Recently, the Washington Post identified a few “hot” trends appearing in the Washington, D.C. real estate market. These trends were:
- Smaller Homes, Closer to the City
- High-Rise Apartments and Condos
- Increased Emphasis on Amenities
- Low Inventory, Higher Prices
In this post, we’ll look at these trends from a practical perspective for local developers, and uncover the larger mega-trend underlying all four of them.
Trend 1: Smaller Homes, Closer to the City
Suburban McMansions are going out of style, as modern homebuyers increasingly desire townhouses and smaller houses. The median floor area of new construction dropped 3% in Q2 last year, while the volume of townhouse construction increased 25% during the same time. Over the last decade, the premium homebuyers who were willing to pay for McMansions, compared to smaller houses, dropped 12%.
Trend 2: Luxury High-Rise Apartments and Condos
Homes are getting smaller, but higher quality. Luxury real estate has been booming. “The vast majority of real estate construction in the District is residential, and the majority of those that are rentals are considered luxury apartment buildings,” reports WTOP. The development of luxury apartments and condos in the wharf are about to join a growing number of buildings selling for over $1,000 per square foot. Other neighborhoods with these prices include Georgetown, West End, and high-rises within Logan Circle. Many “New York-style luxury apartments” are under construction, and will enter the market this year, including the 13-story One Hill South in Nationals Park.
Trend 3: Increased Emphasis on Amenities
These luxury, high-rise buildings are layering on the amenities. One Hill South offers “a private dining room, a billiards room, lounges…a bistro…conference rooms, business rooms, a playroom, bike storage, and parking.” This long list of amenities is becoming standard in new residences entering the market. As Delta Associates reports, “what were once considered special amenities have become the norm in today’s apartment market,” and developers are creating new amenities—like a “Uber Waiting Room”— to stand out in today’s market.
While development is reaching new activity levels, demand continues to outstrip supply. Last month, active listings dropped 12.7% year-over-year, while average prices increased 3.9% and sales volume jumped 19.5% year-over-year. The trend we’ve seen in previous years—where demand outpaced supply—looks set to continue for the foreseeable future.
This continued surge in demand for living within Washington, D.C.—and for living in these new, smaller, high-rise, amenity-rich luxury apartments—all speaks to a larger trend underlying the current D.C. real estate market. The city’s demographics are changing, and the market is now being driven by millennials—who are either moving into their own place for the first time or are buying their first home—and boomers—who are looking to downsize and leave the suburbs to retire closer to the center of the social action.
The Big Trend: Millennials and Downsizing Boomers Driving the Market
Millennials are entering the market as first-time homebuyers, and have a small footprint, while empty-nest boomers need less space—and both want to move back closer to city centers. As the Washington Post previously noted, “The two largest groups of active buyers—millennial first-timers and downsizing boomers—can’t afford or have no need for giant homes.”
Between 2000-2010, over a million boomers moved within five miles of their city’s centers. They tend to prefer large, multi-room condos, and in some cases, they’re willing to pay more money to rent a luxury, amenity-rich apartment than they paid on their suburban mortgages. They are choosing to live in the same neighborhoods as younger residents, in similar apartments younger residents desire, and, in many cases, millennials and boomers find themselves competing for the same residences. “The millennials and the boomers are looking for the same thing,” explained Amy Levner, manager of AARP’s Living Communities.
This competition for Washington, D.C.’s low volume of preferred homes and apartments contributes to our higher-than-average absorption of apartments and the increasingly lopsided relationship of supply-to-demand.
Written by: Evergreen Private Finance