MPF Research, a multifamily real estate analyst group that operates under RealPage, a company that provides property management software to the multifamily housing industry, defined those neighborhoods by the Zip codes 20003, 20024, 20319 and 20374. In those Zip codes, 2,550 apartments have come on the market since 2012, with 3,399 more under construction as of the first quarter of 2016.
“What I think makes D.C. really interesting is that typically these kind of lists are going to be heavy on the Sun Belt, which are high-growth areas,” said Jay Parsons, a vice president for MPF Research. “The fact that D.C. made it on the list really is noteworthy because typically your more mature large markets have a slower growth pace.”
Because the District’s economy weathered the recession better than most across the country, the city was a magnet for job seekers. They needed a place to live, which fueled demand. As demand grew, developers responded. The arrival of the baseball stadium helped spur the rejuvenation of long-neglected neighborhoods such as Navy Yard and the Southwest Waterfront.
“It’s really a spot that’s always had that great location but just didn’t have the infrastructure or desirability to attract development,” Parsons said.
What the developers are building is as significant as where they are building. They are apartments, not condos, and they are luxury buildings filled with amenities. Take Leo at Waterfront Station, a 530-unit apartment building in Southwest Washington. It offers renters a rooftop pool with panoramic views of Washington, an on-site personal trainer at its fitness center, a game room with a pool table and multiple TVs, a full-service concierge and dog-washing stations.
Completed in 2015, Leo at Waterfront Station is typical of the new housing stock populating the neighborhoods. The average rent for a newly constructed apartment in these areas is $2,511 a month. The average rent for units that have been on the market since before 2012 is $2,000.
“The biggest trend is that we’re building more high-end product,” Parsons said. “If you look at past cycles, particularly in urban areas like D.C., the really high-end multifamily was more condo-oriented. In these last five years, not just in Navy Yard, but across D.C., what you are seeing is what you might call condo-quality development for apartments — highly amenitized, really nice units offered at a really high rent.”
Parsons expects new apartment inventory in these neighborhoods to peak in the second half of 2017 as units under construction are completed.
“For renters in the area, that’s when you’re going to see a lot of new options hitting the market and probably at discounted rates,” he said. “2017 will be a big year for lots of new options for apartments but by 2018 there will probably be few new apartments.”
With more apartments available to rent, even at high price points, rents should soften across the city.
“In a lot of cases what you tend to see is when you build these nice properties, it allows people who may be living in an older property with a cheaper rent to rent something nicer. When they move out, that opens up a more affordable unit for somebody who can’t afford that highly priced unit. With so much new product available, it really does diminish pricing power.”