What’s Driving D.C.’s Booming Multifamily Market?

While many multifamily markets across the country experienced downturns in the early days of the pandemic, in Washington, D.C., the recovery was swift and dramatic. Starting in Q2 2021, apartment demand in the D.C. area had not only bounced back from any pandemic-related hits but had skyrocketed to all-time highs. 

“In the high-demand submarkets we focus on, including the 14th Street corridor, Rosslyn-Ballston corridor, NoMa, Navy Yard and beyond, we’re seeing great momentum,” said Samuel Goodman, director at MAC Realty Advisors, a D.C.-based brokerage firm that has closed over $6B of multifamily land sales, joint venture equity investments and financings. “Rent growth, high occupancy rates, the reduction and elimination of concession packages, robust pipeline — it all points to a strong multifamily market.” 

Goodman, MAC Realty Senior Director Nick Rubenstein and MAC principal and co-founder Andrew McAllister said that they believe the continued success of the D.C.-area multifamily market comes down to one powerful fact: People just want to live there. 

“We will always see renter demand in desirable areas with a strong amenity base,” Rubenstein said. “D.C. has the bars, restaurants, cultural attractions, entertainment venues and employment that draw in a younger crowd, that wants to be where the action is.” 

He added that many young professionals are being priced out of the for-sale market due to limited supply in prime submarkets. For potential first-time buyers, especially in major urban areas, $2M is the new $1M, and even then, there is no guarantee that the home won’t require major renovations. 

“Young renters are more interested in turnkey properties that are move-in ready, which is one factor that pushes them toward rentals and keeps them in the rental housing market longer,” he said. 

In addition to capital market transactions, MAC Realty specializes in institutional multifamily land sales in the Washington, D.C., Metro market. McAllister said that his team has been seeing a wider range of land buyers — from the local entrepreneurial groups to the regional developer to the name-brand national developers — showing renewed interest in this booming multifamily hub. He said one thing driving growth, is that unlike some other major cities in the Northeast and California, D.C. has many of the same demand drivers as cities like Phoenix, Tampa and Nashville, but with the high stability of an established core, gateway market. 

He added that the market is so popular, buyers are recalibrating their investment criteria to close deals. While historically, most developers prefer to close on the land at construction start to avoid cost and entitlement risks, MAC is seeing buyers entering into land purchases earlier to both win competitive deals and maintain their development pipeline. 

“For prime submarkets in the D.C. Metro area, especially in Northern Virginia, investors are realizing lower exit cap rates, which gives developers the flexibility to accept lower development yields,” Goodman said. “They understand that this market has what it takes to perform well for them in both the short and long term.”

McAllister added that current events will likely drive up government spending, which usually leads to an influx of interest in the D.C. market. 

“There's an economic base in D.C. that’s supported by the foundation of the federal government and the ecosystem that goes with it,” Rubenstein said. “But in Northern Virginia, we see a growing tech base and in Maryland, we see a maturing life sciences hub. As other industries continue to expand the area’s economic prospects and bring in a new population of renters, demand will continue to grow.” 

He added that more demand leads to stronger rent growth, which leads to higher pricing for asset sales. This means that developers can absorb rising constructions costs without diminishing the land valuation and still hit their targeted returns.

MAC has seen the impact of this booming D.C. market firsthand. In 2021, one long-term MAC client turned to the firm to work on $400M in three transactions that totaled over 1,600 apartment units. According to Goodman, many of MAC's clients relied on the firm during the pandemic because their go-to sources of capital were either not in the market or were re-evaluating their strategies. 

“They turned to MAC to help them go broader, bring in new sources of capital, do a deeper dive into the capital market space and find ways to get transactions closed,” he said 

And the company is further showing its commitment to the market by signing a lease at MRP Realty and Westbrook Partners' 2000 Pennsylvania Ave. NW. 

“MAC Realty plans to capitalize on this growing momentum,” said Bruce Levin, principal and co-founder. “We intend to expand our investment sale business and take our expertise in raising equity to other regions while continuing to provide our clients an institutional quality execution with boutique level service.” 

This article was produced in collaboration between MAC Realty Advisors and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.