A growing supply of apartments in the D.C. area has put a damper on rent growth in recent years, reversing a trend in which the nation’s capital has typically seen rental rates grow faster than the U.S. average.
According to a new report released by Real Page, developers have delivered an average of around 13,000 units annually since 2013. That’s double the metro area’s normal volume over the past two decades, according to the global provider of software and data analytics to the real estate industry.
Greg Willett, chief economist with Richardson, Texas-based Real Page, said the growing supply of D.C.-area apartments has resulted in rent growth between 1 percent or 2 percent annually. For the fourth quarter of 2017, rents in D.C. rose just 0.7 percent — compared to the U.S. average of 2.6 percent. The last time annual rent growth in D.C. was above 3 percent was back in 2012.
Sluggish rent growth is directly related to the supply of apartments flooding the local market, Willett said. “If you have to lease twice as many units as you normally would, you can’t be as aggressive on pricing,” he said. “There is still a lot of product that is on the way.”
According to Real Page, monthly rents in the D.C. region averaged $1,691 in 2017 (including all types and sizes of apartments), placing the area 11th highest among the 50 largest markets. The New York-White Plains area ranked No.1 with monthly rents last year reaching $3,592. Boston-Cambridge-Newton came in fifth highest last year at $2,190.
The average monthly rent in the U.S. last year was $1,306.
Historically, D.C. has typically experienced annual rent growth above the U.S. average, or about 3 percent each year.
“D.C. has tended to do about 100 basis points better than that,” Willett said.
According to Zillow’s February Real Estate Market Report, median rent across the country rose 2.8 percent over the past year to $1,445, marking the fastest pace of appreciation since May 2016. The Washington market fell well below the median at 1.5 percent, while the market’s supply rose by 19 percent, the most of any area Zillow studied.
Despite sluggish rent growth, occupancy rates in the D.C. region have hovered between 95 percent and 95.7 percent for 15 consecutive quarters, just not necessarily at the prices developers wanted, Willett said.
Robert Pinnegar, CEO of the National Apartment Association based in Arlington, said the growing supply of rentals means that the region is “ebbing toward a renter’s market.” As far as multifamily development growth, the D.C region is third in the nation, behind Dallas and New York, he said.
“We’re a victim of our own success,” he said.
Pinnegar said apartment managers are working to lease up projects with new residents and retain existing tenants by offering everything from gift cards to access to hotel-like amenities for free or a low fee. Concessions, including months of free rent, are common in today’s market.