Downtown DC Multi-Family Submarket Q4 2018

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Apartment fundamentals in Downtown D.C. continue to strengthen after inventory increased by about 25% since 2010. Vacancies, which reached the double digits in 2013 and 2014, regained their footing through the first three quarters of 2018 and were again below the historical average. Recently delivered projects have been leasing well. In fact, almost all of the absorption came from 4 & 5 Star buildings over the past three years. As developers provide new living alternatives in Shaw, Mount Vernon Triangle, and Chinatown, it appears many residents are trading up for these apartments.

Rents suffered from a slowdown in demand from 2016-17, but made considerable gains through the first three quarters of 2018. Concessions are still relevant in apartments built in 2018, but are difficult to find in older properties. It appears Downtown D.C.’s supply-side concerns are in the rear-view mirror as only a handful of small apartments were under construction at the start of 18Q4. This could further improve occupancies and rent growth, with the potential to lead to further sales.

After the record level of volume from 2010-15, sales activity has been muted. Only one property has traded this year, and after the flurry of activity earlier this cycle, the disparity between what’s available and at what price point has left many companies targeting other submarkets. Downtown D.C.’s reputation as one of the most sought-after residential submarkets in the metro should keep developers and investors coming back over the long term, but fundamentals gained a boost so far in 2018 because of the lack of activity.

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