Development activity in the Washington metro area continues to inch higher, primarily in the District. We expect 38,742 units are in the 36-month development pipeline. In Northern Virginia, the short-term pipeline contains a significant number of units in Arlington and Alexandria. The new pipeline is coming primarily from closer in suburbs; however, Eastern Loudoun County has an uptick in development. This increase in pipeline is likely due to the Silver Line Phase II opening next year, which will stretch from Reston to Ashburn.
THIRD QUARTER 2019 HIGHLIGHTS
The stabilized vacancy rate for all classes of investment grade apartments decreased by 60 basis points over the past year and now stands at 3.0%; Class A vacancy experienced a 10 basis-point decrease to 4.3%.
Rents for all investment-grade apartments increased 2.9% over the year. Class A rents increased 2.8%and Class B rents grew 3.0%.
Annual Net Absorption, at 10,055 Class A and B apartments, is above the long-term average. Washington recorded 9,071 Class A units absorbed over the year.Absorption of Class A units over the next 36 months will likely be significantly higher than the region’s 10-year annual average. This projection is predicated upon the “de-nesting” and “un-grouping” of potential renters currently living with parents or roommates, along with job growth and a stable or rising ratio of renters to owners.
Average per project monthly absorption of new projects is at 15 units per month one unit lower from a year ago. There are 62 projects in lease-up today.
The development pipeline of likely deliveries over the next 36 months currently stands at 38,742 units, up a bit from a year ago. Condo conversion will not help much with reducing the development pipeline, as only 4.7% of the 26,163 units currently under construction (but not yet leasing) metro-wide are of a scale of suitable for switching to condominiums before delivery. So far in the cycle, a handful of apartment projects, ranging in size from 60 to 200 units, have switched to condominiums (and a few have subsequently switched back to apartments).
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 35years.
