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Q1
2017 CREPORT
WASHINGTON, D.C. MULTIFAMILY
Q1 CRE Report / 02 © 2017 Greysteel
Washington, D.C. | Q1 2017
Pipeline Vs Effective Rental Rate PSF
$1.45
$1.50
$1.55
$1.60
$1.65
$1.70
$1.75
$1.80
$1.85
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2012 2013 2014 2015 2016 YTD
UNITS EFFECTIVE RENT PSF
Under Construction Delivered Effective Rent PSF
Trendlines
High levels of net absorption are the new normal:
Due to a combination of Washington, D.C.’s innate resilience to economic downturns and a massive development pipeline, the market continues to post incredibly high positive net absorption figures, totaling over 2,600 units just one quarter into the new year and more than 24,000 units in the last five years. Rental demand is robust in the D.C. Metro — 35% of area residents are apartment dwellers and that percentage is growing — and population totals are increasing exponentially, with the region projected to accommodate nearly six and a half million people by 2021. 0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
Net Absorption, 10-Year HistoryUNITS
Oversupply not precursor to down marketonce thought:
Following the Great Recession, real estate industry experts warned of the dangers of developing too much too quickly. The widespread narrative was one of oversupply in the multifamily sector, culminating in years of doom and gloom followed by another devastating downturn. In the D.C. region, however, these fears have not been realized, as the market has seen little negative movement despite a record-setting pipeline. The current vacancy rate of 6.4% is 30 basis points lower than a year ago despite the delivery of roughly 8,300 units in 2016, and based on current velocity, the high rate of units absorbed will continue in coming years.
Washington, D.C.’s multifamily market grows in strength as the local economy’s dependence on federal spending weakens
The region continues to perform at a high level as increased private sector hiring, especially in STEM fields and the healthcare sector, counteracts uncertainty concerning the budget and federal employment. In the D.C. Metro, oversupply is largely a myth; the delivery of over 32,000 units since 2012 has done little to hinder growth and has had minimal impact on the region’s fundamentals. Average effective rents are currently at a record-high $1.82 per square foot, rising 13.8% in the last five years. Washington, D.C.’s mutlifamily outlook is rosy, and the market will remain a top destination for domestic and foreign investors to place capital in the long-term.
GEO
GRA
PHIC
BRE
AK
DO
WN
WDC Class A Class B Class C
Effective Rent Growth 0.7% 1.1% 3.2%
Vacancy Rate 13.1% 6.9% 5.2%
Net Absorption 800 -131 4
NOVA Class A Class B Class C
Effective Rent Growth 3.0% 3.2% 11.6%
Vacancy Rate 8.6% 4.6% 5.3%
Net Absorption 725 419 -4
SUB MD Class A Class B Class C
Effective Rent Growth -1.0% 2.7% 2.0%
Vacancy Rate 11.7% 4.6% 4.4%
Net Absorption 644 223 -40
Q1 CRE Report / 03 © 2017 Greysteel
Washington, D.C. | Q1 2017
Key Economic Indicators
LABOR Q1 2016 Q1 2017 Change
EMPLOYMENT 2.50M 2.55M +1.9%
PUBLIC SECTOR 583K 588K +0.8%
PRIVATE SECTOR 1.92M 1.97M +2.6%
UNEMPLOYMENT RATE 4.3% 4.0% -0.3%
10-YR TREASURY YIELD 1.78 2.40 +0.62
PEOPLE 2010 CurrentProjected
(2021)
POPULATION 5.64M 6.01M 6.49M
% CHANGE — 7.6% 7.0%
HOUSEHOLDS 2.09M 2.24M 2.39M
% CHANGE — 6.7% 6.7%
HOUSING UNITS 2.24M 2.39M 2.54M
OWNER-OCCUPIED 1.35M 1.39M 1.48M
RENTER-OCCUPIED 746K 843K 902K
MEDIAN HH INCOME $91,885 $93,489 $103,124
% CHANGE — 1.8% 10.3%
DEVELOPMENT 2014 2015 2016
MF PERMITS ISSUED (UNITS) 12,371 10,385 12,087
UNITS DELIVERED 8,155 7,891 8,295
Source: Greysteel Research, ESRI, Bureau of Labor Statistics
58.3%
35.3%
OwnerOccupied
RenterOccupied
6.4%
Vacant
Housing Profile
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
20 - 24 25 - 34 35 - 44 45 - 54 55 - 64
Population Count By Age
2012 2016 2021 Projection
AGE RANGE
30.4%Of D.C. Metro Millennials Aged 25-34 Are Renters
53.5%Of D.C. Metro Population Aged 25-44 Are Renters
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
Unemployment Rate, 10-Year History
Q1 CRE Report / 04 © 2017 Greysteel
Washington, D.C. | Q1 2017
Pipeline & Deliveries
8,100WASHINGTON, D.C
MARKET-RATE UNITS UNDER CONSTRUCTION:
6,500NORTHERN VIRGINIA
2,900SUBURBAN MARYLAND
17,500T O TA L U N I T S
Under Construction Planned
Percentage of Southwest/Navy
Yard inventory under construction
41.4%
Percentage of Tysons Corner inventory
under construction
19.8%
UNITS
Hot Submarkets
0
2,000
4,000
6,000
8,000
10,000
12,000
Southwest/Navy Yard
H Street/NoMa
TysonsCorner
Hyattsville R-B Corridor AdamsMorgan/ColumbiaHeights
Crystal City/Pentagon
City
Rockville
Q1 CRE Report / 05 © 2017 Greysteel
Washington, D.C. | Q1 2017
Transactional Trends
Sales volume in the Washington, D.C. Metro is down year-over-year, with just $638 million worth of assets trading compared to $1.2 billion traded through the first quarter of 2016. As is the case in many primary markets, institutions have long been focused on buying newer, high-quality assets in the urban core; in D.C., this has been done at such a frantic pace that there simply are not as many options available for purchase and transaction volume has tapered off. As a result, activity outside of the Transit Oriented Developments (TODs) has increased in recent times. Additionally, activity in the Class B and C markets has picked up speed, especially in the private capital community, as investors aim to add assets in need of significant capital expenditure to their portfolios. The prevalence of these types of value-add plays was thought to be in decline but recent deals have demonstrated the potential for buyers to achieve cap rates in excess of 6.0% on older, non-core assets while core product often trades at sub-5.0%. Sales activity, especially of non-core B and C properties, can be expected to pick up as the year progresses.
PROPERTY CITYSALE DATE
SALE PRICE PRICE/UNIT UNITS BUYER SELLER
The Beacon Clarendon Arlington Feb-17 $98,300,000 $525,668 187 USAA Real Estate ZOM Inc.
Anthology Washington, D.C. Oct-16 $160,000,000 $521,173 307 MEPT Jair Lynch
19Nineteen Clarendon Arlington Feb-17 $90,000,000 $471,204 191 USAA Real Estate ZOM Inc.
Villas at Rockville Rockville Nov-16 $61,400,125 $292,382 210 Cove Property Management AvalonBay Communities
Ridgeleigh at Van Dorn Alexandria Mar-17 $91,500,000 $254,167 360 Klingbeil Capital Waterton Associates
The Sutton Woodbridge Oct-16 $104,000,000 $247,619 420 Dweck Properties JLB Partners
Ashborough Apartments Ashburn Dec-16 $119,000,000 $236,111 504 CBRE Global Investors Fairfield Residential
The Park at Kingsview Village Germantown Oct-16 $70,400,000 $215,951 326PRP Real Estate Management
TA Realty
The Mark at Brickyard Beltsville Feb-17 $90,750,000 $209,584 433 Harbor Group JLB Partners
Bellemeade Farms Leesburg Feb-17 $60,900,000 $192,722 316 The Bainbridge Companies Waterton Associates
Dominion Towers Arlington Oct-16 $63,500,000 $192,424 330 Capital Investment Advisors MacFarlane Partners
Seneca Village Gaithersburg Feb-17 $117,000,000 $171,053 684 The Orlo Fund AvalonBay Communities
Avenue Apartments Forestville Dec-16 $85,747,633 $143,390 598Quest Management JV
BDMGFederal Capital Partners
Landmark Apartments Hyattsville Dec-16 $96,980,973 $127,606 760Quest Management JV
BDMGFederal Capital Partners
Recent Transactions
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
$220.00
$240.00
$260.00
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$/UNIT $/PSF
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Price Per Unit Price PSF
Class A Class B/C
Price per unit vs price per SFCap Rates
*Sorted highest to lowest by per unit sales price
Q1 CRE Report / 06 © 2017 Greysteel
Washington, D.C. | Q1 2017
Washington, D.C. Investment SalesW. KYLE TANGNEY RAWLES M. WILCOX ALICIA ORKISZ
Managing Director202.280.8730ktangney@greysteel.com
Director202.640.1810rwilcox@greysteel.com
Senior Investment Associate202.800.2410aorkisz@greysteel.com
ARI AZARBARZIN HERBERT SCHWAT MAX FREEDMAN
Senior Investment Associate410.505.0003aazarbarzin@greysteel.com
Investment Associate202.618.3419hschwat@greysteel.com
Investment Associate202.640.1800mfreedman@greysteel.com
Sources & MethodologyAll data is obtained from sources recognized as reliable but Greysteel makes no guarantees as to the accuracy thereof.
(1) Rental & occupancy trends take into account only multifamily assets larger than 50 units, except in the case of development and sales analysis.
(2) The Washington, D.C. region, as defined by Greysteel Research, is comprised of Prince George’s Co., Montgomery Co., Arlington Co., Alexandria City, Fairfax Co., Falls Church City, Manassas City, Manassas Park, Loudoun Co., the District of Columbia, Prince William County, and Fairfax City.
(3) Affordable properties are not analyzed in this report; this includes, but is not limited to, LIHTC, Section 8, HCVP, senior housing, military housing, corporate housing, and student housing.
(4) Data provided courtesy of Greysteel Research, CoStar Realty Information, Inc., REIS, Bureau of Labor Statistics, Bureau of Economic Analysis, and the U.S. Census Bureau.
Debt & Structured Finance
BRENDAN SCANLON MARK BITTENBENDER BRITTANY WISMER
Senior Director202.803.5810bscanlon@greysteel.com
Director202.280.2825mbittenbender@greysteel.com
Senior Finance Associate202.280.2826bwismer@greysteel.com
Greysteel Research
JARED EMERY RYAN HILL
Lead Research Analyst202.499.4237jemery@greysteel.com
Senior Research Analyst419.518.5046rhill@greysteel.com
GREG EDMONDS WILL CLARKE
Research Analystgedmonds@greysteel.com
Research Analystwclarke@greysteel.com
Corporate Leadership
ARI FIROOZABADI DUERK BREWER
President & CEO Chief Operating Officer
ANDREW STIEF YASSI FARZANEH
VP of Marketing Director of Corporate Services
Greysteel’s CREport focuses on any subject that potentially impacts, or relates to, the commercial real estate sector, ranging from studies of the performance of a specific asset type or region to economic and demographic studies, and anything in between. Readers will benefit from our professionals’ expertise and insight into the economic and market trends that affect all sectors of commercial real estate, as well as our expansive knowledge of local markets. For more information about the CREport, or to request information for a specific region, please contact research@greysteel.com.
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