Ms
Content
Multifamily Snapshot
DC Metro • Fourth Quarter • 2013
Market Tracker
*Arrows = Current Qtr Trend
Vacancy
3.9%
Net Absorption
1,357 Units
Completions
1,015 Units
Asking Rent
$1,518
Market Overview
The Washington DC Metro multifamily market was on fire throughout 2013. During the fourth quarter, the market absorbed 1,357 units, bringing the 2013 total to a near-record-high 6,522 units. That was the highest absorption level since 2010 when the market absorbed 9,222 units. Deliveries slowed down a bit in the fourth quarter with 1,015 units delivered. However, total deliveries in 2013 were a record-high 6,660 units. As was the case in the third quarter, submarkets with new deliveries posted the highest absorption totals. The Downtown/ Logan Circle submarket registered the highest delivery and absorption totals during the last quarter of 2013, with 447 units delivered and 306 units absorbed. Additionally, only six of the region’s 26 submarkets registered modest negative absorption during the fourth quarter, and none of those saw any new deliveries over the same period. Therefore, any negative gains were not the result of oversupply.
DC METRO MULTIFAMILY
Economic Indicators
4Q 2013
Employment Population Median Income MF Permits Issued MF Starts 3.085 M 5.868 M $89,461 41,176 29,674
4Q 2012
3.059 M 5.806 M $89,170 34,984 34,868
The multifamily vacancy rate remains tight at 3.9% for the Washington DC Metropolitan area. The District of Columbia has the highest vacancy rate of the region at 4.8%, with Northern Virginia following at 3.7% and Suburban Maryland at 3.4%. Asking rents are at all-time highs, but may finally be leveling out in an increasingly competitive market. After increasing for seven consecutive quarters, the average rental rate in the region declined $4 over the past three months to $1,518 for the fourth quarter of 2013. With over 35,000 units projected to come online in the metro area through 2017, there has been some concern about oversupply in the multifamily market. However, both the rate at which new units have been absorbed and the rate of population growth in the Washington DC metropolitan area make the case that there is demand for new product. At 5.1%, the DC Metro area boasts one of the lowest unemployment rates in the nation, significantly lower than the national rate of 6.6%. Additionally, the region boasts the highest median household income in the nation at $88,000. It is also home to an extremely well-educated workforce: 52% of residents hold a bachelor’s degree or higher. These factors make the area a particularly attractive place to live, as evidenced by the 42,000 people who moved to the region in 2012. Multifamily investment sales activity registered $789.8 million for the fourth quarter of 2013, bringing the 2013 total to $8.0 billion. Northern Virginia led the metro area in sales activity for the year, registering $4.4 billion in sales. Northern Virginia was also home to the highest-priced non-portfolio transaction of 2013: Equity Residential sold the 912-unit Crystal Towers located at 1600 South Eads Street in Crystal City to Dweck for $322.3 million or $353,344 per unit. The largest fourth-quarter transaction was the sale of Sedona and Slate, two buildings totaling 474 units and located at 1510 and 1530 Clarendon Boulevard in Rosslyn. Brokered by Cassidy Turley, the Class A properties traded in November for $222 million or $468,354 per unit. Cap rates for multifamily properties in the Washington DC Metro region during 2013 were extremely tight, averaging only 5.16%, and even more so in the District of Columbia where the average cap rate was only 4.54%.
Absorption, Completions & Vacancy
10,000 8,000 Units (Thousands) 6,000 4,000 2,000 0 7% 6% 5% 4% 3% 2% 1% 2008 2009 New Deliveries 2010 2011 Net Absorption 2012 2013 0% Vacancy Rate
Vacancy Rate
Source: REIS
Asking Rents
$1,650 $1,600 $1,550 $1,500 Per Unit $1,450 $1,400 $1,350 $1,300 $1,250 $1,200 2008 DC 2009 2010 NoVA 2011 2012 2013
Outlook • Deliveries are expected to peak in 2014 with approximately 16,000 units coming online. This will cause vacancy rates to increase at a rate of about 0.2 percentage points per year before leveling off in 2017. Asking rents may start to flatten out with rising vacancy and increased competition from new product. Expect concessions for second generation units to increase as landlords fight to stay competitive with new construction. 45,000 jobs are forecasted to be added to the DC Metro economy in 2014. With such strong job growth, the trend of mass migration into the Washington DC Metro is expected to continue, which should help assuage concerns of overbuilding. With elevated vacancy levels across the Washington DC Metro office market, owners may begin to take advantage of the red-hot multifamily market by redeveloping commodity office product into multifamily. www.cassidyturley.com
•
•
Suburban MD
Source: REIS
•
Key Sales Transactions 4Q 13
PROPERTY UNITS SELLER/BUYER PRICE PRICE/UNIT
Sedona/ Slate- 1510/1530 Clarendon Boulevard, Arlington, VA* Aventine Silver Spring- 13615 Colgate Way, Silver Spring, MD The Arbors at Fair Lakes- 4408 Oak Creek Court, Fairfax, VA Archstone Wheaton Station- 1101 Georgia Avenue, Silver Spring, MD Capitol Place- 701 2nd Street, NW, Washington, DC * Cassidy Turley Transaction
474 432 282 243 377
JBG Companies/ ASB Capital Management Greystar Management/ Undisclosed LaSalle Investment Management/ Stockbridge Capital Group Avalon Bay Communities/ Mesirow Financial Fisher Brothers Management/ Roseland Property Company
$222,000,000 $86,300,000 $68,000,000 $57,000,000 $46,500,000
$468,354 $199,769 $241,135 $234,568 $123,342
Multifamily 2013 Transaction Volume and $/Unit
Major Metros
$16 $14 Sale Volume (Billions) $12 $10 $8 $6 $4
$83
Housing Deliveries
Single Family vs. Multifamily
$300
$14.9
$252
50,000 45,000 40,000 Deliveries 35,000 30,000 25,000 20,000 15,000 10,000 5,000 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Single Family Multifamily Total 0 30,994 18,888
$271
$230
DC accounts for 7.8% of total U.S. apartment sales volume in 2013.
$250
$9.4
$176
$8.0 $5.6
$5.2
$150
$4.5
$96
$3.7
$72
$115
$2.8
$87
$2.7
$2 $0
NYC Metro LA Metro DC Metro SF Metro
$2.2
$100
Dallas Houston Atlanta Phoenix Seattle
Denver
$50
Thousands
$180
$200
Source: Cassidy Turley, Real Capital Analytics
Source: Moody’s Analytics
For the first time in recorded history, sales volume in the multifamily sector outperformed the office sector in the Washington, DC Metro region in 2013. The $8.0 million in multifamily sales volume makes up nearly 8% of the total U.S. volume.
Fears of multifamily properties being overbuilt in the Washington, DC metro region are exaggerated. In addition to strong migration trends and robust absorption numbers in submarkets with new deliveries, housing starts (both single family and multifamily) are well below their pre-crisis levels.
Multifamily 2013 Transaction Volume and $/Unit
DC Metros
$5.0 $4.42 $4.0 306,000 Billions $3.0 $2.15 $2.0 $1.45 $1.0 179,000 Northern Virginia District of Columbia Suburban Maryland $200,000 $250,000 317,600 $300,000 $350,000
DC Metro - Forecast
Multifamily Leasing Fundamentals
18,000 16,000 14,000 Number of Units 12,000 10,000 8,000 6,000 4,000 2,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3.90% 7.0%
Forecast 6.20%
6.5% 6.0% 5.5% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Vacancy Rate 5.0%
$0.0
$150,000
New Deliveries
Net Absorption
Vacancy Rate
Source: Cassidy Turley
Source: Cassidy Turley, REIS, Metropolitan Washington Council of Governments
Northern Virginia led the region in Multifamily sales volume in 2013, more than doubling the District of Columbia’s volume. However, DC still leads the region in price per unit, although Northern Virginia was not far behind.
Even in a worst-case scenario where deliveries outpace absorption rates for new units, the market would still be 93% leased and below its 2009 peak vacancy rate.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 4,000 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $25.8 billion in 2013, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 24,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley.
Bethany Schneider
Research Analyst 2101 L Street, NW Suite 700 Washington, DC 20037 Tel: 202.463.2100 Fax: 202.223.2989 [email protected]
The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. Copyright © 2014 Cassidy Turley. All rights reserved.
www.cassidyturley.com
DC Metro • Fourth Quarter • 2013
Market Tracker
*Arrows = Current Qtr Trend
Vacancy
3.9%
Net Absorption
1,357 Units
Completions
1,015 Units
Asking Rent
$1,518
Market Overview
The Washington DC Metro multifamily market was on fire throughout 2013. During the fourth quarter, the market absorbed 1,357 units, bringing the 2013 total to a near-record-high 6,522 units. That was the highest absorption level since 2010 when the market absorbed 9,222 units. Deliveries slowed down a bit in the fourth quarter with 1,015 units delivered. However, total deliveries in 2013 were a record-high 6,660 units. As was the case in the third quarter, submarkets with new deliveries posted the highest absorption totals. The Downtown/ Logan Circle submarket registered the highest delivery and absorption totals during the last quarter of 2013, with 447 units delivered and 306 units absorbed. Additionally, only six of the region’s 26 submarkets registered modest negative absorption during the fourth quarter, and none of those saw any new deliveries over the same period. Therefore, any negative gains were not the result of oversupply.
DC METRO MULTIFAMILY
Economic Indicators
4Q 2013
Employment Population Median Income MF Permits Issued MF Starts 3.085 M 5.868 M $89,461 41,176 29,674
4Q 2012
3.059 M 5.806 M $89,170 34,984 34,868
The multifamily vacancy rate remains tight at 3.9% for the Washington DC Metropolitan area. The District of Columbia has the highest vacancy rate of the region at 4.8%, with Northern Virginia following at 3.7% and Suburban Maryland at 3.4%. Asking rents are at all-time highs, but may finally be leveling out in an increasingly competitive market. After increasing for seven consecutive quarters, the average rental rate in the region declined $4 over the past three months to $1,518 for the fourth quarter of 2013. With over 35,000 units projected to come online in the metro area through 2017, there has been some concern about oversupply in the multifamily market. However, both the rate at which new units have been absorbed and the rate of population growth in the Washington DC metropolitan area make the case that there is demand for new product. At 5.1%, the DC Metro area boasts one of the lowest unemployment rates in the nation, significantly lower than the national rate of 6.6%. Additionally, the region boasts the highest median household income in the nation at $88,000. It is also home to an extremely well-educated workforce: 52% of residents hold a bachelor’s degree or higher. These factors make the area a particularly attractive place to live, as evidenced by the 42,000 people who moved to the region in 2012. Multifamily investment sales activity registered $789.8 million for the fourth quarter of 2013, bringing the 2013 total to $8.0 billion. Northern Virginia led the metro area in sales activity for the year, registering $4.4 billion in sales. Northern Virginia was also home to the highest-priced non-portfolio transaction of 2013: Equity Residential sold the 912-unit Crystal Towers located at 1600 South Eads Street in Crystal City to Dweck for $322.3 million or $353,344 per unit. The largest fourth-quarter transaction was the sale of Sedona and Slate, two buildings totaling 474 units and located at 1510 and 1530 Clarendon Boulevard in Rosslyn. Brokered by Cassidy Turley, the Class A properties traded in November for $222 million or $468,354 per unit. Cap rates for multifamily properties in the Washington DC Metro region during 2013 were extremely tight, averaging only 5.16%, and even more so in the District of Columbia where the average cap rate was only 4.54%.
Absorption, Completions & Vacancy
10,000 8,000 Units (Thousands) 6,000 4,000 2,000 0 7% 6% 5% 4% 3% 2% 1% 2008 2009 New Deliveries 2010 2011 Net Absorption 2012 2013 0% Vacancy Rate
Vacancy Rate
Source: REIS
Asking Rents
$1,650 $1,600 $1,550 $1,500 Per Unit $1,450 $1,400 $1,350 $1,300 $1,250 $1,200 2008 DC 2009 2010 NoVA 2011 2012 2013
Outlook • Deliveries are expected to peak in 2014 with approximately 16,000 units coming online. This will cause vacancy rates to increase at a rate of about 0.2 percentage points per year before leveling off in 2017. Asking rents may start to flatten out with rising vacancy and increased competition from new product. Expect concessions for second generation units to increase as landlords fight to stay competitive with new construction. 45,000 jobs are forecasted to be added to the DC Metro economy in 2014. With such strong job growth, the trend of mass migration into the Washington DC Metro is expected to continue, which should help assuage concerns of overbuilding. With elevated vacancy levels across the Washington DC Metro office market, owners may begin to take advantage of the red-hot multifamily market by redeveloping commodity office product into multifamily. www.cassidyturley.com
•
•
Suburban MD
Source: REIS
•
Key Sales Transactions 4Q 13
PROPERTY UNITS SELLER/BUYER PRICE PRICE/UNIT
Sedona/ Slate- 1510/1530 Clarendon Boulevard, Arlington, VA* Aventine Silver Spring- 13615 Colgate Way, Silver Spring, MD The Arbors at Fair Lakes- 4408 Oak Creek Court, Fairfax, VA Archstone Wheaton Station- 1101 Georgia Avenue, Silver Spring, MD Capitol Place- 701 2nd Street, NW, Washington, DC * Cassidy Turley Transaction
474 432 282 243 377
JBG Companies/ ASB Capital Management Greystar Management/ Undisclosed LaSalle Investment Management/ Stockbridge Capital Group Avalon Bay Communities/ Mesirow Financial Fisher Brothers Management/ Roseland Property Company
$222,000,000 $86,300,000 $68,000,000 $57,000,000 $46,500,000
$468,354 $199,769 $241,135 $234,568 $123,342
Multifamily 2013 Transaction Volume and $/Unit
Major Metros
$16 $14 Sale Volume (Billions) $12 $10 $8 $6 $4
$83
Housing Deliveries
Single Family vs. Multifamily
$300
$14.9
$252
50,000 45,000 40,000 Deliveries 35,000 30,000 25,000 20,000 15,000 10,000 5,000 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Single Family Multifamily Total 0 30,994 18,888
$271
$230
DC accounts for 7.8% of total U.S. apartment sales volume in 2013.
$250
$9.4
$176
$8.0 $5.6
$5.2
$150
$4.5
$96
$3.7
$72
$115
$2.8
$87
$2.7
$2 $0
NYC Metro LA Metro DC Metro SF Metro
$2.2
$100
Dallas Houston Atlanta Phoenix Seattle
Denver
$50
Thousands
$180
$200
Source: Cassidy Turley, Real Capital Analytics
Source: Moody’s Analytics
For the first time in recorded history, sales volume in the multifamily sector outperformed the office sector in the Washington, DC Metro region in 2013. The $8.0 million in multifamily sales volume makes up nearly 8% of the total U.S. volume.
Fears of multifamily properties being overbuilt in the Washington, DC metro region are exaggerated. In addition to strong migration trends and robust absorption numbers in submarkets with new deliveries, housing starts (both single family and multifamily) are well below their pre-crisis levels.
Multifamily 2013 Transaction Volume and $/Unit
DC Metros
$5.0 $4.42 $4.0 306,000 Billions $3.0 $2.15 $2.0 $1.45 $1.0 179,000 Northern Virginia District of Columbia Suburban Maryland $200,000 $250,000 317,600 $300,000 $350,000
DC Metro - Forecast
Multifamily Leasing Fundamentals
18,000 16,000 14,000 Number of Units 12,000 10,000 8,000 6,000 4,000 2,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3.90% 7.0%
Forecast 6.20%
6.5% 6.0% 5.5% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Vacancy Rate 5.0%
$0.0
$150,000
New Deliveries
Net Absorption
Vacancy Rate
Source: Cassidy Turley
Source: Cassidy Turley, REIS, Metropolitan Washington Council of Governments
Northern Virginia led the region in Multifamily sales volume in 2013, more than doubling the District of Columbia’s volume. However, DC still leads the region in price per unit, although Northern Virginia was not far behind.
Even in a worst-case scenario where deliveries outpace absorption rates for new units, the market would still be 93% leased and below its 2009 peak vacancy rate.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 4,000 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $25.8 billion in 2013, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 24,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley.
Bethany Schneider
Research Analyst 2101 L Street, NW Suite 700 Washington, DC 20037 Tel: 202.463.2100 Fax: 202.223.2989 [email protected]
The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. Copyright © 2014 Cassidy Turley. All rights reserved.
www.cassidyturley.com
