These are busy days for the real estate submarket known as NoMa/Capitol Hill.
Apartment and condominium construction is bustling in the neighborhood anchoring the eastern end of downtown Washington. And the market for office space is showing new signs of strength, thanks to the area’s proximity to the Capitol, Supreme Court, Library of Congress and other federal institutions. However, federal budget cuts do pose a threat to near-term office demand.
The Capitol Hill/Capitol Riverfront apartment submarket (which does not include NoMa/H Street) improved significantly over the past 12 months. Effective rents for high-rise, Class A apartments increased to $2,280 per month in the first quarter, an 8.6 percent increase from the same time a year ago. The overall vacancy rate for Class A units increased to 12 percent, from 10.2 percent one year ago because of a rise in new deliveries. However, the stabilized vacancy rate (which excludes projects still in initial lease-up) decreased over the year from 4.7 percent to 3.3 percent today. Concessions are very low at 1.3 percent, falling below the District average of 2.5 percent.
Approximately 3,782 apartment units are currently under construction/marketing or planned for delivery within the next 36 months. Those units follow the region’s recent apartment development boom. A year ago, that pipeline stood at 3,385 units. An increased vacancy rate will likely follow the extensive pipeline, as the delivery of new projects nearly doubles the inventory of Class A apartments.
Since 2003, 959 new condominium units have been built in the NoMa/Capitol Hill area. There are currently 183 units under construction, 216 units actively marketing and 130 units planned to deliver over the next 36 months. The average price per square foot at actively marketing projects is $460. The healthy pipeline should keep up with the demand over the next few years.
There is 15.8 million square feet of office space in the NoMa/Capitol Hill area. The office market expanded during the first quarter as the amount of space leased grew by 91,000 square feet. That’s a turnaround from 2012, when the amount of space leased fell by 263,000 square feet from 2011. The direct vacancy rate decreased to 10.5 percent at the end of the first quarter, from 10.9 percent three months prior. The overall vacancy rate, including sublet space, fell to 10.9 percent from 11.2 percent the quarter prior. This equates to about 1.7 million square feet of available space for direct lease or sublet. The average asking rent for all classes of office space in NoMa/Capitol Hill was $34.10 a square foot at year-end 2012, up 2.1 percent from $33.40 per square foot at year-end 2011. The investment sales market was also strong as six buildings were purchased for a total of $421 million (or $393 per square foot) in 2012. There have been no notable investment sales thus far in 2013. Office demand in NoMa/Capitol Hill is likely to slow as the federal government reins in spending.
Maeve Gallagher is a senior associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.