The success of CityCenterDC, the new 2.5 million-square-foot mixed-use development opening in Penn Quarter, has helped to spark renewed interest in residential condos, which fell out of favor during the recession.
A stabilized economy and a housing market in which prices have mostly recovered, especially in this area, have made condos more appealing to potential home buyers. Although less noticeable than the more numerous office, retail and rental apartment properties underway, condo construction in the region has seen an uptick since 2012.
The condo market went into a deep freeze following the recession with a number of failed condo projects converted into rental apartments. Now we’re beginning to see the opposite trend as some buyers of apartment properties are planning to convert them into condos. One recent example is 3409 Wilson Blvd. in Arlington’s Virginia Square neighborhood. After buying the 85-unit complex at the end of May for $39.9 million, the Goldstar Group and investment partner Finmarc Management plan to return the property back to its original planned use as residential condos.
Beltway demographics also point to an increased viability of condo projects. Given the impact of increasing housing prices in the for-sale market and rising interest rates, high-income, well-educated millennials who dominate the current renter pool may find buying condos an attractive alternative. Ownership could give these households an alternative to the soaring cost of single-family house to maintain “live-work-play” lifestyles to which they have become accustomed.
Nationally, the ratio of existing condo sales to all existing home sales has been steadily rising over the past couple of years, and in 2013 surpassed the historical average ratio. The number of condos for sale at the peak of the market in 2007 was almost two and a half times the total today; greater demand and a lack of inventory have helped to cut the homeownership vacancy rate in five-unit-plus properties by half since late 2010. Locally, that improvement in the housing market has translated into a 35 percent gain in the metro’s overall median housing value since that bottomed out back in 2009.
Certainly, the market has taken notice. Condo developments are concentrated mainly in and around Capitol Hill and in the Adams Morgan-Columbia Heights-U Street area. The proposed pipeline is also robust, including such projects as the Wharf on the Southwest Waterfront, and suggests that condo construction will likely continue to increase in the region.
Ethan Vaisman is a real estate economist with CoStar Group in the District.