Forecasts suggest that the average rents will dip, and the vacancy rate will tick up over the next few years. This is mainly due to thousands of new units becoming available in the market, which temporarily outstrips demand. However, key indicators point towards a strong and prosperous future for the DC rental market.
Gregory Leisch, the CEO of Alexandria-based Delta Associates, has recently expressed an optimistic outlook on the metro DC apartment market. Leisch cited population growth, a more stable economy, and strong demand from millennials, including those eager to move out of their parental homes, as reasons for this upbeat assessment. Despite the temporary overabundance, he describes the long-term prospects for the DC apartment market as "fantastic."
Over the next three years, Leisch predicts some volatility in the region's vacancy rate. From its current 4.1%, it could reach the mid-5% range before reverting to around 4.5% in 2017. This fluctuation is expected due to nearly 40,000 units currently under construction or planned in the D.C. metro area, likely to be completed within three years.
The DC region absorbed over 8,600 units last year, and Leisch forecasts an average absorption of 8,500 units per year over the upcoming three years. The consistency in absorption rates, despite the tripling of apartment projects actively marketing to tenants in the last two years, is indicative of the strength of the region's apartment market, according to Leisch.
DC metro rents remained flat during the first quarter of 2014. However, as vacancy rates increase due to an influx of new units, average rents are expected to fall, likely by 5% this year and 2% in 2015. Leisch anticipates a recovery starting in 2016, with rents beginning to rise again as supply and demand reach equilibrium. By 2018, Leisch forecasts that rent increases will return to the long-term regional average of 4.3%.
Leisch emphasizes that properties of superior quality, managed effectively, and located in stronger submarkets will likely outperform these market-wide averages. As evidence of this, he points to areas such as NoMa/H Street Class A apartments and Old Town Alexandria Class B garden apartments, which increased 6.1% and 3.4% respectively, outperforming the region in the last year.
In the near future, markets in south and east Fairfax County, and Merrifield/Dunn Loring, are expected to outperform the region. In the longer term, areas such as H Street, Reston, the Rosslyn/Ballston Corridor, and Tyson’s Corner are anticipated to experience lower vacancy rates and stronger rent growth, according to Delta’s projections.
Thriving in the competitive D.C. rental market involves more than just great locations. Renters in the area are looking for superior quality, including top-tier marketing, management, and amenities. These may range from concierge services to Zipcar parking, bike racks, and expansive outdoor living features like fire pits, movie screens, and rooftop decks.
In conclusion, despite the anticipated short-term dip in rents and a small rise in the vacancy rate, the Washington, D.C. apartment market remains robust and healthy, demonstrating its strength amidst a burgeoning pipeline of new projects.
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