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DC Sees Rise in Absorption as Pipeline Shrinks

After experiencing some softness in the past few quarters, conditions in the Metro Washington, DC area are beginning to firm up.

By Sule Aygoren Carranza | Updated on October 20, 2008

WASHINGTON, DC-Like in the rest of the country, the apartment market in the nation’s capital has experienced some sluggishness. Still, the Metro Washington, DC area remains one of the best multifamily markets in the country, thanks to its solid job market, large pool of renters by choice and the slowdown in the for-sale market, which is keeping many households in the rental pool, according to Delta Associates.

Yet it was that slowdown in the sales market–specifically, condominiums–that put significant pressure on the region last year as shadow rentals pushed supply up, while a weaker economy and moderating job growth impacted demand. The good news this year is that the supply pipeline, which peaked in the fourth quarter of 2007, is declining and landlords are increasingly able to bump up rents, despite vacancies. For the fourth quarter in a row, annualized absorption of class A units tops 5,000, and, importantly, the presence of the shadow market is being felt less as absorption and rent figures are showing strength or both class A and B product.

As of the third quarter, the stabilized vacancy rate for the DC metro area came in at 3%, up a mere 10 basis points from the prior year, and half the national rate of 6%. Overall rent growth remained modest–2.9% since September 2007, below the long-term annual average of 4.5%–but class A rents saw 1.1% growth over the past year, compared to an 80-basis-point decline in the third quarter of 2007.

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