Class A Apartment Market Washington Metro Area: Q4 2023

January 16, 2024

Annual rent growth in the Washington metro area Class A apartment market is trending near the long-term average in the fourth quarter of 2023, as the development pipeline has moderated and demand remains strong. Meanwhile, vacancy is up in the District and Northern Virginia. Suburban Maryland was the only substate area which experienced a decrease in vacancy. Net absorption outpaced deliveries in the District and Suburban Maryland over the past year. The largest gap between net absorption and deliveries exists in Northern Virginia where a wave of new deliveries came online in 2023. We expect competitive market conditions to persist as deliveries are expected to rise significantly throughout the metro area in 2024. Increasing construction and financing costs, as well as tighter lending standards have caused a slowdown in construction starts in 2023, a trend that has continued into the fourth quarter in which starts are down from the third quarter.

fourthQUARTER 2023 HIGHLIGHTS

  • Class A absorption is above the long-term average,with 11,206 Class A units absorbed in 2023. Absorption including Class B product totaled 10,138 units.
  • Metro area Class A rents increased by 3.5% over the past year. 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 40 basis points over the past year and now stands at 3.6%; Class A vacancy experienced a 30 basis-point increase to 4.8%.
  • The 36-month developmentpipeline is downfrom a year ago to 38,818 units, due to decreases in all three substate areas, most significantly in the District.
  • Just 5,439 units started construction in 2023.During the fourth quarter, only 527 units started construction.
  • Meanwhile, 10,828 units delivered in 2023.The District, which accounted for 44% of the deliveries, led the substate areas. Another 17,406 units are scheduled to deliver in 2024.

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.