Apartment Developers Compete For Tenants In D.C.'s Supply-Heavy Waterfront Market

Apartment vacancy has risen across the District as the coronavirus pandemic has depressed demand over the last year, and the market has been especially competitive in the city's fast-developing waterfront neighborhoods.

The Southeast and Southwest D.C. waterfront neighborhoods have led the region in new apartment deliveries over the last year, and landlords are having to ramp up concessions to compete for tenants. 

While the market has been as competitive as ever, landlords are optimistic they will see a strong surge in demand this spring and summer as the weather warms up and more of the population receives vaccinations. 

"It's super competitive, there's a lot of really awesome product down there all over the neighborhood," MRP Realty principal John Begert said. "We feel like the worst is behind us, but that remains to be seen."

Last year, 13 buildings totaling 3,929 market-rate units delivered in the submarket that includes Southwest, Capitol Riverfront and Capitol Hill, according to Delta Associates. This was the most of any submarket in the D.C. area. 

The deliveries included MRP's The Maren, a 264-unit building that delivered in March across the street from Nationals Park. The building is now 91% leased, Begert said. 

The submarket also led the District in leasing demand, with 1,135 units of positive absorption during 2020, according to Delta Associates. But with supply outpacing demand, the market became much more competitive. 

The vacancy rate for stabilized, Class-A apartment buildings in the submarket rose from 4.9% to 12.2% over the course of 2020, and effective rents dropped by 19.2%. Effective rents factor in concessions, which landlords say are the most common way they have been competing for tenants.

"COVID has had an outsized impact on the apartment market in D.C. proper, and the Capitol Hill-Capitol Riverfront-Southwest submarket, which has the most inventory of any submarket in the city, is feeling the impact of the pandemic and what it has done to the apartment market," Delta Associates President Will Rich said. 

The apartment market in the D.C. suburbs outperformed the District last year, and low-rise buildings outperformed high-rise buildings. The new apartments in D.C.'s waterfront areas are predominantly high-rise buildings, Rich said. 

"With the nature of the pandemic and the need to socially distance, it's more difficult in a high-rise building than it is for garden-style and mid-rise buildings with larger units," Rich said. 

Rich said the positive absorption in the area shows that it is still a desirable place to live. 

WC Smith Vice President Samantha Branchaud, who oversees leasing at the three-building, 1,140-unit development The Collective, also said renters still view the neighborhood as an attractive area. 

"The fact that Capitol Riverfront has the stretch of water there, and some nice parks, that has certainly driven people to neighborhoods like that," Branchaud said. "If they’re outdoors and can walk along the water, that is preferred to a more congested urban environment."

In September, WC Smith began leasing at The Collective's third and final building, branded as The Garrett. Branchaud said the 373-unit building was 31% leased as of last week, and it has had an absorption pace of 21 units per month.

This has been a relatively strong leasing pace for the winter, she said, but the landlord has had to increase the concessions it offers to tenants. She said it is offering one month free rent for tenants that sign leases of up to 17 months, and two months free rent for leases of 18 months or longer.

"We’ve really seen an increase in concessions. Part of it is due to a lot of supply in a particular submarket and it’s just more competitive for that traffic that’s out there looking," Branchaud said. "Certainly it is a challenging environment for most of us."

She said The Collective has also experienced an increase in tenants moving out over the last year, a trend she attributed to people switching from renting to owning and taking advantage of low interest rates to purchase a home. Branchaud has also seen a trend of tenants switching units within the building to move into a larger apartment, and she said the studio apartments have had the least demand.  

Another large-scale Capitol Riverfront apartment project welcomed its first residents in Q4: Tishman Speyer's 818-unit Crossing. 

The development's 410-unit east tower delivered in October and it is now more than 25% leased, according to a Tishman Speyer spokesperson, and the 408-unit west tower is scheduled to deliver early next year. 

It is difficult to ascertain the effects of the pandemic because the project opened at the start of the winter, a typically slow leasing season, Tishman Speyer's spokesperson said.

"We haven't really been leasing long enough to see the true effects," the spokesperson wrote in an emailed statement. "That said, it is without a doubt that the pandemic has had an impact on absorption in the market. We have been encouraged by the continued demand to live in the Navy Yard and the leasing performance the market has had weathering the pandemic."

The waterfront's Buzzard Point neighborhood also welcomed two new apartment buildings last year: Akridge's 480-unit RiverPoint and Douglas Development's 453-unit Watermark. 

Additional 2020 deliveries in the waterfront area included 10K, a 305-unit building from Related Cos. and Ruben Cos. that served as the second phase to their One Hill South project. The 10K building is offering up to two months free rent, according to its website. 

A 312-unit building from Jair Lynch Real Estate Partners delivered in June, one block north of Nationals Park. The building, branded as The Kelvin, is also offering up to two months of free rent, according to its website. 

In February 2020, Brookfield began leasing at The Estate, a 264-unit apartment building and the latest one to deliver at The Yards. Brookfield declined to share leasing numbers for its buildings, but Senior Vice President of Development Toby Millman, in an emailed statement, said leasing has been strong.

"We are lucky that all of our buildings at The Yards began leasing before the pandemic and already had strong leasing numbers," Millman said. "While we experienced a slower period than normal due to the pandemic like the rest of the city, we started off in a good position and that's carried us through these past several months."

Bozzuto, which manages several waterfront buildings including RiverPoint and The Kelvin, has used various types of concessions to avoid reducing rental rates, including gift cards, reimbursement of moving costs and furnished apartment packages, Bozzuto Managing Director of Operations JoLynn Scotch wrote in emailed responses to Bisnow questions.

"Not unlike other neighborhoods in D.C., the pandemic has led to increased vacancy rates," Scotch said. "We are beginning to see the early signs of recovery with an increase of prospect visits and leases in the first quarter of 2021."

Scotch said she expects demand will continue to improve during the typically busy spring and summer leasing seasons. One advantage the Capitol Riverfront area has over other neighborhoods is its proximity to the U.S. Capitol, and the influx of new Congress members and Biden administration staffers this year is expected to increase apartment demand. 

"A widely available vaccine, the new administration, renewed energy in the city, return of students to universities and return to the office in some form will all boost demand," Scotch said. 

Millman also said he expects activity will increase in the spring and summer months. 

"With the vaccine rollout, people are eager to have a new start and are craving spaces that offer more open-air access than ever, which we have in spades at The Yards," Millman wrote in an emailed statement. 

Branchaud said she is hopeful demand will increase during the warm weather months as the vaccine distribution continues and people become more interested in moving into apartment buildings. 

"We're seeing some glimmers of hope now," Branchaud said. "With summer always comes a bit of an increase, and we're hopeful that by September we start to see more recovery." 

Begert said he has seen activity increase over the last two months at MRP's The Maren and Dock 79, and he expects that will only continue as the weather improves and more people are vaccinated. 

"I think D.C.'s going to pop the top here this summer," Begert said. "There's a lot of pent-up demand."

The drop in effective rents does come with a silver lining, Begert said. It has drawn in some renters who couldn't previously afford to live in the waterfront neighborhood, providing a bump in demand. 

"What you're seeing is some people are able to move into the market where previously they couldn't because effective rents are down a little, so they're reaching to a market that they couldn't have got to a year ago," Begert said. "That's helped a market like Capitol Riverfront and assets like Dock 79 and The Maren hang on."

Rich said he doesn't expect the waterfront submarket's vacancy rate will increase further this year, as it will likely see greater demand. But it still must contend with the heavy influx of supply, with eight more buildings and 1,632 units expected to deliver in the Capitol Hill-Capitol Riverfront-Southwest submarket this year. 

Another three projects totaling 899 units broke ground in the area in 2020 despite the challenges caused by the pandemic, according to Delta Associates.

One of those projects was MRP's 1800 Half St. SW project on Buzzard Point. Begert said the 344-unit building is scheduled to deliver in spring 2022. He believes the market will have largely recovered by that point, but he still expects leasing will be a bit slower in the emerging Buzzard Point area than it is next to the ballpark.

"It's not going to be easy," Begert said. "It's a whole extension of the riverfront that's going to take time, so we're realistic about that, but we're a long-term holder. We see more growth in years four and five than we do in the next two to three years in that market." 

Rich said he has seen developers continue to move forward with projects in the waterfront area as they remain bullish on its future growth.

"They all realize COVID has choked the apartment market and it won't be permanent as far as the closure of the restaurants and the baseball and soccer stadiums," Rich said. "There are lots of reasons why people like to locate in this submarket, and when those amenities are available once again, the submarket will be able to recover some of the losses that have occurred due to the pandemic."