Annual rent growth in the Washington metro area Class A apartment market is trending below the long-term average in the third 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 in the District and Northern Virginia. Suburban Maryland was the only substate which experienced a decrease in vacancy. Net absorption trailed deliveries in the District and Northern Virginia and led in Suburban Maryland over the past year. The largest gap between net absorption and deliveries exists in Northern Virginia 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, a trend that has continued into the third quarter in which starts are down significantly from the second quarter.
third QUARTER 2023 HIGHLIGHTS
- Class A absorption is above the long-term average,with 10,003 Class A units absorbed in the 12 months ending September 2023. Absorption including Class B product totaled 9,334 units.
- Metro area Class A rents increased by 2.3% over the 12-month period ending September. For Class A and Class B combined, metro area rents increased by 2.9%.
- The stabilized vacancy rate for all classes of investment grade apartments increased by 50 basis points over the past year and now stands at 3.0%; Class A vacancy experienced a 70 basis-point increase to 4.2%.
- The 36-month developmentpipeline is downfrom a year ago to 41,338 units, due to decreases in Northern Virginia, and more significantly, the District.
- 7,453 units started construction over the 12-month period ending September 2023.During the third quarter, only 891 units started construction.
- Meanwhile, 11,081 units delivered in a 12-month span ending September 2023 with more than half of the total in the District and another 17,966 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.
