The Washington, D.C., metro area, which includes Northern Virginia and certain counties in Maryland, has delivered 112,321 new apartment units since early 2010, according to RealPage data for Q3 2019. This marks the third-highest block of new apartment supply in this period after Houston and Dallas-Fort Worth. The market’s deliveries have remained consistently high since near the start of the cycle, not falling below 8,000 annually since mid-2012.
Central D.C. has seen the highest supply growth in this market, with 11,237 new apartments, followed by Northeast D.C. at 9,472 and Tysons/Falls Church/Merrifield in Virginia at 8,076.
An additional 32,186 units are under construction across the metro—43% in Virginia, 41% in the District, and 16% in Maryland. Navy Yard/Capitol South has the highest number of units under construction at 6,488 (20%), followed by Northeast D.C. at 4,300 units.
“I think that the big story for D.C. in this economic cycle is just how much construction has climbed relative to the historical norm,” says Greg Willett, chief economist at RealPage. “In long-term history we tended to build about 7,000 units a year in this metro, and in this cycle we’re running about 11,000 units a year. So that’s a big increase in building activity, and it impacts all the other numbers—it really lowers pricing power.”
The average rent in the D.C. metro is $1,821, and its year-over-year rent growth is just below the national average at 2.9%. Annual rent growth has risen substantially in a few submarkets, particularly Germantown and Bethesda/Chevy Chase in Maryland, and west Fairfax County in Virginia. Occupancy remains stable across the metro at 96.3%.
“There’s significantly more product moving through initial lease-up at all times, and the product’s not being absorbed as quickly as developers would want,” Willett says. “It is being absorbed, but it’s going to push rent, with that much new supply coming on in select neighborhoods.”
RealPage notes that D.C.’s population and job bases have both expanded substantially in this cycle, with a population change of 613,587 from 2010 to 2018, and 354,000 new jobs. The leisure and hospitality industry and the professional and business services industry have seen the most growth, with over 90,000 new jobs each since 2010. Unemployment sits below the national average at 3.2%, while median incomes sit above at $105,000. More than half of the market’s adults carry bachelor’s degrees.
The coming of Amazon’s HQ2 to Virginia has already had a pronounced effect on the submarket surrounding what has been dubbed National Landing, which encompasses Crystal City, the eastern part of Pentagon City, and the northern part of Potomac Yard.
While Willett expects prices to rise and more new construction, he notes this activity hasn’t started yet. However, “we’re already starting to see the rent growth in that neighborhood accelerate a little bit, and then not just that neighborhood but places that would be a subway stop or two away are seeing some momentum,” he says. “And to me, that’s more about operators just getting a little more confident about what’s going to happen in those areas.”
From Q4 2019 through Q4 2021, RealPage expects D.C.’s average apartment occupancy to fall slightly to 95.2% and its average annual rent growth to moderate to 2.2%. Following a slight reduction in 2019, apartment completion volume is expected to rise again, back toward cycle highs through 2021.
Looking ahead, Amazon effect aside, Willett expects current trends to continue in much the same direction. “It is going to continue to be an aggressive building center by historical standards. It’s a pretty competitive environment, but again the demand is there. There’s a number of standout local characteristics and just an incredibly well-educated workforce—that certainly helps the job production, and they’re high-end jobs. This is a metro that pays very well relative to other places across the country.”
