The headline is dramatic: “Traditionally affordable suburban Maryland community faces uncertain future from nearly 2,000 new multifamily units.”
That’s the headline on an article from real estate analysis company CoStar Group’s news service from mid-October 2018. But behind the scary wording is a more nuanced story about long-term shifts in the multifamily real estate market of the Route 1 corridor’s inner-Beltway suburbs. Here’s the nuance: the development should be good news for renters, at least in the near-term, as a sudden abundance of multifamily units along the corridor are expected to put a damper on rising rents.
So why the scary wording? Well, Joe Blow renters are not CoStar Group’s audience, real estate investment professionals are. The same conditions that will slow the rate of rising rents will also make the area less-attractive to new developers looking for a return on their investment, and could impact the bottom line of multifamily properties already open along the corridor.
“The last time a significant amount of new supply was added to the Hyattsville apartment market, vacancies expanded by more than 200 basis points, and rent growth went from 3.7 percent year-over-year to about 2.5 percent,” reads the article.
According to CoStar, Hyattsville’s apartment inventory grew by 6.5 percent between 2010 and 2017, and there are 2,000 more units under construction. A lot of those units, however, are high-end units the CoStar Group dubs “4- and 5-Star” inventory, which have average rents of $1,950 per month. 875 of those units will be in the redeveloped Cafritz tract, now Riverdale Park Station. There are also several other units coming online, such as the Studio at 3807, with 147 units, and The Artisan at 4100, with 84 units. Nearly 330 units will also be added to the market at an office-to-multifamily conversion near Prince George’s Plaza. Other projects are in the development approval pipeline, including the proposed 284-unit mixed-use Hyattsville Armory Apartments. And at least one developer has been identified consolidating land for some sort of redevelopment on Hamilton Street in Hyattsville.
That’s significantly higher than the average asking rent in Hyattsville of $1,400 per month, a number dragged down by lower asking rents for older or less-attractive 1-, 2-, and 3-star multifamily rents in the corridor.
The competition between the higher-priced, amenity-rich 4- and 5-Star units and the existing lower-tier product has coincided with higher-than expected vacancy rates in the multifamily developments now operating along the Route 1 corridor, according to CoStar. The article notes the 235-unit Monument Village in College Park is still 25 percent vacant more than two-years after it opened. Average rents run about $1,900 per month. The 315-unit Edition near Prince George’s Plaza is only 12 percent occupied since opening in August 2018 with average asking rents of $2,000, and is leasing about 20 units per month, according to CoStar.
These high vacancy rates are not good for apartment developers in the near term, but they are good for renters. Developers are reported to be offering significant concessions and rent reductions to get tenants in the first year. From a policy perspective, it seems like this is a “good thing”: residential rents are likely to grow more slowly because of an abundance of supply and extreme price competition between older and newer product.
In the long-term, it could result in a cool-down among developers of multifamily projects along the corridor until vacancies reach a more attractive position within the market. For city governments along the corridor looking to attract a big multi-family, mixed-use development, developers may also feel emboldened to request incentives to offset projected slower-than-expected returns, as College Park City Council did with the Terrapin Development Corp.’s proposal for mixed-use multifamily at the abandoned Quality Inn site.