Annual rent growth in the Washington metro area Class A apartment market is trending below the long-term average in the second quarter of 2023, which is the result of a highly competitive environment as a record number of new projects are now available. Meanwhile, vacancy is up across the metro in all substate areas. Net absorption trailed deliveries throughout the region over the past year. The largest gap between net absorption and deliveries exists in the District where 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 caused a slowdown in construction starts over the past year although a couple larger-scale projects started in the District during the second quarter, resulting in an increase metro wide in starts compared to the first quarter.
SECOND QUARTER 2023 HIGHLIGHTS
- Class A absorption is near the long-term average,with 7,943 Class A units absorbed in the 12 months ending June 2023. Absorption including Class B product totaled 7,883 units.
- Metro area Class A rents increased by 2.9% over the 12-month period ending June. For Class A and Class B combined, metro area rents increased by 4.2%.
- The stabilized vacancy rate for all classes of investment grade apartments increased by 60 basis points over the past year and now stands at 2.9%; Class A vacancy experienced a 110 basis-point increase to 4.3%.
- The 36-month developmentpipeline is up from a year ago to 44,584 units, due to increases in all substate areas, especially Suburban Maryland.
- 15,112 units started construction over the 12-month period ending June 2023.During the second quarter, 2,712 units started construction.
- Meanwhile, 12,252 units delivered in a 12-month span ending June 2023 with more than half of the total in the District and another 17,721 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.