By Nena Perry Brown posted March 27th, 2019 on dc.urbanturf.com
Three months into 2019, several questions surround the DC area real estate market. Has the federal government shutdown had a lingering impact on the market? How will the expected arrival of an Amazon campus in northern Virginia affect the market? Will high prices dampen demand? Will supply levels remain paltry?
In hopes of getting some insight into what to expect for this year’s new condo market, UrbanTurf reached out to a few industry professionals to get their take.
More Supply and Why Amazon Will Drive Condo Construction
By Erin Gannon, Senior Associate at Delta Associates
New condo construction starts will be up about 20 percent this year, concentrated in DC and Northern Virginia. There will be moderate sales growth overall, as some submarkets will see supply rise and others will continue to be supply-constrained. Submarkets with projects that begin selling in the first half of the year may see price growth due to tightening conditions in other submarkets. The Upper Northwest market, for instance, has very little new condo product and has traditionally had high barriers to entry in terms of steep pricing. This causes some overflow into the neighboring Mideast submarket, which includes neighborhoods such as Adams Morgan, Shaw, and Columbia Heights. With high demand for homes in the northwest quadrant of the District, we’re likely to see continued price growth in these areas.
We anticipate more apartment and condo product will be built in Arlington and Alexandria due to Amazon HQ2. The split will favor apartments, but condos will make up a larger share than recent development trends would suggest due to the high average income of the Amazon HQ2 workforce. A worker with an average annual income of $150,000 has a higher propensity to own than rent.
Montgomery County will make its comeback as the driving force of the Suburban Maryland condo market as more attention is being given to farther-out areas such as Germantown and Gaithersburg, where more 2-over-2 condo product is being constructed. Four of these projects are currently marketing and attract buyers who don’t mind living a little farther from the city to get more space for a lower price.
20 Percent More Sales and One Bedrooms Remain King
By Chris Ballard, Co-Founder and Principal of McWilliams|Ballard
We are expecting to see a strong 2019 and project an increase of 20% in year-over-year new condominium sales. New projects with an abundance of smaller units (one bedrooms) will reinvigorate the market, as many of the communities selling at the end of 2018 had been on the market for more than a year with remaining inventory that were primarily larger units. Markets that haven’t seen condominium development in the current cycle, such as Courthouse (Arlington) or Leesburg, are finally receiving supply. As expected, these projects are getting a huge groundswell of interest from prospective buyers.
One-bedrooms are still king. In 2018, we sold two one-bedroom units for every two-bedroom unit sold. We expect this phenomenon to continue as pricing increases. Parking is not dead. We are selling extra parking spaces for as much as $80,000 per space. Though demand varies by unit type and neighborhood, it remains important to provide sufficient parking in any for-sale project. In the new condominium market, we saw 96 homes settle in 2018 at $1,000 per square foot, along with 24 resales. That’s a tremendous expansion of the high-end market—by comparison a total of only 18 $1,000 per square foot units settled in 2013.
Developers Will Differentiate and Adjust to Demand
By Barry Madani, Founder and CEO of Madison Investments
I think 2019 will bring a change as developers take the lessons of the past couple of years and produce product the market absorbs more easily. The market for larger condos and high-end luxury product was saturated by a glut of product this past two years with inventory sitting for more than the desirable durations.
2019 has a large number of new construction projects slated to deliver and these will be mostly delivering smaller units. Many of these projects will be delivering 50 units or more and we will begin to see a healthy supply of “For Sale” product in the Ballpark neighborhoods and NoMa. One thing the last cycle proved is that there is no shortage of buyers for one-bedroom condos and even one-bedroom, plus dens, so we will see much more of this product coming to the market.
I believe developers will need to differentiate themselves further in this new and competitive cycle with projects that provide high-quality design. The days of number crunchers producing commodity style projects is over, price points will be more competitive and product a plenty. Good news for buyers.