MARKET REPORT

MULTIFAMILY
Washington, D.C., Metro Area Q4/19
Growing Number of Young Professionals Support
New Development, Driving Vacancy to Cycle Low Multifamily 2019 Outlook

Strong absorption drops vacancy to multiyear low. Numerous public CONSTRUCTION:

and private sector job opportunities continue to draw young professionals
The delivery schedule for 2019 falls short
to the market, as the number of people between the ages of 24 and 30 has
of last year’s total of 10,700 units, as
been expanding by double the national pace. The resulting increase in
housing demand contributed to strong summer and autumn multifamily 9,900 UNITS
will be completed
development activity expands inside the
District but contracts elsewhere.
leasing seasons. More units were absorbed over that span than in all of
2018, pushing vacancy down to a 14-year low of 3.4 percent in September.
Availability is expected to stay under 4 percent through the rest of the year
as some openings are delayed until 2020. Exceptionally tight vacancy will
VACANCY:
lift the average effective rent by more than 3 percent for the second year in
a row, led by stronger gains in Class B units. Fewer openings and greater leasing activ-
ity will drive vacancy down to 3.6 percent
Construction activity focused around the Navy Yard and Arlington. 90 BASIS POINT
decrease in vacancy
in 2019, following a 40-basis-point
Multifamily development is expanding the most within the District, decline last year.
particularly around the Navy Yard/Capitol South area. More than 7,000
units are underway here, 1,800 of which will open in 2019, exceeding all
other submarkets. Outside of the District, Amazon’s growing presence in
Northern Virginia has encouraged greater construction in both Crystal
RENT:
City and Pentagon City as well as the North Arlington submarket, where The average effective rent will climb to
$1,798 per month in 2019, matching the
roughly 2,500 apartments are in the pipeline. Another part of the metro
reporting a substantial year-over-year increase in deliveries is Downtown 3.4% INCREASE annual average growth rate recorded so
Silver Spring, where nearly 600 doors will come online before 2020. The in effective rent far this business cycle.
Suburban Maryland submarket will be connected to the Purple Line when
it opens in the future, which is expected to improve apartment demand.

Investment Trends
• Amazon’s high-profile entrance into Northern Virginia likely contribut-
Local Apartment Yield Trends ed to the area’s rising sales velocity over the 12-month period ended in
Apartment Cap Rate 10-Year Treasury Rate September. The highest concentration of trades were around Alexan-
12% dria and in Arlington County, including multiple assets in Rosslyn, just
three metro stops north of the e-commerce firm’s Crystal City offices.
9% Most of the properties that changed hands in the neighborhood were
Class B facilities, with cap rates below 5 percent.
Rate

6%
• Transaction velocity also improved year over year in Maryland, partic-
ularly in Frederick County and Hyattsville, which encompasses College
3%
Park and the University of Maryland. First-year returns ranged above
7 percent for Class C assets, falling into the 6 percent band for Class B
0%
* 01 03 05 07 09 11 13 15 17 19* buildings and into the low-5 percent zone for Class A facilities.

• Southeast D.C., including Anacostia, continues to be the most active

area for investment within the District, as revitalization efforts are
Sales Trends starting to show success, presenting possible value-add opportunities.
Sales Price Growth
* Cap rate trailing 12-month average through 3Q; Treasury rate as of Sept. 30
er Unit (000s)

Sources: CoStar$240
Group, Inc.; Real Capital Analytics 16%
Year-over-Y

$180 8%
 Employment Trends 3Q19Yield
Local Apartment – 12-Month
Trends Period
Metro United States Apartment Cap Rate
EMPLOYMENT
10-Year Treasury Rate
4%
12%
1.1% increase in total employment Y-O-Y
Year-over-Year Change

2%
9% • In the 12 months since September 2018, total employment in
Washington, D.C., has risen by 37,700 positions. In the preceding

Rate
0%
6% annual period, about 1,700 fewer personnel were added to staffs.

-2% • Hiring over the past four quarters was led by the leisure and
3%
hospitality sector as well as the professional and business
-4% services sector with the creation of about 25,500 jobs. Roughly
0%
01 03 05 07
09 10 11 12 13 14 15 16 17 18 19* 9,800 education and09health
11 13 15
services 17 19*
positions were also added.

Completions and Absorption Sales Trends

Completions Absorption Sales CONSTRUCTION
Price Growth

18
Average Price per Unit (000s) $240
9,500 units completed16%Y-O-Y

Year-over-Year Growth
Units (000s)

$180
12 • The pace of construction slowed over the 8%
12-month period ended
in September as about 3,100 fewer apartments were delivered than
$120 0%
6 during the prior annual span.

0 $60 • Development was heaviest within the District,

-8% as more than 1,000
units were completed in both the Northeast D.C. and the Navy Yard/
-6 $0 Capitol South submarkets. Fewer than 300 apartments opened near
-16%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
Tysons Corner and Reston, compared with roughly 3,300 a year ago.

Vacancy Rate Trends

Metro United States VACANCY
10%
70 basis point decrease in vacancy Y-O-Y
8%
Vacancy Rate

• Over the past four quarters vacancy fell to 3.4 percent, its lowest
level since 2005. Availability declined the most in Suburban
6%
Maryland, 80 basis points to 3.5 percent, followed by a 70-basis-
point decrease to 3.2 percent in Northern Virginia.
4%
• Vacancy also dipped 30 basis points within the District to 3.6
2% percent, led by a 100-basis-point drop in Northwest D.C. to 3.8
09 10 11 12 13 14 15 16 17 18 19*
percent. Availability is tightest at 2.4 percent in Southeast D.C.

Rent Trends
Monthly Rent Y-O-Y Rent Change RENT
$1,800 12%
3.8% increase in the average effective rent Y-O-Y
Year-over-Year Change
Monthly Effective Rent

$1,600 9% • The average effective rent for the metro climbed to $1,821 per unit at
the end of the third quarter, building upon a 3 percent gain from last
$1,400 6% year. Rent growth was widespread as rates improved by more than 3
percent in the District, Northern Virginia and Suburban Maryland.
$1,200 3%
• Fewer completions in College Park, Frederick, Gaithersburg and Ty-
$1,000 0% sons Corner/Falls Church/Merrifield supported year-over-year rent
09 10 11 12 13 14 15 16 17 18 19* growth in excess of 5 percent, leading other submarkets.

* Forecast
Source: CoStar Group, Inc.
Demographic Highlights

3Q19 Median Household Income 3Q19 Affordability Gap Multifamily (5+ Units) Permits

Metro $104,359 Renting is $347 Per Month Lower 13,663 1H 2019

U.S. Median $65,205 Average Effective Rent vs. Mortgage Payment* g 25% Compared with 1H
2016-2018

3Q19 Median Home Price Five-Year Household Growth** Single-Family Permits

Metro $434,377 142,000 or 1.2% Annual Growth 12,793 1H 2019

Compared with 1H
U.S. Median $272,227 U.S. 1.0% Annual Growth h 7% 2016-2018

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2019-2024 
Annualized Rate

SUBMARKET TRENDS SALES TRENDS

Sale Prices and Cap Rates Hold Steady as
Lowest Vacancy Rates 3Q19** Transaction Velocity Rises in Virginia, Maryland
Employment Trends Local Apartment Yield Trends
Metro United States • Annual transaction velocity
Apartment improved by 10-Year
Cap Rate roughlyTreasury
15 percent
Rateyear
Y-O-Y Average over year in September as a larger number of assets changed hands in
4% Vacancy Y-O-Y %
Submarket Basis Point Effective 12%
Rate Change Northern Virginia and Suburban Maryland.
Change Rent
Year-over-Year Change

2%
• The metro’s average
9% sale price rose by less than 2 percent year over
Southeast D.C. 2.4% -30 $1,216 3.5%
year to $204,800 per unit as a higher number of trades occurred in
Rate

0%
North Arlington 3.1% -50 $2,481 4.6% submarkets with
6% lower entry costs. Cap rates inched up over the same
span from the low-5 percent zone to 5.3 percent in September.
-2%
Central D.C. 3.4% -30 $2,542 3.2% 3%
Outlook: Investors based in low-yield markets such as San Francisco or
New York City continue to pursue opportunities in D.C., primarily outside
-4%
Rockville/North Bethesda 3.4% -110 $1,959 2.9% 0%
09 10 11 12 13 14 15 16 17 18 19* the District where cap01rates
03 generally
05 07lie above
09 11the market
13 15 average.
17 19*

Tysons Corner/Falls Church/

3.4% -80 $2,040 5.6%
Merrifield
Completions and Absorption Sales Trends
South Fairfax County 3.7% -70
Completions $1,726
Absorption 4.0% Sales Price Growth
Average Price per Unit (000s)

$240 16%
Northeast D.C. 18 3.8% -60 $2,321 4.1%
Year-over-Year Growth
Units (000s)

$180 8%
Northwest D.C. 12 3.8% -100 $2,243 3.9%

$120 0%
South Prince George’s 6
3.9% -60 $1,404 3.2%
County/St. Charles
0 $60 -8%

Reston/Herndon 4.1% 0 $1,911 3.1%

-6 $0 -16%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
Overall Metro 3.4% -70 $1,821 3.8%
* Trailing 12 months through 3Q19
** Includes submarkets with more than 19,000 units of inventory Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
10%
 CAPITAL MARKETS
1H19 Apartment Acquisitions By DAVID G. SHILLINGTON, President,
By Buyer Type Marcus & Millichap Capital Corporation
Other, 1.6% Cross-Border, 7.5% • Fed cuts rate again, while balancing assortment of factors. The Federal
Reserve cut the overnight rate by 25 basis points at the end of October, the third
Equity Fund
& Institutions, 18.9% reduction in less than 100 days in an attempt to lengthen the economic runway.
Muted inflationary pressure and continued trade negotiations have boosted the
probability for an additional rate cut in December as it is anticipated by some
Listed/REITs, 5.0% domestic and foreign markets. However, at the end of October, the U.S. and China
Private, 67.0%
were in talks for finalizing the first phase of a trade deal, potentially erasing the
Salt Lake City Office: need
Tampa for another rate reduction if the preliminary agreement quickly comes to
Office:

Phil Brierley Regional Manager fruition.

Ryan Nee This, along
District with positive economic indicators like strong wage growth,
Manager
111 South Main Street, Suite 500 sustained job creation
201 North Franklin and a rising 10-year Treasury, will continue to make future
St., Suite 1100
Salt Lake City, UT 84111 Apartment Mortgage Originations Tampa, FL 33602
decisions diffi cult for Fed members as they balance the array of forces tugging at
(801) 736-2600 | phil.brierley@marcusmillichap.com
By Lender (813) 387-4700 | nee.ryan@marcusmillichap.com
both ends of possible outcomes. Global developments including slowing Euro-
100% pean economies as well as the progression of Brexit and its potential aftermath
will also help determine future Fed decisions. Though recession risks remain, the
Percent of Dollar Volume

San Antonio Office: Gov't Agency

75%
Financial/Insurance
economy’s solid foundation has softened it in recent months, signaling continued
Craig R. Swanson Vice President/Regional Manager Nat'l Bank/Int'l Bank domestic growth in the near future.
Toronto Office:
8200 IH 10 W, Suite 603 50%
Reg'l/Local Bank
San Antonio, TX 78230 • Abundant liquidityBroker
Mark A. Paterson balances conservative
of Record underwriting.
| Vice President/Regional Manager Debt financing for
(210) 343-7800 | craig.swanson@marcusmillichap.com CMBS 200 King Street W., Suite 1210
25% apartment assets remains strong, supported by a variety of lenders. Fannie Mae
Toronto, ON M5H 3T4
and
(416)Freddie
585-4646 Mac, two mainstay apartment capital sources, were recently given
| mark.paterson@marcusmillichap.com
0% increased lending caps, allowing the two Government Sponsored Enterprises
15 16 17 18 1H19 to purchase $100 billion in loans during a yearlong period that started at the
San Diego Office:
beginning of the fourth quarter 2019. A wide range of local, regional and national
Includes sales $2.5 million and greater
Spencer Moyer Regional Manager
Sources: CoStar Group, Inc.; Real Capital Analytics banks; pension funds; insurance companies and CMBS sources will also remain
4660 La Jolla Village Drive, Suite 900
San Diego, CA 92122 active. All have responded to the falling interest rate climate by reducing mort-
(858) 373-3100 | spencer.moyer@marcusmillichap.com Vancouver Office:
gage rates, but lender spreads have widened as the 10-year Treasury rate remains
John
near Vorsheck
cycle lows. Given
Senior the downward pressure
Vice President/Division Manageron interest rates, lender caution
National Multi Housing Group 333 Seymour Street, Suite 1280
has risen, particularly for construction
Vancouver, British Columbia V6B 5A6
loans. Though lending is still available for
John Sebree these types of| john.vorsheck@marcusmillichap.com
(604) 638-2121 projects, investors may need to blend mezzanine debt with other
First Vice President, National Director | National Multi Housing Group
capital sources until they prove out their concepts and substantially fill units. For
Tel: (312) 327-5417 | john.sebree@marcusmillichap.com
stabilized existing assets in most major markets, financing remains plentiful.
San Francisco Office:
Prepared and edited by
Ramon Cody
Kochavi
Young
First Vice President/Regional Manager
750 BatteryResearch
Street, Fifth Floor
Analyst | Research Services
San Francisco, CA 94111
(415) 963-3000 | ramon.kochavi@marcusmillichap.com Washington, D.C., Office:
For information on national apartment trends, contact:
John Chang Bryn Merrey Senior Vice President/Division Manager
7200 Wisconsin Avenue, Suite 1101
Senior Vice President, National Director | Research Services
Bethesda, MD 20814
Tel: (602) 707-9700 | john.chang@marcusmillichap.com (202) 536-3700 | bryn.merrey@marcusmillichap.com
San Jose Office:

Steven J. Seligman First Vice President/Regional Manager

Price:
2626 Hanover $250
Street
Palo Alto, CA 94304
(650) 391-1700 | steven.seligman@marcusmillichap.com
© Marcus & Millichap 2019 | www.MarcusMillichap.com

West Palm Beach Office:

Ryan Nee First Vice President/Regional Manager

5900 North Andrews Ave., Suite 100
Fort Lauderdale, FL 33309
(954)
The information contained in this report was obtained from sources deemed to be reliable. Every effort was 245-3400
made | ryan.nee@marcusmillichap.com
to obtain accurate and complete information; however, no representation, warranty or guarantee,
express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data
includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide
specific investment advice and should not be considered as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody’s Analytics; Real Capital Analytics; RealPage, Inc.; TWR/Dodge
Pipeline; U.S. Census Bureau

Oakland Office:

David C. Nelson Regional Manager