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In Q4 2022, Washington, D.C. experienced job growth in its work sector but a slight population decline, affecting the city’s multifamily real estate market.
There was a 3.2% increase in employment opportunities with the addition of over 75,000 jobs year-over-year. While an upward trend, Washington, D.C. is still underperforming compared to the national rate of around 4.5%.
Unemployment has remained at 4.7%, the same quarter-over-quarter.
Over 42% of the total jobs added came from leisure and hospitality, a sector significantly impacted by the pandemic but is seeing significant recovery.
After a significant population spike in 2020 of almost 90,000 new residents, going from approximately 6,284,000 to 6,372,000, there was a decrease in 2021 - now down to 6,342,500.
Washington, D.C. commonly known as the District of Columbia, is home to a diverse population that is made up of many different races, ethnicities, and backgrounds. According to the U.S. Census Bureau’s 2019 estimates, Washington D.C.’s population is 701,739 residents, making it the 24th most populous city in the United States.
In terms of racial demographics, 49.3% of Washington’s population are African American or Black, 38.2% are White or Caucasian, 8% are Hispanic or Latino, 2% are Asian American or Pacific Islander, 0.8% are Native American or Alaskan Native, and 1.6% are two or more races combined.
Washington, D.C. is home to attractions that draw in locals and tourists alike. One of the most popular sites is the National Mall, a 2-mile stretch of land along the Potomac River that includes the Washington Monument, Lincoln Memorial, Smithsonian Museum, and other breathtaking monuments and memorials.
The city’s top universities include Georgetown University, George Washington University, American University, Howard University, and the Catholic University of America. All five schools are regionally accredited and offer a variety of degree programs.
Washington, D.C. has a humid subtropical climate with four distinct seasons and moderate year-round temperatures. Summers in the city tend to be hot and humid, with average high temperatures of around 88°F and lows of 72°F.
The hottest months are generally July and August. Winters are cool and wet, with average high temperatures of around 45°F and lows of 32°F.
Washington, D.C. has continued to experience high demand over the past year, even seeing occupancy increase year-over-year to 95.5%, a 0.2% increase.
In 2021, over $9 billion in assets exchanged hands, eclipsing the previous 10-year high by over $2.4 billion.
With prospective homebuyers being priced out of buying thanks to increasing interest rates due to rising inflation, rent increased across every submarket and property class throughout Washington, D.C.
There was modest rent growth for multifamily real estate in Washington, D.C. of 0.3% quarter-over-quarter, bringing the overall average asking rent to $2,102 monthly.
Renter-by-choice was on track with an overall increase of 0.3%, while renter-by-necessity’s asking rent increased by 0.2%.
Higher-tier properties saw an average rent of $2,480, while affordable alternatives were at $1,79, still burdening Americans in the area.
In 2022, there was over $4 billion recorded in sales.
The average price per unit in Washington’s multifamily market increased 5% year-over-year in Q4 to $285,500. This was over 30% higher than the national average.
Affordable properties accounted for 60% of the total transactions, while higher-tier properties comprised over 60% of the overall price volume due to their higher price value.
There were several deals for Washington, D.C.’s multifamily properties.
These are select examples among other sales and leasing activities.
By the end of Q3 of 2022, over 34,000 units were under construction in metro D.C. There were an additional 200,000 in the planning and permitting stages.
Over 90% of the properties being built were for higher-class properties, leaving less than 10% for affordable options.
With the new additions added to the market in the fourth quarter, developers accounted for 1.6% of the existing inventory by bringing 9,660 units online.
The West Cleveland Park/Wisconsin Avenue submarket’s largest project, City Ridge, was under construction. The nearly 700-unit project was projected to be completed by the end of 2022.
Washington’s multifamily market is expected to continue a cooldown throughout the end of this quarter and going into 2023.
While there are positive demand indicators, stable rent higher than the national average, and increased sales prices higher than the national average, economic headwinds and limited options have slowed investor activity.
Submarkets with higher-tier properties and economic growth should be prioritized for investors interested in multifamily real estate in Washington, D.C.
It might be worth waiting into early 2023 to see if the slowdown experienced in Q4 2022 is the beginning of a decline or a plateau after a surge in activity through 2021 and early 2022 but will soon rebound.
Do your research and invest wisely.
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