'People Are Starting To Move Again': D.C.'s Apartment Market Shows Signs Of Recovery
The worst appears to be in the rearview mirror for the D.C. apartment market, with new data showing demand and vacancy began to improve in the first three months of 2021.
The market still is well below pre-Covid levels, and rents have yet to recover, but the improvement is expected to continue during the spring and summer leasing seasons as the vaccination rollout continues and neighborhood amenities start to reopen.
The vacancy rate for all classes of apartments across the D.C. Metro area stood at 4.3% at the end of Q1, down from 6.1% the prior quarter, according to Delta Associates' newly released Q1 market report.
The tightening vacancy was caused by increased demand for apartments. D.C.-area apartment absorption for the 12 months ending March 31 was 5,748, the report found, compared to 3,692 at the end of December.
In the District, market conditions are still well below pre-Covid levels, but signs of recovery are emerging. Absorption in the District last quarter was 46% lower than the prior year, but an improvement from Q4 when absorption was down 75%. The District's vacancy rate stood at 7.9%, higher than the 5.1% rate in Q1 2020 but down from the Q4 peak of 10.3%.
"People are starting to move again," Delta Associates President Will Rich said. "Now that there's a vaccine and a significant share of the population is now eligible and taking the vaccine, there are a lot of good rent deals out there, so if you are looking, it's good to lock in those reduced rates."
Rents for high-rise, Class-A apartments in the District last quarter were down 17.8% from the prior year. Across the Metro area, rents were down 10.8%, the steepest decline Delta Associates has recorded. Rich said that rent growth can be a lagging indicator, and the recovery in absorption and vacancy may lead to rents picking up in the coming quarters.
Low-rise, suburban apartments have continued to outperform the overall market, with that sector experiencing 0.2% rent growth in suburban Maryland and a 3.7% decline in Northern Virginia. High-rise urban apartments have experienced the most pain, but Rich said he sees signs that those will recover in the coming months.
"The city is starting to come back to life," Rich said. "With the warmer weather, while there are still restrictions in indoor dining, outdoor dining is prevalent throughout the city, and as more and more restaurants and entertainment venues reopen, those neighborhoods are going to become more attractive."
The pandemic hasn't stopped developers from breaking ground on new apartment projects, and the pace of deliveries remaining high will make it harder for the market to fully recover.
During the 12 months ending March 31, projects totaling 10,846 units began construction across the D.C. area, including 2,277 in the first quarter, according to Delta Associates. The pipeline of projects expected to deliver in the next 36 months totals 40,863 units, up from 37,929 at this time last year.
Projects that delivered over the last year brought 10,373 new units to the market, with 5,423 of those coming in the District. Deliveries are expected to total 16,216 over the next 12 months, a 56% increase from the past year.
"Construction was deemed an essential service during the pandemic, and there was no real slowdown in construction starts," Rich said. "When a lot of these projects deliver, there will likely be an impact on vacancy in the market, so the vacancy rate in the District will likely remain higher than it is in the suburban markets due to the amount of product anticipated to come onto the market."
Not only did the District account for a majority of deliveries over the last year, but one single submarket within D.C. welcomed 35% of all new apartments in the Metro area. The submarket containing Capitol Hill, Capitol Riverfront and Southwest D.C. led the region in deliveries with 3,600 units over the last 12 months.
That submarket also led the region in absorption with 1,587 units. Rents in the submarket fell by 20.5% last quarter, making it tied with Northeast D.C. for the largest rent drop in the District.
"There was a steep rent decline in that particular submarket, and concessions are being used to help draw more residents, but it has worked as far as absorption is concerned," Rich said.
WC Smith in September began leasing at The Garrett, a 373-unit apartment project that was the last phase of three-building development The Collective. The building is currently 52% leased, WC Smith Vice President of Property Management Samantha Branchaud told Bisnow Monday, up from 31% in mid-February.
"We are very pleased with the lease up and have seen an average absorption of over 24 leases per month since opening in September 2020," Branchaud wrote in an email. "Leasing has continued to remain strong with a marked increase in February, and we are very hopeful for a strong summer leasing season."
While the market may not support rent increases in many parts of the District anyway, landlords are prevented from raising rates throughout the city, as the freeze on rents D.C. enacted in March 2020 has remained in place. The rent freeze includes units that become vacant, and the D.C. Council last month rejected a bill that would have allowed landlords to increase rent on vacant units.
Rich said there are some submarkets in the District where the market could allow landlords to increase rent, but the freeze is preventing them from doing so.
"Rent growth has been artificially capped in the District," Rich said. "With the increase in absorption, one would think that rents would start to increase, but that's not happening in D.C. proper."