The Washington, D.C., metro multifamily housing market continues to be strong, despite increasing supply. The multifamily occupancy rate in the area, which includes the Northern Virginia and Maryland suburbs close to D.C., has grown to approximately 95%, according to Yardi Matrix. Strong employment, record-breaking median home values, and robust population gains have all led to increased demand for multifamily units throughout the metro.
The D.C. metro area has one of the most-educated, highly skilled workforces in the United States. A rich history, great food, international culture, and outdoor recreation are just some of the many reasons new residents move to the area. The revitalized Ballpark District, and the development of the Wharf, which surround Major League Baseball’s Nationals Park, has attracted a thriving community of millennials, in particular. In addition to a riverfront view, a park, and easy access to Capitol Hill, this Southeast neighborhood offers many multifamily housing options.
Cybersecurity Workers Boost Need for Apartments
D.C. metro residents work in a wide variety of sectors. Although the population of federal employees in the region is substantial, the 2016 U.S. Census found that 41,000 more D.C.-area residents work in professional and business services than in government.
Cybersecurity professionals, especially, are enjoying a hiring boom in both the public and private sectors in metro D.C. In fact, Maryland and Virginia have the most-concentrated demand for cybersecurity professionals in the country, according to Burning Glass Technologies. Compensation for cybersecurity professionals is considerably higher than that for other IT employees, and the influx of these well-paid workers has contributed to the continued strength of the local multifamily sector.
Fort Meade, Md., represents a microcosm of this trend. The former Army base is now home to the National Security Agency, the U.S. Cyber Command, and a Pentagon IT and communications agency. Large defense contractors, including General Dynamics and Boeing, have set up their cybersecurity divisions in a nearby office park. Highly educated, affluent workers have moved to Fort Meade, and they aren’t content with modest housing and support services; these professionals demand upscale residences, dining, entertainment, and shopping.
Other federal government jobs are contributing to the metro’s popularity as well. As of January 2017, U.S. government entities employed almost 700,000 metro D.C. residents, an increase of 9,600 jobs since the previous January, according to the Bureau of Labor Statistics. And for the second year in a row, overall metro job growth for the same period was 1.7% year over year, outpacing the 1.5% national average.
Transportation Infrastructure Dictates Housing Locations
The relatively new Silver Line portion of the D.C. metro area’s chief light-rail and bus system, Metro, has significantly increased accessibility between D.C. and Northern Virginia, especially in the Dulles Airport Corridor, which is home to several of the region’s most rapidly growing economic centers. Phase 1 of the Silver Line, completed in July 2014, added five rail stations, and phase 2, which is expected to be completed by early 2020, will include six new rail stations and connect with Dulles International Airport.
Housing options near Metrorail stations are already more desirable than are options farther out, and they’ll become increasingly popular among residents who don’t want to rely on cars for their daily commute. Access to the metro area’s public transportation system, which financial analytics firm SmartAsset has ranked among the nation’s best, is especially important for young professionals, many of whom don’t own cars.
Rents Up as Demand Remains Strong
Multifamily housing rental rates have increased in the metro region, tempered somewhat by high inventory. As of February, rents in metro D.C. had risen 1.9% year over year, trailing the national rate of 2.8%, according to Yardi Matrix. At $1,706, however, the average monthly rent in the nation’s capital is higher than the $1,306 national average. The occupancy rate for stabilized properties had decreased slightly by the beginning of the year, to 95.6%, because of an influx of new supply in the market.
Demand for two-bedroom apartments is trending upward in D.C., likely because empty-nesters aren’t ready to downsize from houses with multiple bedrooms to apartments with just one. Millennials, meanwhile, want to share the rent—and have more space—with roommates.
Not surprisingly, the increase in jobs in the region has led to a jump in population, in both D.C. proper and its suburbs, according to 2016 U.S. Census estimates. This, in turn, has driven a construction boom that will fuel demand. Such development is occurring mostly in submarkets with access to the metro area’s public transportation system. The region has almost 27,000 apartment units under development and approximately another 56,000 planned, according to Yardi Matrix. The multifamily housing supply in metro D.C. is expected to increase even further well into 2018.
Financing Options
Despite the considerable changes in financing options over the past two decades, all the traditional sources—Fannie, Freddie, CMBS, banks, life companies—have come into play in structuring multifamily deals. Nonetheless, banks have pulled back on loan amounts, and lenders are seeking higher levels of guarantees and higher pricing. Many debt funds are stepping in and filling the gap in financing for developers.
A lot has changed in both the economy and the metro D.C. area in the past decade. Looking forward, job growth and a strong economy are key to the region’s continued growth.
