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A Slowdown in Deliveries in DC's H Street/NoMa Contributed to Vacancy Compression

CoStar Market Insights: Vacancies Still Elevated in H Street/NoMa, But Strong Absorption Contributing to Rising Occupancies
September 28, 2018
A 28-unit apartment building under construction in D.C.’s H Street submarket.

New projects in H Street/NoMa consistently delivered over the past five years, but over the past 12 months, only about 500 units came online. This gave time for vacant units to absorb at a rate that outpaced recent deliveries, causing the vacancy rate to compress about 350 basis points from this time a year ago. H Street/NoMa vacancies are still fourth-highest among all Washington, D.C. submarkets. However, relative to the submarket’s five-year average, occupancies remain above the 86 percent average.

Absorption is largely being driven by the revitalization of the submarket. The formerly blighted landscape has transformed, and demographics have changed with it. The population has grown by 40 percent since 2010 -- faster than that of nearly any other submarket in D.C. Median household income grew by nearly 30 percent, while incomes metro wide increased by just 9 percent. The typical new resident here is an educated, employed and high-earning young professional.

These Millennials have something in common: They tend to rent, not own. According to Neustar, about 60 percent of housing units are renter occupied in H Street/NoMa, compared with about 36 percent metro wide.

There are two distinct neighborhoods in this submarket: H Street and NoMa. H Street is the corridor starting at 2nd Street to the west and ending at the intersection of Maryland Avenue and Florida Avenue. The addition of Whole Foods Market -- which opened in March 2017 -- and the redevelopment of the H Street Connection retail center by the Rappaport Companies and WC Smith will enhance the neighborhood's already vibrant atmosphere.

The H Street neighborhood delivered about 125 units over the past four quarters, with absorption totaling about 220 units. The vacancy rate as of September was about 8 percent, but the area has another 450-plus units under construction.

NoMa is the neighborhood on the west side of the train tracks. Notable here has been the influx of office tenants. The Department of Justice, the General Services Administration and the Equal Employment Opportunity Commission have moved into the neighborhood, encouraging retail development. Which has prompted Akridge’s proposed Burnham Place, potentially drawing new inhabitants with its 3 million square feet of new office, retail and residential space.

The NoMa neighborhood delivered about 350 units over the past 12 months, but absorbed just 215 units after an exceptionally strong two-quarter leasing period in 2017’s second and third quarters. The vacancy rate as of September was 11.5 percent, with another 1,000 units under construction.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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