D.C. multifamily real estate trends show annual effective rent growth of 1.8% as of the end of May, up from 1.5% in 2023, according to CoStar data. Vacancies, at 7.7%, have been declining as the market absorbs new construction. 

Strong demand for workforce housing

Workforce and affordable housing remains in demand in D.C. supporting durable rents and vacancies. 

“We’re seeing the most consistent rent growth and leasing activity in low- to moderate-rent apartments,” Tenret said. “Higher-rent submarkets catering to young professionals and students are showing softer fundamentals due to persistent remote work and fewer international students.” 

As of May, higher-end D.C. multifamily properties saw slightly faster year-over-year effective rent growth than more affordable properties, according to CoStar. But more affordable buildings experienced stronger cumulative effective rent growth since 2019, with rents rising 8.21%, compared with 5.84% at higher-end buildings. 

The more affordable buildings also saw consistently lower vacancy rates over that period. The vacancy rate at higher-end D.C. properties was 10% in May, compared with just 6% at more affordable properties, according to CoStar.

Higher-for-longer interest rates

Interest rates remain elevated as the Federal Reserve seeks more signs of progress on bringing inflation to its 2% target. 

Higher construction and financing costs have slowed transactions, which totaled less than $1 billion for the past six quarters in the D.C. metro area, according to CoStar. It’s the longest streak of sub-$1 billion quarters in a decade. 

Even though the large investment sales transactions driven by ultralow interest rates in 2021 and 2022 have “largely disappeared,” Tenret said, Washington, D.C., multifamily investors are finding opportunities.

“Private investors targeting smaller deals with less required debt financing are now driving the multifamily investment market,” he said. “Even with higher interest rates, our clients are finding acquisition opportunities with lower leverage, assumable debt or special financing rates for properties with high levels of affordability.” 

Lower transaction volume makes determining building prices more challenging, but recent trades suggest cap rates have risen and per-unit prices have dipped. 

“Going forward, investors may see more opportunistic deals on undercapitalized properties with looming loan maturities,” Tenret said.

Combat rising costs

“With taxes, insurance and financing costs up significantly, managing controllable expenses can be a meaningful lever to create value,” Tenret said. 

Proactively investing in energy efficiency can help investors reduce utility bills and prepare for energy performance standards. Focusing on energy efficiency can be particularly impactful for older housing, Tenret said. 

Technology investments can also help enhance efficiency and reduce operating costs.  

Slowing new construction

There are roughly 13,000 units under construction in the D.C. multifamily market, representing 7.4% of its existing inventory, according to CoStar. But the pace is slowing: Deliveries are expected to average 4,000 units per year over the next three years, down from 6,000 over the past five years. 

A slowdown in groundbreakings suggests supply pressure could start to ease. 

Higher-end buildings are most likely to feel the pressure in the meantime, Tenret said, as they account for roughly 88% of new units currently under construction. 

“That makes the existing stock of affordable properties virtually irreplaceable,” Tenret said.