Metro DC Remains a Top-Tier Apartment Market Performer

by Greg Willett

The greater Washington, DC area was one of the few spots across the country where the apartment market made it through the 2008-2009 time period without taking much of a hit. Revenue loss, taking into account shifts in both occupancy and effective rents, was limited to about 1 percent in the nation's capital, compared to an average decline of nearly 8 percent for the U.S. as a whole. Given that performance during the downturn, it's no surprise that DC is among the metros leading the charge now that momentum has returned for the country's overall apartment sector.

What really stands out looking at apartment market results in the Washington, DC area as of mid-2010 is the return of considerable pricing power. Measuring change on a same-store basis, effective rents jumped 3.1 percent during 2nd quarter, taking growth during the first half of the year to 3.9 percent. Prices are up meaningfully across every neighborhood in the region, with especially strong lifts registering in both the North and South Arlington County submarkets, plus the city of Alexandria.

Greater DC's apartment occupancy rate as of June stood at 95.3 percent, up 1.2 percentage points so far this year. That climb reflects that the market posted demand for more than 9,000 units during 2010's initial half, compared to completions totaling a little more than 3,500 units.

An important factor to consider when evaluating the outlook for the Washington, DC apartment market is that this is one of the few spots across the country where new development deals still pencil out on a fairly broad basis. Thus, some new starts continue. Ongoing construction at 2010's mid-point totaled about 5,200 units. DC soon should rank as the nation's most active building market, since recent leaders Dallas/Fort Worth and Houston are poised to drop down the list.

That flow of additional product in Washington, DC, while certainly not notably aggressive in the big picture, does point to a somewhat competitive leasing environment at the top of the market. Thus, while occupancy and rent growth should prove quite healthy, greater Washington might not realize the total revenue increases that are on the way in locales like San Jose, Denver, Austin and Raleigh — spots that have been beaten down but now are well positioned for pronounced recoveries.