Multifamily Rents Expected To Rebound Next Year As Development Pipeline Slows
As multifamily construction has soared during the past couple of years, rent growth has been slow to pick up, but Cushman & Wakefield's Q2 multifamily report predicts a rebound in rent growth next year as deliveries return to historical norms.
Asking rents for Q2 grew by 4% in the DC Metro area compared to last year, but effective rates lagged behind at 2.9% growth. The report says this gap between asking and effective rates is even larger in the competitive submarkets of Tysons, Adams Morgan/Dupont Circle and Bethesda. It attributes this lag in effective rent growth in these areas to "abnormally high vacancy rates" (14% in Tysons, 10% in Bethesda), but anticipates the gap will tighten next year.
"As the development pipeline becomes more restrained over the next year, rent growth is expected to experience an immediate impact," the report says, "and is projected to rebound as early as late 2017 and into early 2018, sooner than originally anticipated."
Multifamily supply in the last three years has far outpaced historical norms, with 26,000 units delivered in 2014 and 2015. The report says 2017 should see a return to the norm with roughly 9,000 units delivered. Demand has largely been able to keep up with the pace of construction as the region experiences record population growth.
The overall Q2 vacancy rate was 4.6%, down 0.1% year-over-year. Northern Virginia has the highest vacancy at 5.7%, while DC has 4.3% and suburban Maryland has 4% vacancy.
The biggest per-unit sale of the year so far has been Flats 8300 in Bethesda, above, which Stonebridge Carras and Walton Street Capital sold for $207M, or $576k per unit.
