The news last week about apartment vacancy rates was a jaw-dropper for some.
One reason many people weren't surprised to hear that the local rate for large, newer buildings is the tightest in recent history was that it confirmed anguished tales they have heard from apartment hunters across the region. Secondly, the study, as it made clear, was only of a sample of buildings--"better" apartments in large complexes, not the smaller, older units that make up most of the apartment stock in the District and the older, close-in suburbs.
Only anecdotal evidence supports the commonly held idea that the market's also very competitive for the area's small or older buildings. No research firms track these buildings the way they do the bigger, glossier properties.
There's a big explanation for why the firms aren't tracking anywhere near the total number of apartments in the region. It's because the surveys aren't done for renters, but for investors, banks, lenders and others interested in how competitive their big buildings are and how fertile the area is for new construction. According to a recent Census Bureau report, the fastest-growing segment of the apartment market nationwide is households earning $50,000 or more. And that's the segment investors are chasing.
So firms such as Delta Associates, the Alexandria research unit of real estate broker Transwestern Inc., track vacancies of only two types of buildings--Class A and Class B buildings of 100 units and more. Delta defines Class A buildings as those built in 1988 or later that offer a clubhouse, decorated model units, two-bedroom/two-bath units and a large community amenity package. Class B buildings were built from the 1940s to the 1970s and are well maintained but offer fewer amenities.
Since institutional investors don't care about buildings with fewer amenities, or those older or in less desirable locations, no private surveys count Class C or D buildings. The alphabet ranking, however, is itself mushy, according to the National Multi Housing Council: It varies depending on who is doing the survey and their interest. One NMHC document cites an anecdote from a prominent chief executive who said his A or B rating "depends on whether he is the seller or the buyer."
Delta classifies as Class A or B only about 9,000 of the District's 75,000 to 85,000 apartments in big buildings. Because the rest of the market wasn't included, some observers question how far the survey can be extrapolated.
Shaun Pharr of the Apartment Owners and Builders Association was critical of the numbers. He said the recent report of a 0.7 percent vacancy rate cited for the metro area and 0.3 percent for the District caused "serious heartburn."
"The treatment of the Delta Associates information, rightly or wrongly, reads like it's descriptive of the entire market," Pharr said. "And their whole database is a very selective submarket of high-end properties."
Pharr said Census Bureau data show a metro-area vacancy rate for all rental housing--apartments and houses--of 8.5 percent to 9 percent and a 13 percent vacancy rate for the District. "There's all this euphoria out there about the District that we all want to believe, but this is not happening citywide."
Census Bureau data do show that the entire market has tightened since 1996. The June data show 7.2 percent vacancy for the metro area and 11.6 percent for the District. But even the Census Bureau has qualms about the accuracy of that number and prefers to cite 1998 rates--8.3 percent for the metro area and 12.6 percent for the District. Those numbers compare with 8.8 percent for the area and 13.4 percent for the District just three years ago.
Delta chief executive Greg Leisch doesn't debate that his rates represent only a part of the picture. But the findings show, he said, "that if you're middle-class or higher and you want to occupy a Grade B or higher apartment in this area, you just don't have any choices."
Reis Reports, the largest provider of apartment data to the industry in the country, this quarter is posting the tightest rate in 19 years for the apartments it tracks here. Suburban Virginia shows 1.3 percent, compared with 1.8 percent in suburban Maryland and the District.
The Reis survey includes more buildings than Delta, counting those with 40 units or more. The New York firm checks quarterly on a third of its inventory of 82,000 units in the District, 127,000 units in suburban Virginia and 128,000 in suburban Maryland.
Reis also puts the District at the top of its national list of vacancy-rate projections for 2000 to 2004. Using current projections, Reis says the District A and B rental market will be tighter than those in New York City, San Francisco, suburban Maryland, Oakland-East Bay and suburban Virginia.
Charles E. Smith Realty Co., the largest apartment owner/manager in the area with 18,000 high-rise, mid-rise and garden units, said its vacancy rates are about 0.4 percent. Northern Virginia is a bit tighter than the District, said Matthew B. McCormick, senior vice president for residential markets.
McCormick said an indication of high-end interest is in calls on its Park Connecticut "Class A-plus" building under construction at Connecticut and Van Ness. Though the 142-unit building will not open until March, 300 people have called. The company expects to start pre-leasing Nov. 1, instead of in January, and expects the building to be nearly 50 percent leased before it opens.