Washington, D.C., apartment asking rents fell during the third quarter of 2022 — usually a time of rent growth. That, along with economic uncertainty, could be a sign of rockier times ahead. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.
Washington, D.C., market's rents and vacancies dip
If there’s an apartment market that showed signs of weakness in the third quarter of 2022, it’s Washington, D.C. Effective rent growth slowed to just 0.2%, after rents rose 2.5% in the second quarter. Asking rents actually went marginally negative, declining by 0.05%, according to Moody’s Analytics CRE.
That is uncharacteristically weak for the third quarter, given how households tend to make moving decisions during the summer months. One would tend to see stronger rent growth then, but if landlords felt compelled to pull back asking rents in their listings, that may be a sign of a rockier path ahead.
Vacancies did continue to dip, falling by 40 basis points in the third quarter and hitting 7.8%. These are still relatively elevated levels, compared with the 6.6% pre-pandemic rate. Vacancies are expected to continue to dip to the low 6’s in 2023, though it is a big TBD depending on whether or not we run into a recession.
Top submarkets: Woodley Park, Northwest D.C.
It’s been a slower recovery for Washington, D.C., compared with other markets, but some submarkets outperformed. Woodley Park has the lowest vacancy in the metro at 2.3%, after experiencing a 50 basis point drop in the third quarter. Speaking of big improvements in vacancy, check out the Northwest D.C. market, which includes the Georgetown submarket. Vacancies fell from 6.0% to 4.3% — the largest improvement across all Washington, D.C., submarkets in the third quarter.
Uncertainty remains high for 2023
Sentiment turned more negative throughout 2022, as persistent inflation prompted further monetary tightening and the probability of a recession continued to rise. If an economic pullback occurs during the next 12 months, it need not spell doom and gloom for the Washington, D.C., apartment market. It’s not like the federal government has plans to vacate the area anytime soon. But investors would be wise to pay attention to market fundamentals more closely during times of higher uncertainty.
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