Stabilized vacancy for investment grade apartments (Class A and B*) is nation-pacing at 3.5%, up only slightly from a year ago. With the national rate at 5.4%, Washington has the third lowest vacancy of any major metro area in the nation, behind only Philadelphia and New York.
Rents for all investment grade apartments were up 2.5% for the 12 months ending June 2012. Class A rents rose 3.0% over the past year, compared to an increase of 5.6% during the preceding year.
Annual Net Absorption, at 3,580 Class A and B apartments (65% of our long term average), continues to measure well below the region’s long-term average. The Class A market absorbed 3,851 units over the past 12 months.
Concessions at Class A projects edged lower, following a pattern first seen in this cycle in the first quarter of 2010. At mid-year 2012, concessions were 1.9% of face rent compared to 2.9% at mid-year 2011.
The development pipeline reached a cyclical low of 16,606 as of year-end 2009. Since then improving market fundamentals and financing pushed the pipeline to 34,449 units at year-end 2011. At mid-year 2012, the number declined slightly to 32,612 as the market became aware of the threat of overbuilding. Starts slowed with 1,976 units breaking ground this quarter compared to 3,684 in the first quarter of 2012.
In 2011, construction came roaring back with 14,827 units breaking ground – the highest recorded by Delta in 18 years. An additional 3,684 units in 15 projects began construction in the first quarter of 2012. Lenders have begun to tighten access to credit, slowing construction starts this quarter to eight projects containing 1,976 units. This trend will likely continue in the second half of 2012.
*Class A units are defined as luxury units that are usually less than ten years old, are generally located in highly desirable geographic areas, and can garner high rents.
Class B units are usually 10-25 years old and are well-maintained.
