Vacancy rates for new apartments in Washington, D.C. have soared since the pandemic began as historic volumes of product are delivered to a city whose population has plateaued.
Current estimates suggest that Washington, DC’s population may be on the rise, but that growth is far below pre-pandemic expectations.
The district’s Class A apartment vacancy rate was 5.7% at the end of 2021, up from 4.2% at the end of 2021, according to a fourth-quarter report from . Delta AssociatesThe skyrocketing vacancy rate Northern Virginia When suburban maryland The future of DC’s in-person workforce remain uncertainSaid Will RichPresident of Delta Associates.
“Basically all submarkets within the district, as well as NoMa-H Street and Capital Riverfronttwo high-growth regions are no stranger to rising vacancies,” Rich said.
Rich said part of the increase in vacancies can be attributed to a strong development pipeline. still glowing NoMa, H Street, and union marketDelta expects 6,325 units to be delivered in the region over the next 12 months, marking the second year in a row that more than 6,000 units have been delivered.
The last time the District saw this strong delivery pipeline was in the mid-2010s, when development boomed in the Capitol Riverfront area. With these projects, Class A vacancy rates rose to 6.1% at the end of 2017. Rich said he expects vacancy to remain above 6% this year due to new deliveries.
However, the difference between then and now is DC’s population growth.On the eve of the pandemic, the Chief Financial Officer’s DC office was predicted The city’s population could reach 720,000 by 2022, continuing a decade-plus population growth trend.However, the U.S. Census Bureau Estimate That DC will lose 20,000 residents in 2021.
Meanwhile, Washington, D.C.’s largest employer, the federal government, has been ambivalent about returning employees to the office full-time. what are you afraid of Thanks to relaxed face-to-face requirements, federal workers are moving to the suburbs or even out of the area.
Rich said the demographic trend line is likely having a negative impact on demand for DC apartments. Delta found that the district’s apartment net absorption rate decreased by 54% compared to the same quarter in 2021, and the region’s net absorption rate decreased by 47%.
Courtesy of Delta Associates
According to Delta Associates’ fourth-quarter report, the DC area apartment net absorption rate declined in 2022.
As a result, Rich said there could be a “discrepancy” between deliveries and demographics.
“Right now, we don’t see as much population growth as we did in 2017,” he said.
The district saw slower rent growth last quarter than its neighbors. Class A asking rents in DC rose 1.9% year-over-year in the last quarter, compared with 4.4% in Suburbs in Maryland and 4.4% in Virginia, according to Delta Associates. It rose compared to 3.8% in the north.
However, where demand remains strong is the more affordable segment of the rental market. Vacancy rates rose more slowly in suburban Maryland and northern Virginia, where average rents are lower, the Delta study found. Older buildings in metropolitan areas, including DC, are also seeing strong rent growth and low vacancy rates.
“There hasn’t been an affordable housing development in the city for years, and what’s on the market isn’t necessarily a product people can actually afford in some cases,” Rich said. said Mr. “We are seeing a shift towards more affordable submarkets.”
Older Class B apartments have consistently had lower vacancy rates than Class A apartments in metropolitan areas for at least five years. At the end of 2017, the Class B vacancy rate was 3.7% and the Class A vacancy rate was 4.7%. But this past year, class A vacancies have risen much faster than class B.
AZ Abiud, chairman of real estate entrepreneur and apartment owner Acumen Cos., said the trend shows renters’ priorities have changed since the pandemic began. I was.
“There’s definitely a gap,” said Abiud. “The old buildings that were there aren’t good enough. They actually match the salaries and incomes of these people, so they perform better.”
Still, the pool of high-income renters may be growing. About 17% of individuals earning $150,000 or more rent homes in DC, his fourth highest among the 20 major markets in the US and the highest percentage on the East Coast. According to Rent Café.
Abiud believes the number of high-income people who can afford a home but can’t is likely to rise this year. Delta data shows how the sector has slowed . Sales activity in the condominium market is down about 11% from 2021 to 2022, and the three-year pipeline is also down year-over-year.
“We usually see momentum from buyers at this time of year,” said Abiud. “But this year, interest rates [5%] In addition, buyers who have pre-approved to purchase are willing to wait and see if interest rates shrink. “