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Employment: Employment metrowide will grow by 51,000 jobs in 2011, representing a 1.8 percent increase. Unlike previous years, the private sector will be the catalyst for job growth in 2011. Last year, 10,300 jobs were added in the metro.
Construction: Developers will deliver 2,100 units this year, marking a 0.5 percent increase in inventory. In 2010, 5,400 rentals were completed.
Vacancy: Tenant demand will remain strong in the metro for the rest of 2011, leading to a decline in vacancy of 60 basis points for the entire year, to 4.5 percent. In 2010, the vacancy rate fell 120 basis points.
Rents: In 2011, asking rents in the metro will jump 2.8 percent to $1,417 per month while average effective rents in the district will advance 3.5 percent to $1,347 per month. Last year, asking rents rose 3.5 percent, accompanied by a 4.2 percent surge in effective rents.
ECONOMY
Employment Trends
4%
Year-over-Year Change Metro Area United States
2% 0% -2% -4%
Private-sector employers in the metro added more than 12,000 jobs in the rst half of 2011, fueled by a surge in ofce-using industries such as professional and business services and nancial activities. As the government sector continues to contract, privatization of government functions will help generate new jobs in the private sector. The private sector gains have tempered the loss of roughly 2,500 government jobs through the second quarter of the year. As a result of government job losses, a net 10,000 positions were added in the rst half of 2011. Federal, state and local government budget pressures will force further expenditure cuts and reduced payrolls in this sector for the remainder of 2011. BRAC relocations to Fort Belvoir and Marine Base Quantico later this year and into 2012 is expected to add approximately 16,000 jobs. Military base expansions will necessitate infrastructure improvements on and off the bases that will add additional private sector jobs. Outlook: Employment metrowide will grow by 51,000 jobs in 2011, representing a 1.8 percent increase. Unlike previous years, the private sector will be the catalyst for job growth in 2011.
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A strong job market and high household income has sustained the metro housing market despite a downturn in single-family home prices. Singlefamily home permits should rise 18 percent to 10,900 units this year and multifamily permit issuance will increase 70 percent to 6,600 units. In the rst half of the year, the median price of an existing single-family home fell 9 percent to $309,400. At the current rate of sales, the metro is on track to record sales of 80,000 homes this year, a 26 percent increase. Projected job growth and the migration of many graduating college students to the workforce will spur the creation of 25,000 households in the metro this year. Household growth will continue to generate demand for rental housing. Outlook: New household formation and low unemployment will sustain strong demand for all types of housing in the metro, but will also initiate a new building cycle during the next several quarters.
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* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, Economy.com, NAR
Construction Trends
10.0
Number of Units (thousands) Apartment Completions Multifamily Permits
CONSTRUCTION
Developers completed approximately 1,100 units in the metro during the rst half of 2011, and have delivered 3,100 rentals over the past year. In the preceding 12-month period, nearly 6,500 units were placed into service. So far this year, 621 units were completed in Suburban Maryland, and 111 apartments were brought online in Suburban Virginia. In addition, 344 units were delivered in the district. Metrowide, there are an additional 4,700 units under construction, including 1,900 rentals slated for completion in 2012. An additional 50,000 rentals are planned, representing 13 percent of existing stock, but only a few projects are scheduled to break ground. Outlook: A year after builders delivered 5,400 apartments, 2,100 units will come online in 2011.
Marcus & Millichap
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* Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau
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VACANCY
Vacancy continues to fall, but the effects of a release of pent-up demand in the second half of 2010 continue to wane. Metrowide vacancy improved 20 basis points since the beginning of this year to 4.9 percent in the second quarter. Year to date, more than 1,900 additional units were occupied, down from about 6,600 units in the preceding six months.
Vacancy Rate
In the district, vacancy also dropped 20 basis points in the rst half of 2011, to 5.3 percent. The vacancy rate was unchanged in the second quarter, but net absorption of 500 units was recorded in the rst six months of the year. In the second half of 2010, roughly 1,200 units were absorbed. In Suburban Virginia, vacancy fell 20 basis points in the second quarter to 4.6 percent. Vacancy has improved for four straight quarters in the Virginia section of the market as an additional 3,700 rentals were absorbed. Outlook: Steady tenancy will reduce the vacancy rate 60 basis points in 2011 to 4.5 percent. In 2011, the release of pent-up demand drove a decline of 120 basis points.
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RENTS
Year-over-Year Change
Continued tenant demand has fueled a marketwide increase in asking rents through the second quarter of this year to $1,392 per month, a year-overyear increase of 3.3 percent. Effective rents also improved markedly, rising by 3.7 percent year-over-year to $1,319 per month. The pace of growth has eased, however, as asking and effective rents have advanced 1.0 percent and 1.3 percent, respectively, this year.
Rent Trends
6% 3% 0% -3% -6%
Asking Rent Effective Rent
In the district, asking rents have risen ve of the last eight quarters, including a 0.5 percent increase to $1,422 in the second quarter of this year. Effective rents increased 0.7 percent in the second quarter to $1,360 per month and are up 1 percent so far this year. Asking rents in Suburban Maryland advanced 0.7 percent in the second quarter to $1,289 per month, partly reecting the inuence of higher-priced new units coming online. Year to date, asking rents have climbed 1.2 percent, while effective rents have gained 1.5 percent over the same period to $1,209 per month. Outlook: In 2011, asking rents in the metro will jump 2.8 percent to $1,417 per month while average effective rents in the district will advance 3.5 percent to $1,347 per month. Last year, a steep decrease in vacancy supported a 3.5 percent increase in asking rents and a 4.2 percent surge in effective rents.
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Sales Trends
Median Price per Unit (thousands)
SALES TRENDS**
Sales velocity remains strong, surging 39 percent in the past 12 months as the metros relatively strong economy continues to encourage investors. The median price of properties sold in the past 12 months was $83,300 per unit. In the preceding year, a different mix of assets sold at a median price of $108,000 per unit. Average cap rates in the metro vary from the low-5 percent range in the district to about 7 percent for near-in suburban assets, depending on location. Outlook: While rent growth has eased, the metros strong property operations will continue to support strong investment activity. Properties inside the beltway will garner the greatest attention..
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* Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA
** Data reect a full 12-month period, calculated on a trailing 12-month basis by quarter.
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CAPITAL MARKETS
BY WILLIAM E. HUGHES, SENIOR VICE PRESIDENT, MARCUS & MILLICHAP CAPITAL CORPORATION
Apartment mortgage rates should remain favorable through 2011, enhancing property returns and supporting values. While the 10-year Treasury yield likely will remain in the low- to mid-3 percent range over the next few quarters, the relatively wide spread to all-in lending rates provides some cushion against potential upticks.
Hessam Nadji Senior Vice President, Managing Director Tel: (925) 953-1700 hnadji@marcusmillichap.com
Encouraged by sustained improvements in occupancy and rents, nearly all lending sources have increased funding for apartment deals. As a result, mortgage debt has become readily available for performing assets across markets and property classes, supporting a 40 percent increase in multifamily origination volume over the past six months when compared to the previous period. The agencies continue to dominate but have lost marketshare as insurance companies, private capital sources and local/regional banks, in particular, compete more aggressively for new business. In the near term, life insurance companies will continue to favor larger, best-of-class assets in primary markets, while local and regional banks focus on lower-quality assets with consistent revenue streams and strong, proven sponsorship. Underwriting requirements eased over the past year as strengthening apartment fundamentals and rming property values restored lenders condence in the market. Debt-service coverage requirements slipped to 1.15 to 1.25, while loan-to-values on new loans generally improved to 70 to 75 percent, and in some limited situations, have pushed to as high as 80 percent.
Submarket
Dupont Circle/Adams Morgan Kensington/Wheaton Takoma Park Western Fairfax County Seminary Road/Landmark Gaithersburg/Germantown Hyattsville Bethesda/Chevy Chase Downtown/Logan Circle Falls Church/Annandale Stafford County Northeast Montgomery Northwest D.C./Georgetown Southeast Fairfax County Frederick County Northeast Alexandria/Glebe Road Foggy Bottom Pentagon City/Crystal City Silver Spring Rosslyn/Ballston Landover Prince William County
Vacancy Rate
2.2% 2.8% 3.0% 3.1% 3.4% 3.4% 3.5% 4.0% 4.0% 4.2% 4.2% 4.4% 4.4% 4.4% 4.7% 4.7% 4.8% 4.9% 5.0% 5.2% 5.3% 5.5%
Effective Rents
$1,522 $1,303 $1,798 $1,107 $1,350 $1,331 $1,262 $1,088 $1,826 $1,552 $1,356 $921 $1,198 $1,597 $1,350 $926 $1,109 $1,799 $1,992 $1,375 $1,732 $1,058 $1,068
Y-O-Y % Change
1.9% 2.8% 3.8% 1.7% 4.3% 3.7% 3.1% 5.7% 5.4% 3.6% 4.3% 1.8% 3.0% 2.3% 2.8% 2.8% 4.1% 3.3% 4.8% 2.3% 3.9% 3.7% 3.7%
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John Fioramonti
John Chang
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 employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, National Association of Realtors, Real Capital Analytics, Reis, TWR/Dodge Pipeline, U.S. Census Bureau.