After almost a decade of stagnant rent growth due to a more competitive marketplace, the past two years have marked a shift in the market. Although the development pipeline remains elevated, Class A apartment rents increased by 2.6% in the Washington metro area for the second year in a row, the strongest rent growth since 2010. Annual absorption also rebounded after dropping below 10,000 units in 2018 and for most of 2019.

FOURTHQUARTER 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 3.6%; Class A vacancy experienced a 10 basis-point decrease to 4.6%.

• Metro area Class A rents increased by 2.6% over the year. For Class A and Class B combined, metro area rents increased by 3.6%.

• Class A absorption surged over the year, with 10,960 units absorbed in 2019. Absorption including Class B product totaled 13,147 units.

• Per project lease-up pace for projects currently in lease-up was 16 units per month, an average increase of two units from a year ago. There are 64 projects in active lease-up today compared to 60 projects a year ago.

• The pipeline of likely deliveries over the next 36 months currently stands at 38,420 units, up slightly from a year ago. This is the ninth year in a row the development pipeline has been above 30,000 units. Condo conversion will not help much with reducing the development pipeline, as only 4.7% of the 24,530 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.

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