After a strong first quarter, the Northern Virginia apartment market continued to perform well in the second quarter of 2012. Vacancy remains low, and rent gains, both quarterly and year-over-year, are solid. Construction has been light, aiding the occupancy profile. Cassidy Turley, reporting on the D.C. metro region, said the “regional employment continues to expand.” “As the regional employment picture generally continues to improve, more people are forming households. More of those households are renting,” this source reports.
The 163,883-unit Northern Virginia apartment market finished the second quarter of 2012 with a vacancy rate of 3.6%, down 100 basis points from the second quarter of 2011 and down 20 basis points from one quarter earlier. Vacancy below 5.0% is generally regarded as a full market. The highest rate during the current cycle was in the aftermath of the recession in 2009, at 6.0%. Class A vacancy closed the latest quarter at 3.8%, down 30 basis points from the quarter before and down 120 year-over-year. The second quarter rate for Class B/C apartments is 3.4%, unchanged from the prior quarter and down 80 basis points year-over-year. The extremely low rates for both A and B/C Class apartments indicate that renters are willing to take less competitive product as long as it is in the Northern Virginia area. July data give a vacancy rate of 3.6%. Transwestern reports a mid-year 2012 Class A stabilized vacancy rate of 4.4% for Northern Virginia.
There are no immediate increases predicted; in fact, Reis is projecting a decline to 3.5% at year-end 2012. The rate is forecast to increase afterwards, but still not exceed 4.0% through 2016. Northern Virginia is also outperforming its regional peers; the vacancy rate for the South Atlantic region is 5.5%, according to Reis. Cassidy Turley reports a 3.9% vacancy rate for the entire D.C metro, and 3.6% for Northern Virginia.
SUPPLY AND DEMAND
Net absorption has been consistently positive in the Northern Virginia apartment market. The market totaled nearly 29,000 completions from 2002 to 2011, averaging 2,898 per year, while net absorption totaled 20,368 in that time span, keeping a pace that any market would consider favorable. As of the date of this report 1,300 market-rate units have completed, including 447 in the second quarter when net absorption was 600 units. This remains an active market.
As of Reis’ latest new construction data, there are 658 market-rate units in three named apartment projects under construction for completion by the end of 2012. Another 1,401 are under construction for 2013, the largest of which is the 600-unit Apartments at Cosner East, located outside of Reis submarkets. Also under construction but not forecast to finish until 2014 is the Ascent at Spring Hill Station, with 404 units. Two new additions to Reis’ new construction records are Virginia Square Towers I and II, at 371 and 129 units, respectively. There are 675 multifamily units in the planning stages with completion dates from 2013 to 2014, according to Reis. There are 298 condominiums and 1,561 townhomes under construction. Reporting on the entire D.C metro, Cassidy Turley reports that “multifamily construction continued to increase in the second quarter of 2012.” “Northern Virginia’s 36-month pipeline stands at 12,845 units at mid-year 2012, with 75% of those units under construction,” according to Transwestern.
Looking forward, Reis forecasts completions will average 3,785 units per year from 2012 through 2016, for a total of 18,924 units. Net absorption for that time span will be 17,868 units, or an average of 3,574 units per year. Thus new construction is not forecast to outstrip demand any time soon.
Average asking and effective rents were strong in the second quarter of 2012, according to Reis. The asking rent is $1,549 per month, and the effective rent is $1,509 per month. These rates are up 1.0% and 1.3%, respectively, over the quarter and 3.0% and 3.8%, respectively, year-over-year. Up to second quarter 2012, asking and effective rents have increased by 1.6% and 2.2%, respectively, so rents are on track for another solid year. July data show asking and effective rent increases of 0.3% and 0.4%, respectively. Class A asking rents finished the quarter at $1,778 per month, up 1.0% for the quarter and up 2.8% year-over-year. For Class B/C rents, Reis reports an average asking rent of $1,342 per month, up 1.2% for the quarter and 3.2% over 12 months.
“Average asking rental rates were $1,476 per month across the region, a 0.9 percentage point increase over the quarter. Once again, Northern Virginia boasted the highest rate increase on average, a gain of $16 during the quarter to $1,569,” according to Cassidy Turley. Reis cites a national asking rent of $1,081 and national effective rent of $1,032 per month, up 1.0% and 1.3% for the quarter, respectively, mirroring Northern Virginia’s quarterly gains. For the South Atlantic region, however, Reis reports average asking and effective rents of $973 and $923 per month, up 1.0% and 1.2% for the quarter, showing similar gains but lower rents. Northern Virginia remains a high rental performer.
“Low-rise properties in Northern Virginia posted rent growth of 3.9% over the year. Rents are up 2.5% for all Class A high-rise apartments in Northern Virginia, with the N. and W. Fairfax submarket performing significantly better than the average, at 7.5%. Rents for all investment grade apartments in Northern Virginia increased by 3.0% over the past year,” according to Transwestern. For its part, Reis forecasts rent increases to range from 4.0% to 5.0% for the rest of the forecast period