THIRD QUARTER 2014
DELTA ASSOCIATES
WASHINGTON METROPOLITAN
AREA CLASS B APARTMENT
MARKET REPORT
SPONSORED BY
THIRD QUARTER 2014
DELTA ASSOCIATES
WASHINGTON METROPOLITAN
AREA CLASS B APARTMENT
MARKET REPORT
SPONSORED BY
By Subscription Only
Prepared For Exclusive Use of Subscribers
On September 30, 2014
© Delta Associates, 2014. All rights reserved.You may neither copy nor disseminate this report. If quoted, proper attribution is required.
Please see www.DeltaAssociates.com for more information on our reports.
www.DeltaAssociates.com
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
1. STATE OF THE NATIONAL AND REGIONAL ECONOMIES The National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Washington Area Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. STATE OF THE WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET A Snapshot of the Class B Apartment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
State of the Washington Metropolitan Area Class B Apartment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Does Your Budget Include a Social Media Strategy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3. WASHINGTON STATISTICAL REPORT Table 1: Estimated Effective Rent and Stabilized Vacancy Rate for Washington Metro . . . . . . . . . . . . . . . . . . . 31
Table 1 .1: Rent Increase for Washington Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
LOW-RISE MARKET INDICATORS
Table 2: Washington Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Table 3: Northern Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Table 4: Suburban Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Table 5: Prince George’s County, MD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.
MID- & HIGH-RISE MARKET INDICATORS
Table 6.: Washington Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Table 7: Northern Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Table 8: Suburban Maryland and District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4. RENOVATION REPORT Table 9: Summary of Major Class B Apartment Renovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5. TRANSACTION REPORT Table 10: 2013 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Table 11: 2014 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6. EXPLANATION OF GEOGRAPHIC COVERAGE AND METHODOLOGY Class B Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Apartment Submarket Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Photography Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
TABLE OF CONTENTS
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
Although the information contained herein is based on sources which Delta Associates (DA) and Transwestern (TW) believe to be reliable, DA and TW make no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA or TW of any kind. Any such information may be based on assumptions which may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.
MID-ATLANTIC MULTIFAMILY TEAM
MULTIFAMILY SALES:Executive Vice President, Director Dean Sigmon 301-896.-9089
Executive Vice President, Director Robin Williams 301-896.-9070
Vice President Justin Shay 301-896.-9082
Marketing Associate Katie Rubino 301-896.-906.9
MID-ATLANTIC LEADERSHIP:Executive Managing Director- Market Leader Phil McCarthy 301 .896. .9011
Executive Managing Director- Market Leader Keith Foery 301 .896. .9028
Managing Senior Vice President David Popp 301 .896. .9048
Managing Senior Vice President Ray Hite 301 .896. .9023
TEAM
MULTIFAMILY PRACTICE TEAM
Senior Vice President, Multifamily Practice Director William E . L . Rich 703-535-3545
Senior Associate Justin Donaldson
Associate Kayla Bruun
Associate Luke Gelber
Associate Rachelle Sarmiento
EDITOR AND CHIEF EXECUTIVE: Gregory H . Leisch, CRE 703-836.-5700
OF COUNSEL, ECONOMICS: Dr . Stephen S . Fuller 703-993-3186.
Although the information contained herein is based on sources which Delta Associates (DA) believe to be reliable, DA makes no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA of any kind. Any such information may be based on assumptions which may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
AVAILABLE REPORTS FROM DELTA ASSOCIATES
MID-ATLANTIC CLASS A APARTMENT MARKET REPORT Market Coverage: Washington Metro, Baltimore Metro, Philadelphia Metro
A comprehensive report on apartment market conditions, focusing on the following indicators:
• Analysis of the national and regional economies
• Regional condo market summary
• Key market statistics for 47 submarkets and regional totals for:
• Current rents and rent change
• Vacancy
• Concessions
• Class A apartment building sales
Additional indicators analyzed in the Third Quarter and Year-End reports:
• Third Quarter Report: Comparison of median revenue,
expense, and net operating income data for the USA
and Washington MSA .
• Year-End Report: Market-maker survey on capitalization
rates, hard and soft development costs, investment posture,
thoughts on the economy, and more
WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT
A comprehensive report on apartment market conditions, focusing on the following indicators:
• Analysis of the national and regional economies
• Key market statistics for 30 submarkets and regional totals for:
• Current rents and rent change
• Vacancy
• Concessions
• Renovation information including budget and timetable
• Class B apartment building sales
Additional indicators analyzed in the Year-End report:
• Year-End Report: Market-maker survey on capitalization rates, investment posture, thoughts on the economy, and more .
WASHINGTON/BALTIMORE CONDOMINIUM MARKET REPORTMarket Coverage: Washington Metro and Baltimore Metro
A comprehensive report on condominium market conditions, focusing on the following indicators:
• Analysis of the national and regional economies
• Regional apartment market summary
• Key market statistics for 12 submarkets and regional totals for:
• Sales trends for new and resale condos
• Historic condominium price changes
• Pipeline trends
• Additional data include:
• Absorption pace
• Multifamily building and land sales
Additional indicators analyzed in the Third Quarter and Year-End reports:
• Third Quarter Report: Comparison of median condo
expenses in the Washington MSA and Mid-Atlantic region
• Year-End Report: Market-maker survey on
capitalization rates, investment posture, thoughts
on the economy, and more .
MULTIFAMILY MARKET
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
AVAILABLE REPORTS FROM DELTA ASSOCIATES
• Market-maker survey on capitalization rates, investment posture, thoughts on the economy, and more
COMMERCIAL MARKET
WASHINGTON/BALTIMORE OFFICE MARKET REPORTMarket Coverage: Washington Metro and Baltimore Metro
A comprehensive quarterly report on office market conditions, focusing on the following indicators:
• Analysis of the national and regional economies
• Metro-level and substate area (Northern Virginia, Suburban
Maryland, District of Columbia) office market summaries
• Key market statistics (All Space and Class A Space) for all
major submarkets and regional totals for:
• Net absorption
• Vacancy
• Construction
• Additional data include:
• Supply/demand analysis
• Rental rate and tenant improvement data
• Average lease terms and operating expenses
• Delivered, proposed, and planned SF
• Building and land sales
• Investment returns
• Cap rate trends
Additional indicators analyzed in the Year-End report:
• Market-maker survey on capitalization rates, hard & soft development costs, investment posture, thoughts on the economy,
and more
• Development economics
Special supplements to the report have included:
• Analysis of Federal bailout/stimulus spending
• Impact of stimulus spending on office leasing
• Office rent equilibrium zone study
WASHINGTON/BALTIMORE FLEX/INDUSTRIAL REPORTMarket Coverage: Washington Metro and Baltimore Metro; data is separated into flex/R&D and warehouse/distribution product types.
A comprehensive semi-annual report on flex/industrial market conditions, focusing on the following indicators:
• Analysis of the national and regional economies
• Regional, metro-level and substate area (Northern Virginia,
Suburban Maryland, and Suburban Baltimore) flex/
industrial market summaries
• Key market statistics for all major submarkets and
regional totals for:
• Inventory
• Net absorption
• Vacancy
• Construction
• Additional data include:
• Supply/demand analysis
• Rental rate and tenant improvement data
• Average lease terms and operating expenses
• Delivered, proposed, and planned SF
• Building sales
• Investment returns
• Cap rate trends
Additional indicators analyzed in the Year-End reports:
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
• Analysis of the regional economy
• Regional apartment market summary
• Key market statistics for all major submarkets and regional totals for:
• Current rents and rent change
• Vacancy
• Concessions
• Regional apartment building sales
FREE REPORTS
Delta Associates publishes free reports on the economy and real estate market, including:
• Washington, DC Metro Retail Outlook (quarterly)
• Washington Metro Area Housing Outlook (quarterly)
• Understanding the Economy (periodic)
• Washington TrendLines (annual)
• Houston TrendLines (annual)
Delta Associates also publishes occasional white papers on areas of interest . To view sample reports or to subscribe,
please visit www .DeltaAssociates .com .
PHILADELPHIA APARTMENT MARKET REPORT
An executive summary-style report on apartment market conditions, focusing on the following indicators:
AVAILABLE REPORTS FROM DELTA ASSOCIATES
www.DeltaAssociates.com
DELTA A SSOCIATESLeading advisor and information provider
to the commercial real estate industry
Market Studies | Repositioning Analyses | Asset Valuations | Feasibility Studies Litigation Support | Market Data and Publications | Boardroom Presentations
500 MONTGOMERY STREET, SUITE 600 | ALEXANDRIA, VA 22314P: 703.836.5700 | WWW.DELTAASSOCIATES.COM |
DELTA A SSOCIATES
Is a firm of experienced professionals offering
consulting, valuation, and data services to the
commercial real estate industry for over 30 years. The
firm’s practice is organized in four related areas:
CONSULTING, RESE ARCH AND ADVISORY SERVICES
For commercial real estate projects, including
market studies (FHA/HUD compliant), market entry
strategies, asset performance enhancement studies,
pre-acquisition due diligence, and financial and fiscal
impact analyses.
LITIGATION SUPPORT
That includes dispute resolution, from forensic fact
finding to mediation and expert witness services.
Damages, material adverse change, and contract
disputes are specialties.
VALUATION
Of partial interests in commercial real estate assets.
SUBSCRIPTION DATA
For select metro regions for office, industrial, retail,
condominium, and apartment markets.
GREGORY H. LEISCH, CRE Chief Executive703.836.5700
DAVID WEISEL, CRE President
ALEXANDER (SANDY) PAUL, CRE Executive Vice President
CONTACT US
www.DeltaAssociates.comwww.deltaassociates.commailto:greg.leisch%40deltaassociates.com?subject=mailto:david.weisel%40deltaassociates.com?subject=mailto:alexander.paul%40deltaassociates.com?subject=
Please join us the morning of Friday, October 3, 2014 to attend Delta Associates’ 18th Annual Washington/Baltimore Multifamily Market Overview & Awards for Excellence.
when.FRIDAY, OCTOBER 3, 2014
8:00 AM – Registration & Continental Breakfast8:30 AM – Delta Associates Market Presentation & Awards9:30 AM – Networking
where.THE MAYFLOWER HOTEL
1127 Connecticut Avenue, N.W.Washington, D.C. 20036
rsvp.RSVP BY SEPTEMBER 26, 2014
at www.multifamilydc.com
deltaassociatesWASHINGTON/BALTIMORE
eighteenth annual
Multifamily Market Overview & Awards for Excellence
www.multifamilydc.com
deltaassociatesPHILADELPHIA
third annual
Apartment Market Overview & Awards for Excellence
sponsors:
Delta Associates will present the latest trends and prospects in the Philadelphia economy and apartment market, followed by awards for excellence in the Philadelphia metropolitan area apartment industry.
when:TUESDAY, APRIL 21, 2015
8:00 AM – Registration & Continental Breakfast8:30 AM – Delta Associates Market Presentation & Awards9:30 AM – Networking Reception
where:FOUR SEASONS PHILADELPHIA
One Logan SquarePhiladelphia, PA 19103
rsvp:RSVP BY APRIL 10, 2015
For an invitation, email:
ICON 1616 APARTMENTS, PHILADELPHIA PA
mailto:Justin.Donaldson%40DeltaAssociates.com?subject=mailto:Justin.Donaldson%40DeltaAssociates.com?subject=
66
495 50
495
95We’ve grown up over the years, but are still proud to hang our hat on what got us here: an
intimate knowledge of the local markets and complete responsiveness to the needs of our
clients. Whether it’s our acquisitions expertise, our ability to deliver substantial renovations,
or our understanding of what it takes to manage and develop properties extraordinarily well,
no one in the Washington, D.C. metro area transforms multifamily housing opportunities
into highly-desirable communities better than ROSS Companies.
TURNING THE PL ACES W H E R E W E
INTO THE PLACES WE
T O L I V E .
LIVEWANT
Over 25 years of local intelligence, long term relationships and multifamily expertise.
TheRossCompanies.com
www.therosscompanies.com
GLOBALboutiqueOXYMORON #8
See what's possible at www.transwestern.net
Discover our global real estate expertise and local turf knowledge. At Transwestern we dig deep to make the improbable become a reality. To help you meet your corporate goals, we blend our extensive reach with personalized solutions tailored to your specific needs. Partner with Transwestern and start putting all of your real estate transactions on solid ground.
www.transwestern.net
www.greystar.commailto:ksheehan%40greystar.com?subject=
www.cbre.com/jerry.harveymailto:jerry.harvey%40cbre.com?subject=
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
DELTA NEWS
MEDIA
DELTA INSIGHTS: EACH WEEK IN THE WASHINGTON BUSINESS JOURNAL
See Delta Associates’ weekly feature in the Washington Business Journal . In each release of Delta Insights, the WBJ highlights key
statistics and analysis from Delta that bring the local commercial real estate market into perspective .
PRESENTATIONS
HOUSTON TRENDLINES
The 14th annual Houston TrendLines® event will be held on November 13, 2014 at the River Oaks Country Club in Houston, TX .
TrendLines® is an invitation-only, annual presentation of market conditions with an outlook for investment and development
opportunities in the period ahead . Delta’s Executive Vice President, Sandy Paul, will present his assessment of the regional
economy and commercial real estate market conditions . To reserve an invitation to the 2014 event, hosted by Transwestern,
please contact Jennifer Glaser .
The 2013 Houston TrendLines® report and presentation will be available at Transwestern .com . The report will include data
and analysis on the office, industrial, multifamily, and retail markets as well as a detailed forecast on the national and
regional economies .
PHILADELPHIA APARTMENT MARKET PRESENTATION AND AWARDS
Delta’s annual Philadelphia Apartment Market event was held on April 22, 2014 at the Four Seasons Hotel in Philadelphia,
PA . Delta’s CEO, Gregory Leisch, presented his Real Estate Market and Economic Overview . This event is co-sponsored by the
Bozzuto Group . To download the market presentation from our 2014 event, please visit our website . To register for the 2015 event,
to be held April 21, 2015, please contact Jennifer Glaser .
WASHINGTON TRENDLINES
The 17th annual Washington TrendLines® event was held on February 6., 2014 at the Ronald Reagan Building and International
Trade Center in Washington, DC . TrendLines® is an invitation-only, annual presentation of market conditions with an outlook
for investment and development opportunities in the period ahead . Delta’s CEO, Gregory Leisch, presented his assessment of
the market prior to the presentation of the annual TrendSetter awards . The event was co-sponsored by PNC Bank, Baker Tilly,
and Transwestern . For an invitation to the February 5, 2015 event, or to learn more about our TrendLines presentation and
report, please contact Jennifer Glaser or visit TrendLinesDC .com .
NEW YORK TRENDLINES
The inaugural New York TrendLines® event was held on December 10, 2013 at the Roosevelt Hotel in New York, NY . Delta’s
Executive Vice President, Sandy Paul, presented commercial real estate market conditions with an outlook for investment
and development opportunities in the period ahead . The New York TrendLines® event was co-sponsored by Transwestern . A
recording of the market presentation may be viewed at www .TrendLinesNYC .com .
WASHINGTON/BALTIMORE MULTIFAMILY PRESENTATION AND AWARDS
The 18th annual Washington/Baltimore Multifamily Presentation and Awards will be held on October 3, 2014 at the Mayflower
Renaissance Hotel in Washington, DC . Delta’s CEO, Gregory Leisch, will present his Real Estate Market and Economic Overview
prior to the awards ceremony . The Multifamily Awards event is co-sponsored each year with Transwestern and Greystar . To
see the list of award winners, or to download the market overview presentation, please visit the Multifamily Awards page on
our website following the event .
http://www.bizjournals.com/washington/https://www.deltaassociates.com/event/37/houston-trendlines-2014mailto:Jennifer.Glaser%40DeltaAssociates.com?subject=www.Transwestern.comhttps://www.deltaassociates.com/event/7/philadelphia-apartment-market-overviewhttps://www.deltaassociates.com/mailto:Jennifer.Glaser%40DeltaAssociates.com?subject=https://www.deltaassociates.com/event/5/washington-trendlines-2014mailto:Jennifer.Glaser%40DeltaAssociates.com?subject=www.TrendLinesDC.comhttps://www.deltaassociates.com/event/9/new-york-trendlinesregwww.TrendLinesNYC.comhttp://multifamilydc.com/http://www.transwestern.net/http://www.greystar.com/https://www.deltaassociates.com/event/12/17th-annual-mid-atlantic-multifamily-awards
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
DELTA NEWS
WASHINGTON AREA APARTMENT WEBINARS
On July 15, 2014, Delta Associates will host its eighth webinar covering the Washington apartment market, with information
from Delta Associates’ Mid-Year 2014 Class A Apartment Report . These webinars are co-sponsored by the ROSS Companies and
the Washington Business Journal . Delta Associates’ CEO, Gregory Leisch, provides a short regional economic overview followed
by a comprehensive review of the Washington apartment market . A brief question and answer period with Greg Leisch and
Scott Ross rounds out the webinar . The slide show from each webinar is available to attendees and to Delta’s clients . For more
information, please contact Rachelle Sarmiento .
RECENT SPEECHES AND PRESENTATIONS GIVEN BY DELTA EXECUTIVES
• 18th Annual Washington/Baltimore Multifamily Market Presentation: 10 .3 .14
• Maryland Housing Outlook: 9 .10 .14
• Mid-Year 2014 Washington Area Apartment Market Webinar: 7 .15 .14
• Bisnow’s Baltimore Multifamily Conference: 6. .25 .14
• Bisnow’s 2nd Annual Future of Alexandria: 6. .6. .14
• Bisnow’s National Multifamily West Conference: 5 .22 .14
• Trends in Apartment Design: 5 .20 .14
• 2014 NMHC Research Forum: 4 .29 .14
• Philadelphia Apartment Market Overview: 4 .22 .14
UPCOMING SPEECHES AND PRESENTATIONS BY DELTA EXECUTIVES
• AIDC Real Estate Update: 11 .6. .14
• Bisnow’s National Multifamily East Conference: 11 .24 .14
• 18th Annual Washington TrendLines Event: 2 .5 .15
• 3rd Annual Philadelphia Apartment Market Overview & Awards of Excellence 4 .21 .15
PUBLICATIONS
PHILADELPHIA CLASS A APARTMENT MARKET REPORT
The 2nd issue of Delta’s newest publication, Philadelphia Class A Apartment Market Report, was released in July 2014 . The next issue will
be released in October 2014 . To subscribe to this executive summary-style report, please contact Jennifer Glaser .
UNDERSTANDING THE ECONOMY
Delta publishes an electronic newsletter called Understanding the Economy on changes in the national economy and their
relevance to commercial real estate . This newsletter is available free of charge via e-mail, and the latest issue is released every
few months . Please subscribe to the report via our website .
WASHINGTON AREA RETAIL OUTLOOK
The Washington Area Retail Outlook is a quarterly report in which Delta provides a quantitative and qualitative assessment of the
Washington area retail market, with a focus on grocery-anchored shopping centers . Information is included on vacancy rates,
rents, investment sales, projects of interest, and key trends in the retail market . The report is co-sponsored by The Rappaport
Companies,and is available free of charge via e-mail . The latest issue of this report was released in July 2014 . The next issue of
the report will be released in October 2014 . Please subscribe to the report via our website .
WASHINGTON AREA HOUSING OUTLOOK
The Washington Area Housing Outlook is a quarterly report in which Delta provides an assessment of the region’s single-family
housing market, including data on pricing, sales volume, and days on market . The report is co-sponsored by George Mason
University’s Center for Real Estate Entrepreneurship, and is available free of charge via e-mail . The latest issue of this report was
released in July 2014 . The next issue of the report will be released in October 2014 . Please subscribe to the report via our website .
http://ross-companies.com/http://www.bizjournals.com/washington/mailto:Rachelle.Sarmiento%40DeltaAssociates.com?subject=https://www.deltaassociates.com/event/29/18th-annual-washingtonbaltimore-multifamily-market-overview--awards-for-excellencehttps://www.deltaassociates.com/event/35/the-maryland-housing-outlookhttps://www.deltaassociates.com/event/25/delta-associates-washington-area-apartment-market-webinar---julyhttps://www.deltaassociates.com/event/33/bisnows-4th-annual-baltimore-multifamily-summithttps://www.deltaassociates.com/event/32/bisnows-2nd-annual-future-of-alexandriahttps://www.deltaassociates.com/event/23/bisnows-multifamily-westhttps://www.deltaassociates.com/event/28/apartment-design-trends-conference--washington-dchttps://www.deltaassociates.com/event/31/2014-nmhc-research-forum-https://www.deltaassociates.com/event/7/philadelphia-apartment-market-overviewhttp://www.deltaassociates.com/delta/event_detail.php?event_id=55https://www.deltaassociates.com/event/36/aidc-real-estate-updatehttps://www.deltaassociates.com/event/24/bisnows-multifamily-easthttps://www.deltaassociates.com/event/38/washington-trendlines-2015https://www.deltaassociates.com/event/34/3rd-annual-philadelphia-apartment-market-overview--awards-for-excellencemailto:Jennifer.Glaser%40DeltaAssociates.com?subject=https://www.deltaassociates.com/reports-and-publicationshttps://www.deltaassociates.com/subscriptionshttp://www.rappaportco.com/http://www.rappaportco.com/https://www.deltaassociates.com/subscriptionshttp://som.gmu.edu/realestate/http://som.gmu.edu/realestate/https://www.deltaassociates.com/subscriptions
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
18TH ANNUAL DELTA ASSOCIAT
ES
WASHINGTON/BALTIMORE
MULTIFAMILY OVERVIEW & AWA
RDS FOR EXCELLENCE
CONGRATULATIONS TO THE APARTMENT AWARD WINNERS
BEST WASHINGTON/BALTIMORE HIGH-RISE APARTMENT COMMUNITYThe Apartments at CityCenter, Washington, DCHinesThe Bozzuto Group
Shalom Baranes Associates
BEST WASHINGTON MID-RISE APARTMENT COMMUNITYCornerstone at Monroe Street Market, Washington, DCThe Bozzuto GroupAbdo Development
KTGY Group
BEST BALTIMORE MID-RISE APARTMENT COMMUNITYGunther Apartments, Baltimore, MDObrecht Commercial Real Estate Kinsley Equities
Kettler Management Gordon and Greenberg
BEST WASHINGTON/BALTIMORE LOW-RISE APARTMENT COMMUNITYAvalon Arlington North, Arlington, VAAvalonBay Communities The Preston Partnership
BEST WASHINGTON/BALTIMORE GREEN APARTMENT COMMUNITYGallery Bethesda, Bethesda, MDThe Donohoe CompaniesVantage Management
WDG Architecture
BEST WASHINGTON/BALTIMORE NEIGHBORHOOD IMPACT APARTMENT COMMUNITYCity Market at O, Washington, DCRoadside Development, LLC Shalom Baranes Associates
BEST WASHINGTON/BALTIMORE ADAPTIVE REUSE APARTMENT COMMUNITYSky House, Washington, DCUrban Atlantic The JBG Companies
Wiencek & Associates
BEST WASHINGTON/BALTIMORE APARTMENT RENOVATION COMMUNITYCascade at Landmark, Alexandria, VAGreystarStudio 39
BEST WASHINGTON/BALTIMORE INTERIOR DESIGN APARTMENT COMMUNITY - NEW CONSTRUCTIONPortland Flats at Monroe Street Market, Washington, DCThe Bozzuto Group Abdo Development
RD Jones & Associates Interior Architecture and Design
BEST WASHINGTON/BALTIMORE INTERIOR DESIGN APARTMENT COMMUNITY - RENOVATIONRiver House, Arlington, VAVornado / Charles E . Smith Hartman Design Group, Inc .
© Maxwell MacKenzie
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
18TH ANNUAL DELTA ASSOCIAT
ES
WASHINGTON/BALTIMORE
MULTIFAMILY OVERVIEW & AWA
RDS FOR EXCELLENCE
CONGRATULATIONS TO THE CONDOMINIUM AWARD WINNERS
CONGRATULATIONS TO THE APARTMENT AWARD WINNERS (CONTINUED)
BEST LEASE-UP PACE FOR A DISTRICT OF COLUMBIA APARTMENT COMMUNITYCamden NoMa, Washington, DCCamden
BEST LEASE-UP PACE FOR A NORTHERN VIRGINIA APARTMENT COMMUNITYAvenir Place, Vienna, VAMill Creek Residential Trust
BEST LEASE-UP PACE FOR A SUBURBAN MARYLAND APARTMENT COMMUNITYCadence at Crown, Gaithersburg, MDThe Bozzuto Group
BEST LEASE-UP PACE FOR A BALTIMORE APARTMENT COMMUNITYParagon at Columbia Overlook, Baltimore, MDChesapeake Realty PartnersWPM Management
BEST WASHINGTON/BALTIMORE CONDOMINIUM COMMUNITYThe Residences at CityCenter, Washington, DCHines
The Mayhood Company
Shalom Baranes Associates
BEST WASHINGTON/BALTIMORE BOUTIQUE CONDOMINIUM COMMUNITYEdmonds School, Washington, DCCAS Riegler Ditto Residential
McWilliams | Ballard R2L Architects
BEST WASHINGTON/BALTIMORE ADAPTIVE REUSE CONDOMINIUM COMMUNITYThe Oronoco Waterfront Residences, Alexandria, VAEYA Shalom Baranes Associates
BEST WASHINGTON/BALTIMORE CONDOMINIUM CONVERSION COMMUNITYSomerset House, Washington, DCTenacity Group Condo Network @ Long and Foster
Forrest Perkins, IBL Enterprises, Capitol Design
BEST SALES PACE FOR A WASHINGTON/BALTIMORE CONDOMINIUM COMMUNITYThe Flats at Metro West, Fairfax, VAPulteGroup Minno & Wasko Architects
HIGHEST AVERAGE SALES PRICE PER SQUARE FOOT FOR A WASHINGTON/BALTIMORE CONDOMINIUM COMMUNITY
1055 High, Washington, DCEastBanc
1STATE OF
THE ECONOMY
3DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
According to Federal Reserve Chair Janet Yellen’s semiannual
Monetary Policy Report, the economy continues to see
improvement, but the recovery from the Great Recession is
still in progress . This is partially based on the unemployment
rate being above the Federal Open Market Committee’s
(FOMC) longer-run normal level estimate and the labor force
participation rate appearing weaker than expected .
Despite these current shortcomings, the national economy
is expected to continue experiencing moderate growth over
the next few years . It will be spurred by supportive monetary
policy, increased home prices and equity values, stronger
foreign growth, and a decreased drag from fiscal policy .
Until the FOMC sees a significant increase in stability in the
labor market, we can expect it to continue utilizing monetary
policies to support economic growth . For example, the FOMC
has continuously reaffirmed its stance on maintaining the
Federal Funds Rate at 0% to 0 .25% . The road to a complete
recovery has been slow, but there has been continued
progress despite bumps along the way .
Now, for a look at major U.S. economic indicators:
PAYROLL JOBS
The national economy added 2 .6. million new payroll jobs
(not seasonally adjusted) during the 12 months ending July
2014, with the private sector accounting for the majority
of net additions (the public sector added 98,000 positions) .
Recent month-to-month gains (seasonally adjusted) have
been fairly strong and have shown improved consistency:
• April 2014: 304,000 (revised from 282,000)
• May 2014: 229,000 (revised from 217,000)
• June 2014: 298,000 (preliminary)
• July 2014: 209,000 (preliminary)
After the Bureau of Labor Statistics (BLS) releases job growth
data it revises its records a number of times as more data
becomes available . These revisions tend to be pro-cyclical,
meaning that revisions tend to show stronger growth during
an expansion and less growth during recessions . Recently,
since we are in an expansion period, BLS has typically been
revising job growth upwards . Revisions to April and May of 2014
showed an additional 34,000 jobs compared to preliminary
data . It is also noteworthy that for the 12 months ending in
July 2014, the public sector added the most jobs since the 12
months ending June 2010, more than four years ago .
ECONOMY GAINING TRACTION; UNEMPLOYMENT RATE CONTINUES TO DECLINE;HIRES RATE INCREASING, SUGGESTING RENEWED STRENGTH IN LABOR MARKET
PAYROLL JOB GROWTH United States | Year-Over-Year
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
Mar.10
May10
Jul.10
Sep.10
Nov.10
Jan.11
Mar.11
May11
Jul.11
Sep.11
Nov.11
Jan.12
Mar.12
May12
Jul.12
Sep.12
Nov.12
Jan.13
Mar.13
May.13
Jul.13
Sep.13
Nov.13
Jan.14
Mar.14
May.14
Jul.14
Private Sector
Public Sector
TH
OU
SAN
DS
OF
NE
W P
AY
RO
LL J
OB
S
Note: Data are not seasonally adjusted.
THE NATIONAL
ECONOMYTHIRD QUARTE
R 2014
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION4
SPONSORED BY ROSS COMPANIES
The public sector has now added jobs for four consecutive
months after shedding jobs for the previous 44, and all of
this growth stems from state and local governments . The
Federal government continues to cut its workforce as it faces
budget shortfalls and rising liabilities . Of note, these cuts
are being achieved primarily through attrition rather than
layoffs . One benefit of Federal austerity and an enduring
economy is deficit reduction . The Congressional Budget
Office (CBO) projects that in 2015, the Federal budget deficit
will be 31% smaller than it was in 2013 . Of note, the U .S . will
still be running a deficit – we are not paying down debt, just
increasing it at a slower rate – but that is still substantial
progress in two years . In its April 2014 update, the CBO
reported that 2014 will be the fifth consecutive year that the
deficit’s share of the GDP has decreased . The CBO projects
the budget deficit in 2014 will be $492 billion, which is 2 .8%
of GDP and is nearly a third less than the $6.80 billion deficit
in 2013 . However, after 2015, the deficit will stop shrinking
and will reach approximately $1 trillion from 2022 through
2024 . This will be caused by our aging population, rising
health care costs, an expansion of Federal subsidies for
health insurance, and growing interest payments on the
Federal debt .
As was the case in our mid-year report, the top four sectors
in job gains were Professional/Business Services, Leisure/
Hospitality, Education/Health Services, and Retail Trade –
adding a total of 1 .7 million new jobs and accounting for over
6.4% of net new employment . Retail employment continues
to grow at a healthy rate, though retail jobs have less of a
multiplier effect than many others due to their low wages .
Some sectors have experienced weaker recoveries than
others . Specifically, the manufacturing, financial services,
and information industries have lagged behind while some
other sectors have either matched their pre-recession
levels or surpassed them . Job losses were confined to the
Federal Government and Information sectors over the past
year, with a total net loss of 43,000 and 28,000, respectively .
Of note, while those two sectors are still shedding jobs, the
rate of loss is slowing .
The Bureau of Labor Statistics projects that the economy
will add approximately 15 .3 million nonfarm payroll jobs
from 2012 through 2022, for an average annual growth rate
of 1 .1% . This compares to an average annual growth rate
of 0 .3% from 2002-2012, albeit that decade was marred by
the Great Recession . Education/Health Services is projected
to be the leader in job growth through 2022, adding 5 .7
PAYROLL JOB GROWTH United States | 12 Months Ending July 2014
-100,000 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000
Federal Government
Information
Other Services
Financial Activities
Wholesale Trade
State and Local Government
Transportation/Utilities
Manufacturing
Construction/Mining
Retail Trade
Education/Health
Leisure/Hospitality
Professional/Business Services
J O B C H A N G E
Source: Bureau of Labor Statistics, Delta Associates; September 2014. Note: Data are not seasonally adjusted.
PROJECTED PAYROLL JOB GROWTH United States | December 2012 – December 2022
-1,000 0 1,000 2,000 3,000 4,000 5,000 6,000
Manufacturing
Federal Govt
Information
Transportation/Utilities
Wholesale Trade
Other Services
Financial Activities
State/Local Govt
Retail Trade
Leisure/Hospitality
Construction/Mining
Professional/Business
Education/Health
J O B C H A N G E ( T H O U S A N D S )
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
BASELINE BUDGET PROJECTIONS United States
Baseline budget projections as of April 2014. Source: Congressional Budget Office, Delta Associates; September 2014.
FED
ER
AL
DE
FIC
IT (
$ B
ILLI
ON
S)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
-1,200
-1,000
-800
-600
-400
-200
0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Deficit % of GDP
DE
FIC
IT A
S A
% O
F R
EA
L G
DP
THE NATIONAL ECONOMY
5DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
SPONSORED BY ROSS COMPANIES
million jobs . Professional/Business Services follows, adding
3 .5 million positions . Manufacturing, Federal Government
and the Information sectors are expected to shed positions
over the 2012-2022 period . Of note, the Bureau of Labor
Statistics expects the disparity between goods-producing
jobs and service jobs as a percentage of total employment
to widen . Goods-producing jobs (Mining, Construction and
Manufacturing) will comprise 12 .1% of all jobs in 2022,
compared to 12 .6.% in 2012 . Service jobs as a percentage of
all employment is forecasted to rise to 80 .9% in 2022, from
79 .9% in 2012 .
UNEMPLOYMENT
Overall, Initial unemployment claims have steadily
fallen since their peak in March of 2009 . As of mid-August
2014, initial claims stood at 295,750 based on a four-week
seasonally-adjusted moving average, falling 11 .7% from the
same period one year ago . This compares to the 15-year
average of 379,800 . We expect unemployment claims to
continue decline gradually through the year in concert with
improving labor market conditions .
The unemployment rate (seasonally adjusted) declined to
6. .2% as of July 2014 from 7 .3% one year earlier . (The rate
declined to 6. .1% as of August in data released shortly before
this writing .) Earlier in the year, the unemployment rate
was declining in part because of workers dropping out of
the labor force, but more recently the rate has been driven
more by new jobs being created . In general, we anticipate
that the unemployment rate will gradually decline over
the next year as the economic expansion continues, hiring
accelerates, and uncertainty dissipates . In the short term
unemployment may tick up slightly as the current increase
in hiring might encourage even more people to rejoin the
labor force .
One indicator of the economy that has not seen significant
growth as of late is the national average hourly wage . In
July 2014 the hourly wage only increased slightly to $24 .45,
a 2 .0% increase since one year prior . By comparison, in 2007
the national hourly wage increased by at least 3 .0% during
each month compared with the same month one year prior .
The slow growth in wages is an indicator that the jobs being
created are in lower-paying industries . Even if people are
finding jobs, they are likely to be underemployed, meaning
job seekers are taking jobs that are below the education
levels they have earned .
THE NATIONAL ECONOMY
INITIAL UNEMPLOYMENT CLAIMS United States | Four-Week Moving Average
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,000
Peak in Initial Unemployment Claims (Week of 3/28/09) = 659,250
15-Year Average = 379,800
INIT
IAL
UN
EM
PLO
YM
EN
T C
LAIM
S
Source: Bureau of Labor Statistics, Delta Associates; September 2014. Note: Data are seasonally adjusted.
(Week of 9/6/14) = 304,000
UNEMPLOYMENT RATE United States
0%
2%
4%
6%
8%
10%
12%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14*
Note: Through August 2014; seasonally adjusted; shaded bars represent recessions. Source: Bureau of Labor Statistics, Delta Associates; September 2014.
U.S
. U
NE
MP
LOY
ME
NT
RA
TE
0%
1%
2%
3%
4%
5%
2007* 2008 2009 2010 2011 2012 2013 2014
AVERAGE HOURLY EARNINGS 12-Month Percentage Growth | 2007- July 2014
* Data available starting March 2007 Source: Bureau of Labor Statistics, Delta Associates; September 2014.
Average 2007-2008 = 3.3%
Average 2009-2014 = 2.1%
12
-MO
NT
H P
ER
CE
NTA
GE
GR
OW
TH
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION6
SPONSORED BY ROSS COMPANIES
Hires Rate: According to the Economic Policy Institute, a
method to gauge the relative strength of the current labor
market is through the hires rate, or the share of total
employment accounted for by new hires . In effect, the hires
rate captures (1) Net new hires, and (2) New hires that are
due to “churn .” The indicator is useful because top-end
payroll job growth hides a lot of shuffling in the economy,
or the natural “churn” in the job market as hires fill vacated
or lost positions . One feature of the current expansion
has been the reluctance of workers to separate from their
current job, which is usually an important way for many
workers to advance their careers and take advantage of
better and bolder opportunities . As shown below, the hires
rate fell dramatically during the Great Recession and has
shown only modest improvement thereafter . From 2009
to year-end 2013, net new hires accounted for only about
3 .15% of payroll job growth on average . The adjacent graph
illustrates the fragility of the labor market, as employees
are clinging to less desirable positions and may be missing
opportunities for future career growth . The recent trend
has been positive, however, with the June 2014 rate (the
most recent data available) at 3 .5% .
Job applicants: As of June 2014, there were 2 .0 potential
applicants for every job opening . This is well below the July
2009 peak of 6. .7 applicants for every job and also less than
the 10-year average of 3 .2 . Also, this is the lowest ratio since
March 2008 and the 11th consecutive month the ratio has
been below 3 .0 . At the peak of the previous expansion cycle,
in March 2007, the ratio was 1 .4 potential applicants for
every job opening .
However, there are still many sectors that have significantly
more potential applicants than jobs available . This gap is
most apparent in the construction sector, where for every
job opening, there are 7 .0 potential applicants as of June
2014 . This gap is forcing many unemployed construction
workers to revamp their skill sets in order to be hirable
in other sectors . This need to learn new skills applies to
workers in all industries, which might help explain why so
many people have dropped out of the labor force since the
Great Recession . While the construction industry has the
highest unemployed workers to job openings ratio, other
industries also have a significant oversupply of candidates .
Importantly, the oversupply in construction is declining, with
the ratio down from 7 .5 just three months earlier and 10 .4 a
year earlier . In comparison, the Professional and Business
Services sector has just 1 .6. applicants per job opening .
HIRES RATE United States
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
SH
AR
E O
F TO
TAL
EM
PLO
YM
EN
T T
HA
T I
S N
EW
H
IRE
S
Note: Shaded bar represents most recent recession. Source: Bureau of Labor Statistics, Delta Associates; September 2014.
Average 2009-2013 = 3.15%
Average 2003-2008 = 3.75%
JOB-SEEKERS RATIO United States
0
1
2
3
4
5
6
7
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
RA
TIO
OF
JOB
-SE
EK
ER
S T
O
JOB
OP
EN
ING
S
Note: Through June 2014. Source: Bureau of Labor Statistics, Economic Policy Institute, Delta Associates; September 2014.
10-Year Average = 3.1
NUMBER OF UNEMPLOYED VS. JOB OPENINGS 12-Month Average Ending June 2014
0 200 400 600 800 1,000 1,200 1,400 1,600
Wholesale and retail trade
Leisure and hospitality
Professional and business services
Education and health services
Manufacturing
Construction
Government
Financial activities
Other services
Transportation and utilities
Information
Mining
Number of Job Openings
Number of Unemployed
T H O U S A N D S O F J O B S
Note: Based on 12-month trailing average. Data are not seasonally adjusted. Source: Bureau of Labor Statistics, Delta Associates; September 2014.
THE NATIONAL ECONOMY
7DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
SPONSORED BY ROSS COMPANIES
GROSS DOMESTIC PRODUCT (GDP)
Real GDP contracted for the first time in three years by
a revised 2 .1% annualized rate during the 1st quarter of
2014, but bounced back and increased by an annualized
rate of 4 .2% (the government’s second estimate) during
the 2nd quarter of 2014 . The increase in real GDP growth
during the 2nd quarter stemmed from a rise in personal
consumption expenditures, private inventory investment,
exports, nonresidential fixed investment, state and local
government spending, and residential fixed investment .
According to the most recent report from Federal Reserve
Bank of Philadelphia, economists predict that the real GDP
growth will be 3 .0% in the 3rd quarter of 2014, 3 .1% in the
4th quarter, and 2 .1% in 2014 overall . Looking further ahead,
real GDP is predicted to average 3 .1% in 2015, 2 .9% in 2016.,
and 2 .8% in 2017 .
Nevertheless, global economic growth could face near-term
constraints from a combination of current account deficits/
weak currencies in emerging economies and questions
about the rate of future growth in China . And, of course,
there are always worries about geo-political events .
The national economic expansion remains on track, even if
its performance is slow and uneven from month to month .
This is due in part to consumer’s improved outlook due to:
• Higher-income Americans feeling wealthier due to a
17 .7% gain in the S&P 500 in the past year;
• Middle-income Americans feeling better due to a 6. .2%
gain in housing prices over the past 12 months (per the
S&P/Case-Shiller national index), though the rate of
increase is decelerating; and
• Lower- and middle-income earners benefiting from low
inflation .
In addition, as households continue to fuel growth in the
economy through consumption expenditures, household
wealth accumulation (e .g ., residential investment)
continues to be on the mend . Non-residential investment
as a percentage of GDP is returning to pre-recession levels,
as inventory stock has been building up and commercial
construction is ramping up . Residential investment, which
includes new housing starts and upgrades to existing
residential buildings, has historically been a significant
contributor to GDP growth following the last four
recessions, but growth in residential investment following
THE NATIONAL ECONOMY
FIXED INVESTMENT CONTRIBUTIONS TO GROSS DOMESTIC PRODUCT (GDP)
Source: Federal Reserve Economic Database (FRED), Delta Associates; September 2014.
0%
2%
4%
6%
8%
10%
12%
14%
16%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
PE
RC
EN
TAG
E O
F R
EA
L G
DP
RI %GDPNRI % GDP
Residential Private Investment Nonresidential Private Investment
*Through Q2 2014. Note: data are seasonally adjusted at annual rates.
GDP PERCENT CHANGE United States
Source: Bureau of Economic Analysis, Delta Associates; September 2014. Note: Annualized.
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
AN
NU
AL
GD
P C
HA
NG
E I
N 2
00
9
CO
NST
AN
T D
OLL
AR
S
20-Year Average = 2.5%
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION8
SPONSORED BY ROSS COMPANIES
the latest recession has been sub-par . We expect residential
fixed investment as a percentage of GDP will increase
during the coming year, as home values continue to rise
(though perhaps more slowly) and home construction picks
up . Much like our expectation that personal consumption
expenditures are poised to expand as household equity
continues to mend, a rise in residential fixed investment
should translate into accelerating GDP growth in the
coming year or two .
CORPORATE PROFITS
U .S . corporate profits totaled $1 .94 trillion during the 1st
quarter of 2014 on an annualized basis, a 4 .8% decrease
over the 1st quarter of 2013 . Despite this decline, overall
corporate profits have been trending upwards since 2008 .
Companies have the resources to hire but remain wary
about future demand for products and services . We expect
that record corporate profits will gradually decline over the
next few years as uncertainty fades, businesses expand
their capital expenditures and M&A activity ramps up . We
have already seen a number of large acquisitions in 2014
including Facebook’s $19 billion purchase of WhatsApp,
Google’s $3 .2 billion deal for Nest Labs, and Apple’s $3
billion acquisition of Beats Electronics .
HOUSING MARKET
Home prices in the 20 major metro areas increased 8 .1%
during the 12 months ending June 2014, the most recent
data available, according to S&P/Case-Shiller . The housing
market is slowing nationally on a year-over-year basis,
and is now more in line with the pace of overall economic
growth . Inventory, which had been very low in some metro
areas, is gradually normalizing, easing pricing pressure .
The number of U .S . home sales rose to 5 .15 million (on an
annualized basis) in July 2014 from 5 .03 million one month
earlier . The 5 .15 million-unit pace is 4 .3% below the 5 .38
million-unit pace from the same period a year ago . The
average existing home sales price was $26.8,700 in July
2014 according to the National Association of Realtors,
surpassing the pre-recession average .
FEDERAL INTERVENTION AND INFLATION
Janet Yellen, the Federal Reserve’s new Chair, stated in
her semiannual Monetary Policy Report to Congress that
ANNUAL CHANGE IN EXISTING HOME SALE PRICES United States
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
PE
RC
EN
T C
HA
NG
E F
OR
ME
DIA
N P
RIC
E
OF
SIN
GLE
-FA
MIL
Y H
OM
ES
Source: S&P/Case-Shiller, Delta Associates; September 2014.
2008 2009 2010 2011 2012
Note: Data reflect 20-city composite index.
2013 2014
Source: National Association of Realtors, Delta Associates; September 2014.
$200,000
$210,000
$220,000
$230,000
$240,000
$250,000
$260,000
$270,000
$280,000
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
2006 2007 2008 2009 2010 2011 2012 2013 2014*
Number of Existing Home Sales**
Average Existing Home Sales Price
NU
MB
ER
OF
SALE
S –
T
HO
USA
ND
S O
F U
NIT
S
U .S . EXISTING HOME SALES VS. SALES PRICE
AV
ER
AG
E S
ALE
S P
RIC
E
*Data as of July 2014. ** Seasonally adjusted annual sales rate.
THE NATIONAL ECONOMY
$0
$20
$40
$60
$80
$100
$120
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Corporate Profits
S&P 500 12-Month EPS
Note: Seasonally adjusted at annual rates. *EPS through March 2014.
U.S. CORPORATE PRE -TAX PROFITS
Source: Bureau of Economic Analysis, Multpl.com, Delta Associates; September 2014.
CO
RP
OR
AT
E P
RO
FIT
S I
N T
RIL
LIO
NS
S&
P 5
00
12
-MO
NT
H E
PS
9DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
SPONSORED BY ROSS COMPANIESTHE NATIONAL ECONOMY
the economy continues to improve, but has still not
completely recovered . Accordingly, the Fed plans to keep
short-term rates at their current range of 0% to 0 .25% until
labor market conditions, indicators of inflation pressures
and inflation expectations, and readings on financial
developments improve .
In late July the Fed cut its bond-buying activities (QE3) by
another $10 billion, bringing down total long-term bond
purchases to $25 billion per month . Also, minutes from the
Federal Open Market Committee’s June meeting reveal the
tapering process will end in October .
For commercial real estate investors, we perceive the
tapering decision as a net positive . The Fed’s announcement
should provide more clarity as to the central bank’s
monetary guidance going forward . The move also sheds
light on the improving prospects of the U .S . economy, and it
should remove a portion of the all-too-familiar uncertainty
that has plagued business decision-making and capital
investment for some time .
How will markets react going forward? Time will tell, but we
expect some short-term volatility, especially in emerging
economies that benefited from record-low borrowing
rates . The stock market has seen its upward momentum
continue through the summer as the Fed has tapered its
bond purchases .
Regarding inflation, prices increased 2 .0% during the
12 months ending July 2014 . The personal consumption
expenditure price index (PCEPI), which takes into account
changes in consumption habits as people substitute away
from some goods and services towards others, rose 1 .6.%
during the 12 months ending July 2014 . The slight increase
in prices stems partially from the rise in costs for food,
especially meats, poultry, fish, and eggs, and the rise in
energy costs . Meat prices are rising due to droughts in the
central United States, which has significantly cut down hay
production, leaving ranchers with less food for cattle . As
a result ranchers are reducing cattle production, cutting
supply during barbeque season, which is when demand for
meat is at its highest . We expect inflation to be contained
in the near-term due to modest wage growth, coupled with
the fact that price pressure tends to lag economic growth
by a year or more . Given this, coupled with appropriate
monetary measures, inflation looks soft and should hover
near 2 .0% during the balance of 2014 .
SELECTED U.S. GOVERNMENT INTEREST RATES
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
INT
ER
EST
RA
TE
S (
%)
Federal Funds Rate
10-Year Treasury
30-Year Treasury
Source: Federal Reserve Economic Data (FRED), Delta Associates; September 2014. Note: Federal Funds Rate unchanged since December 16, 2008. 30-Year Treasury not issued between Q2 2002-2005.
U.S. INFLATION AND PERSONAL CONSUMPTION EXPENDITURE INDEX
Source: Federal Reserve Economic Database (FRED), Delta Associates; September 2014.
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14*
PE
RC
EN
TAG
E C
HA
NG
E
Series1
Series2
CPI-U PCEPI
Note: *CPI-U through July 2014 and PCEPI through July 2014. 12-month seasonally-adjusted percentage change.
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION10
SPONSORED BY ROSS COMPANIES
ECONOMIC OUTLOOK
During the 3rd quarter of 2014, the economy experienced
growth at the slow and steady pace we have become
accustomed to during the recovery from the Great
Recession . The most recent GDP readings, from the 2nd
quarter of the year, were strong, but most economists
believe the overall set of current and leading indicators
suggests that growth will settle in at a slower rate for the
balance of 2014 . Looking forward, we expect to see payroll
employment growth continue, the unemployment rate to
decline further, and household net worth to increase from
the rise in home and stock market values . The economy
successfully bounced back from a slow 1st quarter and we
expect it do so again if faced with similar challenges in
the near future . On balance, we look for this recovery to
continue on its slow but steady course through 2018 or so,
barring a catastrophic event .
Specifically, we believe the economic outlook is as follows:
• Real GDP growth: 2 .5% in 2014 .
• Payroll jobs: 2 .6. million added in 2014, slightly outpacing
the 2013 total .
• Housing: Price appreciation around 6.% to 8% in 2014, off
last year’s performance .
• Unemployment rate: Hovering around 6. .0% to 6. .2% for
the balance of 2014 .
• Federal Funds Rate: 0% to 0 .25% through year-end 2015 .
• Long-term interest rates: Edging higher during the rest
of 2014 .
• Inflation: Around 2 .0% to 2 .5% for 2014 as consumer
demand strengthens .
The outlook for the intermediate-term is bright as well .
According to the Bureau of Labor statistics, the prime
working age population has been growing since 2012, and will
continue to do so until 2020 . The rise in the prime working
age population is an important shift in demographics that
should help boost economic activity in the coming years .
This data also suggests that we would have likely faced
slower economic activity, to some degree, during the past
decade no matter what – the financial crisis compounded
THE NATIONAL ECONOMY
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014*
PO
PU
LAT
ION
(0
00
S)
population
*As of July 2014.
PRIME AGE POPULATION, 25 TO 54 YEARS OLD United States
Looking forward, we expect to see payroll employment growth continue, the unemployment rate to decline further, and household net worth to increase.
11DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
SPONSORED BY ROSS COMPANIESTHE NATIONAL ECONOMY
*Seasonally-adjusted change for 12 months ending in July 2014; others are comparisons of annual averages. Note that BLS has rebenchmarked figures since their initial publication; the figures presented above are the most recent estimates.
U.S. PAYROLL JOB GROWTH
YEAR JOB CHANGE % CHANGE
1 .9%
1 .7%
1 .7%
1 .2%
-0 .7%
-4 .3%
-0 .6.%
1 .1%
1 .8%
1 .7%
1 .1%
-0 .2%
-1 .1%
2,542,000
2,26.4,000
2,250,000
1,576.,000
-948,000
-5,949,000
-76.5,000
1,532,000
2,407,000
2,26.5,000
1,417,000
-313,000
-1,451,000
2014*
2013
2012
2011
2010
2009
2008
2007
2006.
2005
2004
2003
2002
METRO AREA # % METRO AREA # %New York 155,400 1.8% Baltimore 34,600 2.6%LA Basin Philadelphia 33,900 1.2% Los Angeles/Long Beach/Glendale 69,200 1.7% Orlando 33,200 3.2% Orange County (Santa Ana/Anaheim/Irvine) 22,500 1.6% Austin 32,600 3.8% Riverside/San Bernardino/Ontario 36,200 3.0% Portland (OR) 31,700 3.1% Subtotal LA Basin 127,900 1.9% Raleigh-Durham 31,000 3.8%Dallas/Ft. Worth 120,800 3.9% St. Louis 27,100 2.1%Houston 112,200 4.0% Charlotte 25,800 3.0%San Francisco Bay Area Las Vegas 25,700 3.0% San Jose/Sunnyvale/Santa Clara 27,100 2.8% Indianapolis 22,600 2.4% San Francisco/San Mateo/Redwood City 35,400 3.3% Nashville 21,400 2.7% Oakland/Fremont/Hayward 23,700 2.3% Tampa-St. Pete 21,000 1.8% Subtotal Bay Area 86,200 2.8% San Antonio 20,800 2.3%South Florida Sacramento 20,800 2.4% West Palm Beach/Boca Raton 17,700 3.3% Cincinnati 19,900 1.9% Fort Lauderdale 22,800 3.1% Washington, DC 19,800 0.6% Miami/Miami Beach/Kendall 36,400 3.5% Oklahoma City 19,000 3.2% Subtotal South Florida 76,900 3.3% Salt Lake City 19,000 2.9%Atlanta 63,900 2.7% Jacksonville 17,100 2.8%Boston (Metropolitan NECTA) 57,200 2.2% Detroit (Detroit/Warren/Livonia) 16,800 0.9%Seattle 49,700 2.8% Cleveland 16,000 1.6%Denver-Boulder 48,100 3.3% New Orleans 15,100 2.8%Phoenix 47,400 2.7% Kansas City 13,700 1.4%Chicago 47,200 1.1% Pittsburgh 12,400 1.1%Minneapolis-St. Paul 46,300 2.6% Memphis 8,900 1.5%San Diego 37,200 2.8% Columbus (OH) 6,600 0.7%
Note: Data are not seasonally adjusted.Source: Bureau of Labor Statistics, Delta Associates; September 2014.
12-MONTH PAYROLL EMPLOYMENT CHANGE THROUGH JULY 2014
JOB CHANGE JOB CHANGE
the problem of weaker workforce demographics, but some
economic retrenchment was likely in any case .
Additionally, the largest five-year age cohort is now the 20
to 24-year-old age group based on data from the Census
Bureau . As workers within this cohort grow older over the
next few years, their wages will rise and the amount they
spend will increase as result, further boosting the economy .
Also, as this age cohort shifts to the 25 to 29-year-old
group, they will be more likely to start buying their own
homes as opposed to renting . Based on the aforementioned
conditions, we expect the national economy to see
continued growth in both the near and intermediate terms .
NATIONAL PAYROLL JOB GROWTH SUMMARY
The U .S . economy gained 2 .5 million payroll jobs over the 12
months ending July 2014 (seasonally adjusted), representing
an increase of 1 .9% . This compares to the 25-year annual
average of 1 .2 million jobs at a 1 .1% average growth rate .
13DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
The Washington metro area faced a number of challenges in
early 2014, including Federal budget cuts and harsh winter
weather that hindered businesses throughout the region .
Despite these challenges, payroll job change still remained
positive, albeit below historical averages . In more recent
months, job growth has been stronger on an annual basis
and we expect it to continue gaining strength throughout
the balance of 2014 . During the 12 months ending July 2014,
payroll employment increased by 19,800, or 0 .6.% . However, the
12-month employment gain is below the metro area’s 20-year
annual average of 42,6.00 and compares to prior expansion
cycles of 6.0,000 to 100,000 in job gains . As a result, this
expansion, while strengthening, feels anemic by comparison .
As the Washington metro area adjusts to these conditions,
we expect the private sector to increasingly pick up the
slack . Growth in the private sector combined with pent-up
demand for goods and services will help to spur job growth
for the balance of 2014 and will likely continue through
2018 . Job growth will keep the region’s unemployment rate
low; as of July 2014 the unemployment rate was at 5 .4%, one
of the lowest rates among major metro areas .
Specifically, more job growth will be needed from the
Professional/Business Services sector, as it produces higher
paying jobs . Currently, the job growth is highest in the Retail
Trade sector, which produces lower-wage jobs . Plans in Virginia,
such as Governor McAuliffe’s recently announced “New Virginia
Economy Workforce Initiative,” are a step in the right direction .
The initiative will focus on training people for middle-skill jobs
that require some training past high school, but do not need a
four-year degree . Governor McAuliffe has set a goal for 50,000
Virginians to graduate the program by the end of 2017 .
P A Y R O L L E M P L O Y M E N T
ECONOMIC HIGHLIGHTSW A S H I N G T O N M E T R O A R E A
3.1m i l l i o n
at July
2014
J O B C H A N G E
19.8thousand
12 months ending July
2014
U N E M P L O Y M E N T R AT E
5.4%I N F L AT I O N
1.7%12 months ending July
2014
H O U S I N G P R I C E S
5.3%12 months
ending June
2014Source: Bureau of Labor Statistics, S&P/Case-Shiller; September 2014.
at July 2014
down from
5.7% one year ago
THE WASHINGTON
AREA ECONOMY
THIRD QUARTER 2014
JOB GROWTH IMPROVING; CONTRACTORS SLOWLY GAINING MORE CONFIDENCE; UNEMPLOYMENT RATE REMAINS LOW
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION14
SPONSORED BY ROSS COMPANIES
PAYROLL JOBS
The Washington metro ranks seventh in population among
the nation’s metro areas, with 5 .9 million residents . With
3 .1 million payroll jobs, the Washington metro area ranks
as the fifth-largest job market, behind New York, LA Basin,
Chicago, and Dallas/Ft . Worth . The Washington metro area
economy added 19,800 new payroll positions during the
12 months ending July 2014 . Growth is below the 20-year
annual average of 42,6.00 and less than in past recovery
cycles, which averaged 6.0,000 to 100,000 .
As noted previously, a majority of job growth since the
end of the recession has come from lower-wage jobs . Jobs
filled that were mid-wage and higher-wage were outpaced
by lower-wage jobs by about 40,000 and 20,000 jobs,
respectively . As jobs in the Manufacturing, Information, and
Federal Government sectors continue to be shed, creating
higher-wage jobs becomes an ever-increasing priority .
The Washington metro area added 19,800 new jobs during
the past 12 months . Other metro areas with larger private
sectors continue to outpace it in job gains . New York, the
LA Basin, DFW, Houston, and SF Bay are the leaders in
job growth, spurred by growth in Professional/Business
Services, Trade/Transportation/Utilities, and Energy .
PAYROLL JOBS BY SECTOR
The top four sectors for job growth in the Washington
metro area are Retail Trade, Leisure/Hospitality, Education/
Health Services, and State/Local Government – with a total
of 24,300 new jobs added to the economy in these four
sectors alone . These industries are still seeing job growth,
but they are being partially offset by other industries that
are experiencing losses . Notably, the Federal Government
sector lost 8,100 jobs while the Manufacturing and
Information sectors lost 2,6.00 and 2,500 jobs, respectively,
during the 12 months ending July 2014 . Federal agencies
continue to tighten spending due to Federal austerity
measures, notwithstanding the partial rollback of
sequestration . The majority of the region’s Federal job
cuts occurred in the District of Columbia . The Federal
government is not laying off workers; rather, a hiring
freeze has prevented hiring for many positions vacated
due to retirement or workers leaving for other positions
outside the Federal government .
(60) (40) (20) 0 20 40 60 80
Lower Wage
Mid-Wage
Higher-Wage
Thousands
2008-2009
2010-2013 H I G H E R - W A G E
M I D - W A G E
L O W E R - W A G E
JOB CHANGE IN THOUSANDS
PAYROLL JOB CHANGE BY WAGE Washington Metro Area
Source: Dr. Stephen Fuller, Delta Associates; September 2014.
19.8
0
20
40
60
80
100
120
140
160
180
NY LABasin
DFW Hou SF Bay SouthFL
Atl Bos Denver Phx Chi Was
PAYROLL JOB GROWTH Selected Large Metro Areas | 12 Months Ending July 2014
TH
OU
SAN
DS
OF
NE
W
PAY
RO
LL J
OB
S
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
-60
-40
-20
0
20
40
60
80
100
120
140
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
20-Year Annual Average = 42,600/Year
*12 months ending in July 2014.
TH
OU
SAN
DS
OF
NE
W P
AY
RO
LL
JOB
S (
AN
NU
AL
AV
ER
AG
E)
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
PAYROLL JOB GROWTH Washington Metro Area
THE WASHINGTON AREA ECONOMY
15DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
SPONSORED BY ROSS COMPANIES
UNEMPLOYMENT RATE
The Washington area unemployment rate was 5 .4% at July
2014, down 30 basis points from 5 .7% one year ago . This
compares to the national (seasonally adjusted) rate of
6. .2% in July 2014, which is down 110 basis points from one
year earlier . The Washington metro area has the second-
lowest unemployment rate among the nation’s largest
metro areas, behind Denver . The Washington metro area’s
unemployment rate peaked in January 2010, at 7 .1%,
and has since declined, albeit unevenly . We expect the
Washington metro area’s unemployment rate to hold in the
low-5% range during the balance of 2014 .
REGIONAL CONSUMER PRICE INDEX
Overall inflation in the Washington/Baltimore region was
1 .7% during the 12 months ending July 2014, compared to
the national inflation rate of 2 .0% . Inflation for all types
of items remained relatively in check with the regional
inflation rate . Medical expenses only rose 2 .3% in the
Washington/Baltimore region during the past 12 months,
the lowest rise in a 12 month period since November 2009 .
Also, housing fuel and utilities have decreased 1 .4% during
the same period after rising 7 .2% during the 12 months
ending March 2014 and 4 .0% during the 12 months ending
PAYROLL JOB GROWTH Washington Metro Area | 12 Months Ending July 2014
-12,000 -8,000 -4,000 0 4,000 8,000 12,000 16,000
Federal Government
Manufacturing
Information
Wholesale Trade
Professional/Business Services
Construction/Mining
Transportation/Utilities
Other Services
Financial Services
State and Local Government
Education/Health
Leisure/Hospitality
Retail Trade
J O B C H A N G E
+33,000
-13,200
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
0%
2%
4%
6%
8%
10%
12%
Den Was Bos DFW Hou SF Bay Phx S Fla Chi NY Atl LABasin
July 2013 July 2014
UN
EM
PLO
YM
EN
T R
AT
E
National Rate*
7.3% 6.2%
-170 -30 -120 -260 -130 -90 -130 -100 -100 -120 -30 -140 Basis Point Change
UNEMPLOYMENT RATE Large Metro Areas | July 2013 vs. July 2014
Source: Bureau of Labor Statistics, Delta Associates; September 2014. *Seasonally adjusted.
THE WASHINGTON AREA ECONOMY
Note: In thousands of payroll jobs. Data are not seasonally adjusted.Source: BLS, Delta Associates; September 2014.
TRENDS IN EMPLOYMENT BY MAJOR SECTORWashington Metro Area
JULY 2014
Retail Trade
Leisure/Hospitality
Education/Health
State and Local Govt .
Financial Services
Other Services
Transportation/Utilities
Construction/Mining
Professional/Bus . Svs .
Wholesale Trade
Information
Manufacturing
Federal Government
Total
273 .3
311 .7
391 .8
306. .5
156. .1
193 .5
6.1 .5
150 .7
712 .6.
6.3 .2
74 .2
46. .0
36.6. .7
3,107.8
12-MONTHCHANGE
7 .7
7 .2
5 .4
4 .0
3 .8
2 .5
1 .0
0 .7
0 .5
0 .2
-2 .5
-2 .6.
-8 .1
19.8
20-YEAR ANNUAL AVERAGE
1 .9
5 .1
8 .6.
3 .8
0 .0
3 .7
0 .1
1 .0
16. .8
2 .0
-0 .2
-0 .9
0 .7
42.6
Source: Bureau of Labor Statistics, Delta Associates; September 2014.
AN
NU
AL
PR
ICE
IN
DE
X C
HA
NG
E
CONSUMER PRICE INDEX (CPI ) Washington/Baltimore Region
-2%
-1%
0%
1%
2%
3%
4%
5%
10-Year Annual Average = 2.7%
Note: Data is 12 months ending in each period, through July 2014.
DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION16
SPONSORED BY ROSS COMPANIES
May 2014 . For the balance of 2014, we expect inflation
to be contained locally, as slowly progressing economic
conditions keep prices in check, with growth of 1 .5% to 2 .5% .
As long as appropriate monetary measures are in place at
the Federal level, inflation should remain controlled .
HOUSING PRICES
House prices increased 5 .3% in the Washington metro area
during the 12 months ending June 2014, according to the
S&P/Case-Shiller Home Price Index . This compares to a rise
of 8 .1% in the 20 MSA Composite Index .
Using a different methodology, the Federal Housing
Finance Administration (FHFA) measured price growth in
the Washington region at 5 .2% for the 12 months ending
in June 2014 . Both measures reflect decent year-over-year
gains thanks to a resilient private sector, though price
increases have been slower in recent months across the
nation . As demand continues to grow we expect prices to
continue rising . However, housing has become increasingly
unaffordable due to the slower acceleration of wage growth .
REGION’S CORE INDUSTRIES
The Gross Regional Product (GRP) for Washington is expected
to grow to $475 .5 billion in 2014 – a 3 .8% increase from
$458 .1 billion in 2013 . The Federal government is the largest
component of the Washington area economy, as its spending
touches every job sector . However, this share of spending
is shrinking . During 2013, Federal government spending
accounted for 35% of GRP . By 2018, we expect this share
to shrink to 29%, as the Federal government continues to
control spending and the private sector picks up the slack .
The most important element of Federal spending in the
metro area economy is procurement – the government’s
purchase of goods and services from the private sector .
Procurement spending declined 5 .9% during 2013 compared
to a decline of 5 .0% in 2012 . While government contractors
have right-sized over the past three years and found ways
to increase their business with private sector clients,
Federal procurement spending is continuing to decline,
which has a negative impact on this region’s overall
economic performance . In consultation with Dr . Stephen
Fuller of the Center for Regional Analysis, we expect Federal
procurement spending in the Washington metro area to
decline at least 3 .0% in 2014 on a current-dollar basis .
Source: S&P/Case-Shiller, Delta Associates; September 2014.
PE
RC
EN
T C
HA
NG
E
PERCENT CHANGE IN HOUSE PRICES Washington MSA vs. U.S. 20 MSA Composite
Note: Seasonally adjusted.
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Washington MSA
U.S. 20 MSA Composite
*12 months ending June 2014.
THE WASHINGTON AREA ECONOMY
35%
15%
5% 5% 5%
3%
34% Federal SpendingTechnologyBuilding IndustryInt'l BusinessHealth/EducationHospitalityOther
Source: Dr. Stephen Fuller, Delta Associates; September 2014.
SHARE OF GRP Washington Metro Area | 2013
$458 Billion
Percentages may not add to 100% due to rounding.
17DELTA ASSOCIATES | WASHINGTON METROPOLITAN AREA CLASS B APARTMENT MARKET REPORT | THIRD QUARTER 2014 | NOT FOR REDISTRIBUTION
SPONSORED BY ROSS COMPANIES
The Washington region has experienced slow-growth in the
first half of 2014, as expected, due to the lingering effects of
mandatory Federal budget cuts, but harsh winter weather
further stymied the economy earlier this year . We expect
to see stronger economic growth in the Washington metro
area during the balance of 2014 and into 2015 .
Contractors are continuing to adjust to the new economic
environment . With the budget deal and debt limit suspension
in place, contractors have more confidence to commit
towards larger future projects instead of being limited
to smaller short-term deals . This increased certainty has
allowed contractors to adjust their personnel accordingly
and we should see fewer job cuts moving forward . For
example, 500 jobs were added in the Professional/Business
Services sector over the past 12 months, which is not a
significant gain, but is a positive sign compared to the net
loss of jobs in the sector earlier in the year .
Also, the retail and hospitality sectors still have room for
growth . Although these sectors consist of lower-wage jobs,
we expect that they will continue to add workers, which
benefits the overall regional economy .
Even with the headwinds generated by job losses in the
Federal government and contracting sectors, the region’s
overall job growth has been fairly healthy due to the
outperformance of other sectors . These other sectors
generated 6.2,900 new payroll jobs during the 12 months
ending in July 2014, which is more on par with the historical
average of the Washington metro area .
WASHINGTON AREA ECONOMIC OUTLOOK
We expect job growth in the metro area to remain tempered
for an expansion cycle – in the range of 25,000 to 6.0,000
jobs per annum . This is sufficient to support a healthy
commercial real estate industry, but below the levels
experienced in most recent expansion cycles .
THE WASHINGTON AREA ECONOMY
TH
OU
SAN
DS
OF
NE
W P
AY
RO
LL
JOB
S (
AN
NU
AL
AV
ER
AG
E)
Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; September 2014.
PAYROLL JOB GROWTH Washington Metro Area
-60
-40
-20
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
District Sub.
Top Related