supply continuing to increase this year, Delta Associates projects the rent growth will accelerate. It forecasts Metro-wide Class-A rent increases of 2.75% for this year and 2021, and then it forecasts a 3% increase in 2022.
Rich said Delta Associates forecasts these rent increases because it expects apartment demand trends to continue, while the pace of new construction could slow down.
"Partially due to construction costs and the way the cycle is progressing, we anticipate construction deliveries are going to moderate slightly in 2021," Rich said. "I don't anticipate a downturn necessarily on the horizon, but a slowdown."