Average rents at the District’s higher-end apartment buildings have turned lower over the past year, research firm Delta Associates found, as a surge of new projects in the Southwest Waterfront area brings fresh competition to recently gentrified neighborhoods in the middle of the city.
The decreases are small, and developers and housing advocates regard the trend as little more than a temporary pause in the upward march of housing costs. Still, the shift is a sign that downtown renters have more options available to them after years of rent hikes.
“Market conditions are more competitive now,” Delta Associates President Will Rich said. “There are more neighborhoods that renters can choose from, and I think over the next year or so rents will be flat to slightly negative.”
Average rents for pricer Class A apartments fell citywide by about 1.3 percent in the one-year period ended Sept. 30, a Delta Associates report found.
The declines were strongest in the Shaw and Columbia Heights neighborhoods, where rents fell by 4.1 percent. The area that includes Logan Circle and the 14th Street corridor experienced a 2.4 percent decline in Class A rents.
It was the second quarter in a row that the research group reported falling rents, suggesting the trend could have some staying power.
Rich said the shift is driven, in part, by higher-income residents moving out of smaller apartments in the city’s central neighborhoods and into the changing Navy Yard, NoMa and Waterfront neighborhoods, where new apartments tend to be more spacious and have more amenities.
Most of the new apartments are on the more expensive end of the market.
But there was also a more modest, 0.6 percent decline in middle-market Class B apartments across the city. The report did not study other rental types.
Some residents are hopeful that those new developments will eventually open up housing for middle- and lower-income renters as supply catches up to demand.
“It’s not like Logan Circle is going to suddenly become a more affordable place to live, but rents are at least stabilizing here,” said Mark Lee, a Washington Blade columnist and business advocate who has lived in that neighborhood for 15 years. “Most of the new housing that is developed is higher-end, but it takes pressure off mid-level housing because those people aren’t competing for that same housing.”
District residents filled 11,126 new apartments during the past 12 months, Delta Associates found, making the Washington area the fourth-busiest one for adding rentals behind Dallas, Houston and Atlanta. There are relatively few apartment vacancies here compared with elsewhere.
Declining average rents in the middle of the city coincide with a 3.2 percent increase in the Capitol Hill, Riverfront and Southwest Washington neighborhoods.
Seven out of 10 people who have moved into a new District apartment in the past year have done so in the Waterfront, Capitol Hill, Southwest, H Street or NoMa neighborhoods, Delta Associates found.
Among the fresh choices are three apartment buildings that have opened recently at the Wharf, a glitzy new stretch of properties along the District’s Southwest waterfront that includes a concert venue and a hotel.
That development followed similar projects a mile to the east at the Southeast Navy Yard and further north at the NoMa neighborhood near Gallaudet University.
Real estate analysts say rent prices across the city will probably stay flat or decline slightly for another year or so as the city’s renters absorb the new rooms. That could mean District residents will see fewer cranes on the horizon in the next few years.
Developers say the pause in rent increases, coupled with a jump in the cost of certain construction materials, means apartment-builders aren’t making as much money on new buildings as they were a few years ago.
Bob Murphy, chief executive of District-based MRP Realty, said real estate investors are less eager to sink money into ambitious new projects as a result.
Funding new construction “is going to be much more selective and difficult,” Murphy said. “If you talk to anybody who’s building [downtown], years ago you wanted north of a 6 percent return. Now you never see that anymore.”
Still, developers probably won’t have to wait long for rents to start climbing again. Rich, the Delta Associates president, says he expects a turnaround within 18 months.
“This may be the calm before the big wave surges again,” said Stephen Glaude, executive director of the Coalition for Nonprofit Housing and Economic Development, an advocacy group. “There’s nothing that we’ve seen to indicate the housing market is plateauing in a permanent sense, and certainly not that it’s reversing itself.”