MARKET SNAPSHOT: Occupancy, Investment Activity on the Rise in the Nation's Capital

By Philip Shea, Associate Editor

Vacancy continues to fall across all submarkets of the nation’s capital, while investment activity in the district itself is gaining steam. In the first quarter of 2012, the Washington, D.C., metro saw overall vacancy fall 20 basis points to 4.0 percent, while vacancy in the district fell 30 basis points to 4.4 percent. Additionally, assets in good locations of the district are selling at cap rates of around 5 percent, irrespective of the size of the property.

As with other well-performing metros, one of the biggest drivers of renewed rental growth is an improved employment outlook. Washington, D.C., saw its already healthy unemployment rate fall 10 basis points to 5.6 percent during Q1 2012. Nearly 26,000 private-sector positions have been added in the last six months, with 20,200 of those being added from January to March.

Furthermore, Marcus & Millichap projects that employment in the metro will increase by 1.5 percent, or 44,000 positions, by year’s end. This is a substantial increase from the 28,100 positions added last year.

With such positive indicators across the board, developers are ramping up construction. The pipeline, already considerably backlogged with over 52,000 planned units, is expected to deliver 4,700 units over the course of 2012, with the rest in the planning stages. The number of completions will be more than double the 2,300 units seen in 2011.

Meanwhile, rents are seeing are renewed upswing after going down slightly between 2010 and 2011. According to Marcus & Millichap, asking rents increased 0.6 percent from January to March 2012, coming in at $1,419 per month. This comes after a 2.6 percent increase throughout all of 2011. Effective rents rose slightly higher, by 0.7 percent, coming in at $1,347 per month.

Marcus & Millichap projects that marketwide asking rents will climb 4.0 percent throughout 2012 $1,467 per month, while effective rents will increase 4.7 percent to $1,401 per month.

Sales and transactions of multifamily properties surged 40 percent over the last year, with the number of district deals increasing 50 percent. Cap rates remained in the low 6 percent range during this time, underscoring the impact of large institutional assets and properties in high-demand locations, like the district.

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