Heather Perlberg writing for Bloomberg Businessweek tells us that “An oversupply of construction in and around the nation’s capital is giving young professionals the upper hand in negotiations with landlords. Haendel St. Juste, a Morgan Stanley (MS) analyst, calls Washington “the weakest apartment market in the country right now.” About three years ago the metro area had one of the lowest vacancy rates in the nation, at 3.4 percent for Class A, or high-end, apartments; the rate stood at 4.1 percent at midyear.”
Apartment construction always follows a residential home bubble. Prices get so high that it forces home buyers to rent apartments. Low vacancies and growing demand bring on rising rents and new apartment construction follows. Demand for residential housing peaks and falls as more apartments come on line. Apartments get over built and housing prices having crashed get more attractive and more affordable and we find that apartments are over built and rents decline.
“Rents in the D.C. metro area, which includes the Maryland and Virginia suburbs, fell 0.1 percent in the second quarter of 2014, compared with an average increase of 3.3 percent nationwide, according to apartment research company Axiometrics. That follows a big jump in inventory, with 14,840 newly built apartments coming to market this year, an 86 percent increase from 2013, data from the Dallas-based firm show.”
Complicating this cycle are the Millennials. They are not buying homes, but renting apartments. They like the residential towers featuring sun decks with grill stations, communal TV lounges, and free breakfasts and fitness classes. Some say they saw the crash in housing as a warning. According to statistics, they should have been buying houses by now. Trulia calculates that buying is 42% cheaper than renting in the Washington DC VA-MD-WV area
There were 25,481 Class A apartments on the market or under construction midyear, according to Delta Associates. The average monthly rent in central Washington, with some of the city’s most expensive neighborhoods, was $2,847 at the end of June.