Although investors consider Washington to be primarily an office market, apartments have attracted more interest lately, and for good reason. With more than half a million units and almost 1,800 apartment buildings with 100 units or more, the size and range of options available to renters in the Washington region has expanded rapidly. Since 2000, more apartment units have been built in the market than the preceding 20 years.
Meanwhile, office development throughout the region has plummeted. The amount of net new office space currently being built accounts for just 1 percent of the total amount of office space in the market, less than half of the annual average for the past decade.
By contrast, apartment construction has boomed, with the amount of net new apartment units jumping to 4 percent of the existing multifamily inventory, with more than 22,000 units currently under construction, four times that of the five-year average.
Much of the more recent apartment development has occurred along Metro’s Red Line. The top four neighborhoods accounting for the most new apartment units since 2010 are H Street/NoMa, North Bethesda, Gaithersburg and Silver Spring. Since 2010, these four submarkets account for 24 percent of all new apartment deliveries of 100 or more units, at 5,679 units, and account for 22 percent of all current under construction projects with 100 or more units at another 5,416 units.
Major new apartment projects underway include Pike and Rose, a multiphase mixed-use project with 1,100 units set to deliver in 2016 near the White Flint Metro station; WC Smith’s 2 M St. NE in NoMa, a 12-story apartment building set for completion by the end of 2013 near the NoMa-Gallaudet Metro station; and Home Properties’ 21-story Eleven55 Ripley apartment tower adjacent to the Silver Spring Metro station.
Fueling this surge in new apartments has been demand. Since 2000, the Washington region has outpaced the U.S. average in population growth, with an average yearly rate of 1.5 percent versus 0.9 percent. With this population growth, the apartment market has experienced eight years of year-over-year increases in average rent and steady occupancies hovering near the mid-90 percent.
However, population growth in the area is slowing down, and CoStar is forecasting apartment rents and occupancy levels will level off or decline over the next two years, reflecting the impact of all the newly built units and providing renters with plentiful options and lower rents.
Following the slowdown in occupancy and rental rates as the region digests all the new apartments, the market is forecasted to return to current growth levels within five years.
D.J. O’Brien is a research manager for CoStar Group in Washington. For more information, please visit www.costar.com.