Northeast & Southeast DC Multi-Family Submarkets Q4 2018

Main-Lobby-1Hecht Warehouse at Ivy City, Main Lobby

Anacostia Southeast Multi-Family Submarket Overview

Anacostia/Southeast is a renter-by-necessity submarket with low vacancy due to the high proportion of renters (70%), stock skewed toward 3 Star or lower-rated properties, and a dearth of market-rate construction. Average rents are among the cheapest in the D.C. metro, and gentrification in eastern D.C. neighborhoods is pushing residents into Anacostia/Southeast. Rent growth averaged about 2.5% from 2013–17, and thanks to key redevelopment projects, investors whose buildings are in the path of revitalization could benefit. Local apartment investors are on a buying spree, hoping that the area could be the next H Street, Shaw, or Petworth. In 2017, the number of sales was one of the metro’s highest, but low pricing resulted in below average volume. Ongoing redevelopment projects include proposals for more than 2,000 apartment units. The most notable development underway is the Skyland Town Center. The project broke ground in late 2016 and should deliver later this year.

Branch Avenue Multi-Family Submarket Overview

Accessibility to employment centers and affordable rents drove a decline in vacancies during 2015 and 2016. But weak demand concentrated in 4 & 5 Star properties in the first half of 2017 forced vacancy to expand last year. Even though Branch Avenue has one of the lowest median home prices in the metro ($200,000), about six in 10 households rent. The submarket’s low median household income and below-average rents kept apartment development muted earlier this cycle.

A major transit-oriented project delivered within walking distance of the Branch Avenue Metro Station and another is on the way. Investment volume was strong for several years. Value-add opportunities drove the $250 million in sales recorded last year.

Brightwood Fort Totten Multi-Family Overview

The submarket’s size provides opportunities for a number of different investors and developers. New, high-end apartments are opening close to D.C.’s emerging neighborhoods (U Street, Shaw, and NoMa). Whereas the older, established properties in Brightwood saw steady rent growth and an uptick in investments. The submarket is serviced by four Metro stations, which allowed developers to build transit-oriented development. For this reason, performance across the submarket is location-specific.

Lower Northeast Multi-Family Submarket Overview

The population in Lower Northeast has grown by 18% since 2010, making it one of the 10 fastest-growing submarkets in the metro. Much of the growth has come from lower-income renters priced out of neighborhoods like Columbia Heights and Shaw who are moving to the submarket for its affordability. Douglas Development’s 15Q3 delivery of the Hecht Warehouse at Ivy City elevated vacancy, but stable demand helped it recover quickly. But vacancy is still worth keeping an eye on, given that it has generally expanded since cyclical lows set in mid-2015 and will face additional pressure since several projects are under construction. Land and redevelopment opportunities have been trading at a much lower price per SF of allowable FAR in Lower Northeast than in other submarkets in D.C., reflective of low rents, with typical transactions trading at cap rates near 7%.

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