MARKET REPORT

MULTIFAMILY
Washington, D.C., Metro Area Q2/19
Amazon HQ2 Boosts Rental Outlook in Arlington;
Construction Continues to Transform Navy Yard Multifamily 2019 Outlook

An expanding construction pipeline minimally impacts vacancy. CONSTRUCTION:

A growing and diversifying workforce sustains apartment demand in Deliveries expand from 2018 as more
Washington, D.C., which has kept the vacancy rate under 5 percent since than 5,000 units will open collectively in
2014 despite ongoing construction. That trend will continue this year.
After a brief slowdown in late 2018, annual openings will achieve their
13,600 UNITS
will be completed
the Navy Yard and Northeast D.C. neigh-
borhoods by year end.
highest level in half a decade in 2019. Developers are most active in the
Navy Yard/Capitol South submarket, where more than 3,000 units are
expected to arrive by December, a 20-year record. The development
pipeline is also accelerating in North Arlington with about 1,200 open- VACANCY:
ings. Both areas began the year with below-market vacancy, limiting the
Greater development activity pushes the
construction’s effect on the metro’s overall availability.
vacancy rate up to 4.7 percent this year. In

Amazon’s National Landing offices a boon for nearby apartments. The

20 BASIS POINT
increase in vacancy
2018 availability declined 40 basis points.

tech giant’s future facilities in Crystal City and Pentagon City are likely
to improve rental demand over the next several years in the Greater
Arlington and Alexandria areas. Projects already in the construction
pipeline for 2019 will open in a positive leasing environment as substan- RENTS:
tial HQ2 hiring is expected to begin in 2020. Both the Columbia Pike and
Rent growth slows from the 3.5 percent
Crystal City/Pentagon City submarkets are welcoming new rentals this
increase registered in 2018 as the average
year after receiving no arrivals in 2018. The number of completions in
East Alexandria is also doubling year over year to 900 units. Across these
3.1% INCREASE
in effective rents
effective rent advances to $1,791 per
month this year.
three submarkets, another 2,500 apartments are planned or proposed
for delivery in 2020 or 2021.

Investment Trends
• Unlike in previous years, more transactions were completed over the
Local Apartment Yield Trends
past 12 months in Maryland than in the District. Assets in Frederick
Apartment Cap Rate 10-Year Treasury Rate
County and around College Park changed hands most frequently.
12% Below-market entry costs and cap rates 70 or more basis points above
the metro’s low-5 percent average draw buyers. Several neighbor-
9% hoods, including College Park, fall in opportunity zones, an added ben-
efit to investors considering substantial property improvements.
Rate

6%
• Class B and C garden-style apartments are becoming more popular
investment options around the metro. Many of these properties cater
3%
to a large pool of renters priced out of contemporary Class A stock.

0%
01 03 05 07 09 11 13 15 17 19*
• The transformation of the old Ballston Common Mall into the Ball-
9*
ston Quarter live-work-play district may be inciting new investment
nearby. As many properties have changed hands here over the past few
months as traded in the preceding 10 years. Most of the assets were
Sales Trends
Class A or B buildings with initial yields in the mid-4 percent band.
Sales Price Growth
* Cap rate trailing 12-month average through 1Q; Treasury rate as of March 29
er Unit (000s)

$220 Inc.; Real Capital Analytics

Sources: CoStar Group, 30%
Year-over-Y

$180 15%
 Employment Trends
1Q19 – 12-Month Period
Local Apartment Yield Trends
Metro United States Apartment Cap Rate EMPLOYMENT
10-Year Treasury Rate
4%
12%
0.9% increase in total employment Y-O-Y
Year-over-Year Change

2%
•
9% Employers created 29,800 jobs over the past 12 months, a modest
decline over the previous annual period when payrolls grew by

Rate
0%
6% 34,200 personnel.

-2% • Hiring was led by companies in the business and professional

3%
services sector as well as in the leisure and hospitality sector,
-4% 0%
who added a combined 29,700 people. Education and health
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*
service providers also hired about 6,000 personnel.

Completions and Absorption Sales Trends

Completions Absorption Sales CONSTRUCTION
Price Growth

18 Average Price per Unit (000s)

$220
11,000 units completed30%
Y-O-Y

Year-over-Year Growth
$180 • A slowdown in completions during the first15%
quarter of 2019
Units (000s)

12
contributed to an overall contraction in the development pipeline
$140 0%
6 for the year ended in March.

0 $100 • Despite the marketwide moderation in construction,

-15% total deliveries
rose year over year in several areas, including Rockville, Reston and
-6 $60 Central D.C. The 510-unit Signature in Reston
-30% represents the largest
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 arrival
individual 12 13 during
14 15 this
16 time
17 period.
18 19*

Vacancy Rate Trends

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

• Fewer openings that fell short of net absorptions reduced the

metro vacancy rate to 4.5 percent at the end of the first quarter,
6%
undoing a 20 basis-point increase from 12 months before.

• A cycle-high level of completions in Reston for 2018 contributed

4%
to a 40-basis-point rise in the submarket’s vacancy rate in March.
Availability remains under 4 percent in Southeast D.C. as well as
2%
09 10 11 12 13 14 15 16 17 18 19* certain parts of northern Virginia and Maryland.

Rent Trends
Monthly Rent Y-O-Y Rent Change RENTS
$1,800 12% 3.4% increase in the average effective rent Y-O-Y
Year-over-Year Change
Monthly Effective Rent

$1,600 9% • The average effective rent climbed to $1,752 per month over the
past four quarters after posting a 2.3 percent increase a year ago.
$1,400 6%
• Rent growth has been highest inside the District, where monthly rates
appreciated 4.0 percent. There were larger gains in some of the neigh-
$1,200 3%
borhoods with the most active development, including in Navy Yard
$1,000 0%
and Northeast D.C. The average effective rates for northern Virginia
09 10 11 12 13 14 15 16 17 18 19* and Maryland advanced 3.5 and 3.3 percent, respectively.

* Forecast
Sources: Marcus & Millichap Research Services; CoStar Group, Inc.
 Demographic Highlights

Five-Year Population Growth* 1Q19 Population Age 20-34 1Q19 Median Household Income
(Percent of total population)
273,100 $103,389
Metro 21% Metro

U.S. Median $64,259

U.S. 21%

1Q19 Total Households

Five-Year Household Growth* Population of Age 25+ Rent 36%

Percent with Bachelor’s Degree+**
149,600
Metro 49% Own 64%
U.S. Average 30%
* Forecast ** 2018-2023

*2018-2023

SUBMARKET TRENDS SALES TRENDS

First-Year Returns Hold Steady as More
Lowest Vacancy Rates 1Q19
Employment Trends Investors Consider Opportunities
Local Apartment in Maryland
Yield Trends
Metro Y-O-Y United States
Average
• Transaction velocity reached
Apartment its highest 10-Year
Cap Rate point ofTreasury
the current
Rate cycle last
Vacancy Y-O-Y %
Submarket 4%
Rate
Basis Point Effective
Change
year as more capital flowed into the Maryland portion of the market,
Change Rent 12%
where lower entry costs contributed to a small dip in the average sale
Year-over-Year Change

2% price to $181,400 per unit.

Southeast D.C. 3.0% -40 $1,205 3.3% 9%
• Over the course of 2018, the average cap rate did not substantially
Rate

Columbia Pike 0% 3.2% -110 $1,780 2.1% move, remaining

6% in the low-5 percent band.

Hyattsville/Riverdale-2% 3.4% -10 $1,379 3.1% Outlook: Concerns of slowing economic growth nationally may direct
3%
more out-of-market investors to consider D.C., whose apartments exhibit-
Seven Corners/Baileys
-4% 3.7% -70 $1,626 0.0% ed relatively stable performance during the last recession.
Crossroads/Annandale 0%
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*
East Silver Spring/
3.8% 20 $1,388 1.8%
Takoma Park/Adelphi

North Arlington Completions

3.9% and Absorption
-100 $2,328 4.7% Sales Trends
Completions Absorption Sales Price Growth
West Alexandria 4.0% -60 $1,633 3.8%
Average Price per Unit (000s)

$220 30%
18
Year-over-Year Growth

West Fairfax County 4.0% -80 $1,776 3.4%

Units (000s)

$180 15%
12
Downtown Silver Spring 4.1% -60 $1,812 1.7%
$140 0%
6
Woodbridge/Dale City 4.1% -80 $1,430 2.0%
0 $100 -15%
Fredericksburg/Stafford 4.3% -10 $1,299 5.1%
-6 $60 -30%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
Overall Metro 4.5% -40 $1,752 3.4%

* Trailing 12 months through 1Q

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
10%
 1Q19* Apartment Acquisitions CAPITAL MARKETS
By Buyer Type
By DAVID G. SHILLINGTON, President,
Other, 0.9% Cross-Border, 8.6%
Marcus & Millichap Capital Corporation
• International pressures weigh on domestic outlook; Fed remains
Equity Fund
& Institutions, 23.5%
patient. Amid ongoing trade disputes between the U.S. and China
and slowing growth throughout the European economy, the global
economic outlook has become more cautious. Market volatility,
Private, 64.1% combined with muted sentiment, has sponsored a flight to the safety
Listed/REITs, 2.9%
of Treasurys, pushing the 10-year yield below 2.6 percent. While
domestic growth has moderated recently, the waning impact of the tax
cut stimulus will likely trim forward estimates further. As a result, the
Apartment Mortgage Originations Fed has decided to cease reducing its balance sheet reduction through
By Lender quantitative tightening by September and removed the potential for
rate increases through the remainder of the year. The bond market
100%
has begun to price in a much more dovish Fed, with flattening interest
Salt Lake City Office: Tampa Office:
Percent of Dollar Volume

Gov't Agency rates reflecting more caution. Fed officials will likely focus on the
75%
Phil Brierley Regional Manager Financial/Insurance Bryn Merrey Senior
intersection of aVice
global growth slowdown
President/Division Manager and continued labor market
111 South Main Street, Suite 500 201 North Franklin St., Suite 1100
Nat'l Bank/Int'l Bank strength to refi ne their plans moving forward, keeping interest rates
Salt Lake City,
50%UT 84111 Tampa, FL 33602
(801) 736-2600 | phil.brierley@marcusmillichap.com Reg'l/Local Bank stable
(813) for| bryn.merrey@marcusmillichap.com
387-4700 the foreseeable future.
CMBS
25% • Abundant liquidity sources balance conservative approach to
underwriting. The availability of debt for apartment assets remains
San Antonio 0%
Office: elevated, spurred by the recent pivot by the Federal Reserve. Sourcing
14 15 16 17 18
Craig R. Swanson Vice President/Regional Manager will be led by Fannie Mae and Freddie Mac, in addition to a wide
Toronto Office:
8200 IH 10 W, Suite 603 array of local, regional and national banks, and insurance companies.
* Trailing
San Antonio,12TX
months
78230through 1Q19
Includes sales $2.5 million and greater Mark A. Paterson(LTV)
Loan-to-value Broker of Recordare
ratios | Vicetrending
President/Regional
between Manager
65 and 75 percent
(210) 343-7800 | craig.swanson@marcusmillichap.com 200 King Street W., Suite 1210
Sources: CoStar Group, Inc.; Real Capital Analytics
on stabilized
Toronto, ON M5H 3T4properties. The decline in interest rates has rewidened
(416)
the585-4646
spread | mark.paterson@marcusmillichap.com
between cap rates and Treasurys, reducing lender concerns
about the risks related to repayment and valuation at maturity.
San Diego Office: Development and value-add projects have seen more conservative
National Multi Housing Group lending due to concerns surrounding overdevelopment and the length
Spencer Moyer Regional Manager
John
4660 LaSebree
Jolla Village Drive, Suite 900 of the business cycle, leading to a greater use of alternative financing
San
FirstDiego, CA 92122 National Director | National Multi Housing Group
Vice President, structures such as mezzanine loans and preferred equity to cover the
(858) 373-3100 | spencer.moyer@marcusmillichap.com Vancouver Office:
Tel: (312) 327-5417 | john.sebree@marcusmillichap.com
additional capital requirements.
Rene H. Palsenbarg Broker of Record | Regional Manager
Prepared and edited by 400 Burrard Street, Suite 1020
Cody Young Vancouver, BC V6C 3A6
(604) 675-5200 | rene.palsenbarg@marcusmillichap.com
Research Associate | Research Services

For information on national apartment trends, contact:

San Francisco Office:
John Chang
Ramon
Senior ViceKochavi
President, National
First ViceDirector | Research Services
President/Regional Manager
750
Tel:Battery Street, Fifth
(602) 707-9700 Floor
| john.chang@marcusmillichap.com
San Francisco, CA 94111
(415) 963-3000 | ramon.kochavi@marcusmillichap.com Washington, D.C., Office:

Price: $250 Matthew Drane Regional Manager

7200 Wisconsin Avenue, Suite 1101
Bethesda, MD 20814
© Marcus & Millichap 2019 | www.MarcusMillichap.com
(202) 536-3700 | matthew.drane@marcusmillichap.com
San Jose Office:

Steven J. Seligman First Vice President/Regional Manager

2626 Hanover Street
Palo Alto, CA 94304
(650) 391-1700 | steven.seligman@marcusmillichap.com
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made 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
Westemployment growth
Palm Beach is calculated based on the last month of the quarter/year. Sales data
Office:
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.
Ryan Nee First Vice President/Regional Manager
5900 North Andrews Ave., Suite 100
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association
Fort of Realtors;
Lauderdale, FL 33309Moody’s Analytics; Real Capital Analytics; RealPage, Inc.; TWR/Dodge
Riverside-San Bernardino Office:
Pipeline; U.S. Census Bureau (954) 245-3400 | ryan.nee@marcusmillichap.com
Matthew Luchs Regional Manager
3281 East Guasti Road, Suite 800
Ontario, CA 91761
(909) 456-3400 | matthew.luchs@marcusmillichap.com