Emily Morgan is hunting for a rental in Old Town Alexandria that would put her within walking distance of work and a Metro station. Her requirements: one bedroom, no noisy neighbors and a lease that begins this summer.
For eager renters like Morgan who face stiff competition, it makes sense to get a head start. “I know I need to start searching early if I’m going to find the place I want,” she said.
The Washington area market has not been kind to renters in recent years. A relative dearth of new buildings and soaring demand have pushed prices higher and made desirable units harder to find.
Washington had the third lowest vacancy rate in the nation, behind New York and Philadelphia, at the end of last year, according to Delta Associates, an Alexandria-based research firm that tracks commercial and residential real estate. At the end of 2011, the average rental price across the region stood at $1,685 — 2.1 percent more than the previous year.
But market observers say that dynamic may begin to shift in favor of renters as early as this summer. A swollen backlog of properties under construction is set to start opening to new tenants over the next two years, right when demand has begun to taper off.
“In the near term, the market will be more of a renter’s market because of the large amount of supply that’s coming online,” said A. Grant Montgomery, vice president at Delta Associates, an Alexandria-based research firm that tracks commercial and residential real estate. Two years from now, “those units will fill up, and they will have strong performance for [building] owners.”
Indeed, in the D.C. region, a “renter’s market” may not feel that way. Renters should not expect to see major declines in rates or endless options in some of the most desirable neighborhoods.
The D.C. area market has historically been strong in good and bad economic times because of the number of people who come here for short-term government work, many of whom choose to rent rather than buy because of their lifestyle.
“It’s not like [renters are] saving $300 because rents dropped that much,” Montgomery said. “It’s more of a slowing to a halt and maybe slightly declining. We historically don’t have large rent declines in this area because of the strength of this market.”
Delta predicts that 12,472 units will come on the market in 2012, followed by 10,887 units in 2013. Although not all of those apartments may be delivered, it will be a significant influx of supply compared with the 5,800 units added to the market in an average year.
Northern Virginia will see most of the new stock this year, with 5,895 units expected to come on the market. The flood of units should help push rent prices down, according to Delta, but demand will remain strong in highly sought areas, including the Rosslyn-Ballston corridor.
In suburban Maryland, 3,662 units are expected to join the market this year. Delta analysts also predict downward pressure on rental prices there as new apartments will likely outpace demand.
In the District, 2,915 units are expected to open this year. Real estate in the city varies greatly. The Northwest quadrant has low vacancy rates and high rents; other parts of the city have more inventory and competitive prices.
But with all of these apartments, there may be fewer people looking to rent.
Delta’s data also show that the surge in renters after the economic downturn has begun to ebb. As a result, the new buildings that come on the market will have to find tenants as people come to Washington for work or as young people leave their parents’ basements.
“Going forward, absorption of units is going to depend on strength of job growth in the region,” Montgomery said. “Our projection is that, at least over the next couple of years, we’re going to have below-average job growth in the region” as government spending slows.
But don’t celebrate just yet. Although the new buildings may take longer to ink all of the leases, they’ll still find tenants willing to pay top dollar for luxury buildings in good locations, observers say.
Scott Melnick, a managing director in Jones Lang LaSalle’s Mid-Atlantic Multifamily Group, said the burst of new rental units will fetch eager tenants. And some of those apartments may ultimately be converted to condominiums and sold as the condo market improves. “Some of the pipeline, we know for a fact, will gradually not go into the rental pool but will go into the for-sale pool,” Melnick said. “And that’s a phenomenon that hasn’t happened for the last few years.”
But renters like Morgan in Alexandria continue the search for the right place. So far, Morgan has found two townhouses that fit her budget of $1,800 a month. But the two fell through for different reasons.
“I know they’re out there. It just takes time to find them,” Morgan said. “It’s like bargain-hunting — you have to give it some effort.”