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Looming Construction Pipeline Could Disrupt Fundamentals for This Washington DC Suburb

CoStar Market Insights: Alexandria/I-395 Multifamily Developments Targeted Near Metro Stations
October 9, 2018
Rendering of the 520-unit 200 Stovall apartment building in Alexandria, Virginia.
Credit: Perseus Realty

Key performance metrics were green across the board in Washington, D.C.’s Alexandria/Interstate 395 apartment market at the start of the fourth quarter. But the looming construction pipeline could put a dent in the recent positive performance.

Most noteworthy is the more than $450 million in sales volume through the first three quarters of 2018. This ranks behind only Gaithersburg with about $470 million in the same time frame. What makes this remarkable is that this sales activity comes after more than $3 billion traded this cycle, by far the most in any D.C. submarket. The submarket’s large inventory of value-add opportunities in addition to well-located assets near public transportation has attracted a wide variety of companies throughout this real estate cycle.

Bringing these investors to the submarket was the result of strong, consistent rent growth. From 2010 to 2016, rents averaged about 3 percent growth, one of the strongest rates in the metropolitan area over that time frame. At the start of October, rent growth averaged about 3.8 percent year-over-year.

This rent growth coincided with a marked improvement in occupancies. Occupancies at the start of the fourth quarter were 95 percent, about 100 basis points higher than the historical average. Rebounding demand has helped vacancies fall, but the lack of supply is the main driver for the submarket’s recent performance. The last delivery was in 2016, and since 2010 less than 1,500 units delivered. But that will soon change.

Four properties, and more than 1,650 units, were under construction at the start of the fourth quarter. Development is being targeted near metro stations, allowing developers to take advantage of the accessibility and rent premium that comes from that proximity. The 318-unit Cameron Park apartment complex in Alexandria should deliver later this year near the Van Dorn metro station. Eisenhower Valley and 200 Stovall are set to add another 1,000-plus units nearby the Eisenhower Avenue metro station next year.

Alexandria has access to two Metro stations and is generally considered a more walkable area of the submarket. Demand has historically been strong in this area, but with the influx of about 4 percent inventory, concentrated in two already dense areas, absorption rates should be watched closely to determine the viability of such projects.

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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