Ballston is still shaking off a two-year slowdown. Negative absorption and new deliveries caused vacancy expansion, which slowed rent growth. This vacancy volatility is due to the submarket’s small apartment inventory. Lease up in recently delivered projects suggests demand will absorb new units. Developers continue to build, which poses potential risk. Rent growth was slow to recover earlier this year, but at the start of 18Q4, continues to trend upward. Investors are paying attention, as two sales last quarter went for top dollar. One deal posted a 4.4% cap rate.
New supply this cycle is trying to change the submarket’s reputation for being a place of work (and hardly that, as about one-quarter of its office space is vacant), rather than living or entertainment. Rosslyn’s high-end apartment inventory grew by 25% since 2010; Nestle relocated to Rosslyn last year, bringing 750 jobs, which helped spur demand; and an additional 3% of the current inventory was under construction at the end of 2018. Rent growth outperformed this cycle, despite elevated office vacancies and new supply. Tight historical occupancies and above-average rent growth have caught the attention of investors: Since 2010, more than $1 billion has changed hands.