It looks like Greater Washington’s red-hot apartment market is finally cooling off.
In what could be good news for the region’s renters, and bad news for investors, new statistics released by Alexandria’s Delta Associates Inc. highlight some low lights that suggest the region’s apartment market is starting to be less favorable to owners.
The normally diplomatic Delta is careful to say that the current outlook could just be a blip on the radar screen and that long term “the region’s apartment market prospects remain extremely bright.” But in the now term, there has definitely been a shift.
Some key findings:
• Rental rates in the region slipped 0.8 percent over the past 12 months, the first year-over-year decrease since 2009.
• Net absorption, a measure of how much space has been leased over a specified period, increased to 4,932 units, a slighter year-over-year increase than this time last year or the year before.
• The region’s development pipeline is forecast to fall from 17,188 units delivering over the next 12 months to 8,486 units.
Put into plain English, landlords are starting to see a drop in how much they can increase rental rates, apartments are being snapped up more slowly than they have been, and developers are voluntarily pumping the brakes on new apartment buildings or their lenders are forcing them to do so.
Could this be the start of an oversaturation in the region’s rental market, something my colleague, Michael Neibauer, pointed to a few months back? It’s too early to tell, but developers at least appear to be getting to the point of hesitation.
Now, wait a minute, your average multimillion-dollar investment sales broker will say. Apartment buildings are still selling like hot cakes. And yes, that’s right. This year has been chock-full of big-ticket deals, the high point being Dweck Properties Ltd.’s acquisition of Equity Residential’s Archstone Crystal Towers for $322.2 million.
But most of those sales were for known quantities — well-leased, well-located properties that have proved themselves to be cash cows.
Developers are still pitching plans to develop new apartments, including a 77-unit apartment project to be developed at 1600 Pennsylvania Ave. (Southeast, that is).
But the question remains: How well will the market continue to perform with the addition of 17,000 apartment units? That remains to be seen.