Investors Raid the D.C. Market for Multifamily Assets

While it tries to cope with cuts in government spending, the Washington, D.C. market is now looking to new drivers for economic growth.
Washington, D.C. Multifamily Market - Rent Trends - Q1 2015

Washington, D.C. Multifamily Market – Rent Trends – Q1 2015

Although the government shutdown and the cutback in federal spending have taken their toll on the nation’s capital, the D.C. region’s economy is showing signs of stability. As it tries to cope with  cuts in government spending, the market is now looking to new drivers for economic growth. These drivers include professional and business services, education or tourism, sectors expected to be responsible for the creation of new jobs in the region in the near future.

According to Marcus & Millichap’s most recent apartment report, job growth in the Washington, D.C., region is currently below the national average, but steady, thanks to local Fortune 500 companies, defense contractors or large construction projects, such as the ones in Tysons Corner or suburban Maryland. This stable environment is attracting more millennials and empty nesters to the D.C. core, where they can find rents close to employment, entertainment and shopping centers, and public transportation.

The strong rental demand in the area has prompted developers to deliver the highest number of apartments in more than a decade this past year. Developers delivered more than 4,100 units in the first quarter, bringing annual completions to a little over 19,700. In spite of this, vacancies only rose by 0.6 percent, up to 5.6 percent at the end of the first quarter. As more new apartments are scheduled to come online this year, the area’s vacancy is expected to continue to grow and reach 5.8 percent by the end of 2015.

Washington, D.C. Multifamily Market - Vacancy Rate Trends - Q1 2015

Washington, D.C. Multifamily Market – Vacancy Rate Trends – Q1 2015

D.C.’s rental market will remain tight this year, despite rising vacancies. As a result, rents will increase in the region. At the end of Q1, rents reached $1,592 per month, up 3.8 percent over the past 12 months. The strong demand will only pave the way for landlords to increase them even more. By the end of the year, D.C. area rents are expected to reach $1,611 per month, an increase of 1.6 percent.

The excellent demographics and the steady rent growth are attracting more investors to the market. Washington, D.C. has already seen several large multifamily transactions this year. These include the sale of the 335-unit Residences on The Avenue for $196 million; the 399-unit Gramercy at Metropolitan Park, purchased by Ralph Dweck Properties for $190 million; and the 727-unit Cooper’s Crossing. Redbrick LMD and David Werner Real Estate Investments have recently purchased a 2,175-unit multifamily portfolio in Fairfax County. The acquisition was financed with a $401.9 million, 10-year term senior loan secured by Walker & Dunlop from Fannie Mae.

 

Charts courtesy of Marcus & Millichap