The highly-competitive Washington metro area Class A apartment market ended the first quarter of 2023 with below-average rent growth and rising vacancy, while absorption remained steady. Rent growth has softened some in recent months, especially in the District as concessions have become more prevalent. Meanwhile, vacancy is up across the metro in all substate areas. Net absorption met or surpassed deliveries in the suburbs over the past year while in the District, a wave of new deliveries has outpaced absorption. We expect competitive market conditions to persist as deliveries are expected to rise significantly in the suburbs over the next two years, similar to the heightened level of deliveries in the District over the past 12 months. Higher construction and financing costs have resulted in a slowdown in construction starts over the past several months; however, new starts were up in Suburban Maryland during the first quarter.
FirstQUARTER 2023 HIGHLIGHTS
- Class A absorption is near the long-term average, with 8,484 Class A units absorbed in the 12 months ending March 2023. Absorption including Class B product totaled 7,557 units.
- Metro area Class A rents increased by 3.2% over the 12-month period ending March. For Class A and Class B combined, metro area rents increased by 3.8%.
- The stabilized vacancy rate for all classes of investment grade apartments increased by 70 basis points over the past year and now stands at 3.2%; Class A vacancy experienced a 110 basis-point increase to 4.3%.
- The 36-month developmentpipeline is up from a year ago to 44,346 units, due to increases in Suburban Maryland and the District. Northern Virginia experienced a decrease.
- 14,404 units started construction over the 12-month period ending March 2023. During the first quarter, 2,080 units started construction.
- Meanwhile, 10,848 units delivered in a 12-month span ending March 2023 and another 15,605 units are scheduled to deliver over the next year.
Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals which has been providing consulting and subscription data services to the commercial real estate industry for over 40years.
