DC Metro • First Quarter • 2014

Multifamily Snapshot

www.cassidyturley.com

Economic Indicators

DC METRO MULTIFAMILY

Market Tracker Vacancy4.2%*Arrows = Current Qtr Trend

Net Absorption2,344 Units

Completions3,565 Units

Asking Rent$1,531

The Washington D.C. metropolitan area multifamily market continued to perform well in the first quarter of 2014. The region absorbed a staggering 2,344 units in the first quarter –already more than a third of the total units absorbed during 2013 which was a near-record year. Suburban Maryland led the region with 1,269 units absorbed. In a sign that new construction continues to be in high demand, the three Suburban Maryland submarkets that delivered new units — Kensington/Wheaton/NE Montgomery, Rockville, and Silver Spring — also saw the highest absorption totals. For example, Rockville delivered a record 814 units in the first quarter, but absorbed 439 units. After absorbing only 56 units in the fourth quarter of 2013, Northern Virginia experienced significant growth and absorbed 726 units, led by Western Fairfax County, Rosslyn/Ballston, and Old Town. The District of Columbia also posted a healthy absorption total of 349 units. Anacostia/Northeast DC led the District of Columbia’s submarkets with 226 units absorbed.

As had been anticipated, deliveries in the first quarter of 2014 were at an all-time high of 3,565 units. The market’s continued health is evident in that only four of the region’s 26 submarkets posted very modest negative absorption during the first quarter, and none of those submarkets delivered new units over the same period. Thus, any negative gains were not the result of oversupply. Asking rental rates averaged $1,531 in the first quarter, a 0.9% increase from year-end 2013. With the exception of a slight dip in the fourth quarter of 2013, rents have been increasing steadily for the past two years at an average rate of 0.6% per quarter.

Despite strong absorption numbers, vacancy rates rose across the metro area. The region’s overall vacancy rate ticked up 0.3 percentage points to 4.2%. Interestingly, vacancy in each jurisdiction increased by about the same amount: District of Columbia vacancy rose 0.3 percentage points to 5.1%, Northern Virginia’s rate was up 0.3 percentage points to 4.0%, and Suburban Maryland vacancy rose 0.4 percentage points to 3.8%. The upticks in vacancy are almost wholly attributed to the astounding amount of new units coming online, but since the deliveries are still in lease-up stage this is not all that alarming. What may be worrisome is that there are many more deliveries to come, so it remains to be seen if oversupply will cause a drag on the market through the remainder of 2014. However, it is indeed a good sign that the market has, for the most part, kept pace with deliveries thus far.

Multifamily investment sales activity registered $737.9 million for the first quarter of 2014. Suburban Maryland led the region in sales activity in the first quarter with $359.5 million in sales volume; it was also home to the highest priced sales transaction year to date. The 864-unit Cider Mill apartments in Gaithersburg traded from Home Properties to a joint venture between Donaldson Group and Angelo Gordon for $110 million or $127,315 per unit. Northern Virginia was second in total sales volume with $262.8 million while the District of Columbia had an uncharacteristically quiet first quarter with only three transactions totaling $113.4 million in volume.

Outlook

• It’s nearly impossible to go anywhere in the Washington DC Metro region without seeing a crane. Nearly 14,000 multifamily units are projected to come online in the region by year-end.

• In the wake of the new product coming online, vacancy will surely rise, but perhaps not as significantly as some have feared. There has been much concern about overbuilding in the region’s multifamily market, but the area’s strong population growth continues. Additionally, there is likely some pent-up demand from millennials who have recently joined the workforce but are still living with parents. As the economy continues to improve, many of them will move out on their own.

• While average asking rents have been climbing steadily for the past two years, the onslaught of new product will intensify competition and may cause rents to flatten out and even decrease slightly into 2015.

Market Overview

Absorption, Completions & Vacancy

1Q 2014 1Q 2013

Employment 3.085 M 3.078 M

Population 5.934 M 5.875 M

Median Income $88,233 $88,233

MF Permits Issued 20,238 6,548

MF Starts 14,169 10,151

Asking Rents

Source: Cassidy Turley, REIS

Source: Cassidy Turley, REIS

0%

1%

2%

3%

4%

5%

6%

7%

0

2,000

4,000

6,000

8,000

10,000

2008 2009 2010 2011 2012 2013 Q1 2014

Vaca

ncy

Rat

e

Uni

ts (

Thou

sand

s)

New Deliveries Net Absorption Vacancy Rate

$1,200

$1,250

$1,300

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

2008 2009 2010 2011 2012 2013 Q1 2014

Per

Uni

t

DC NoVA Suburban MD

www.cassidyturley.com

Bethany Schneider Research Analyst

2101 L Street, NW

Suite 700

Washington, DC 20037

Tel: 202.463.2100

Fax: 202.223.2989

Bethany.Schneider@cassidyturley.com

The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

Copyright © 2014 Cassidy Turley. All rights reserved.

About Cassidy TurleyCassidy Turley is a leading commercial real estate services provider with more than 4,000 professionals in more than 60 offices nationwide. With

headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local

non-profits to major institutions. The firm completed transactions valued at $25.8 billion in 2013, manages approximately 400 million square feet

on behalf of institutional, corporate and private clients and supports more than 24,000 domestic corporate services locations. Cassidy Turley serves

owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation,

corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances

its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65

international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley.

Where Are People Moving To?Net Migration in Major Markets in 2013

Multifamily Transaction Voume and $/UnitYTD, Major Metros

Apartment AbsorptionDC Metro

DC Metro Renter PopulationChange in Renter Population by Age 2005 vs. 2012

-26,270-7,520

-4,9806,050

12,74017,030

19,51025,070

28,02031,23031,400

34,97040,28040,45040,910

51,24080,920

-40,000 -20,000 0 20,000 40,000 60,000 80,000 100,000

ChicagoDetroit

PhiladelphiaLos AngelesMinneapolis

Las VegasNew York

BostonAtlantaAustinDenverSeattle

San FranciscoPhoenix

Washington, DCDallas

Houston $3.2

$1.4$1.2 $1.1

$0.8 $0.7 $0.7 $0.6 $0.5 $0.5 $0.4$0.1

$50

$70

$90

$110

$130

$150

$170

$190

$210

$230

$250

$0

$1

$1

$2

$2

$3

$3

$4

NYCMetro

LAMetro

Atlanta Dallas Houston DCMetro

Denver Chicago SFMetro

Seattle Phoenix Boston

Thousa

nds

Sale

Volu

me (

Billions)

7,088

4,113

2,567

9,373

5,9117,143

6,522

2,344

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2007 2008 2009 2010 2011 2012 2013 2014YTD

Num

ber

of

Units

-26%

28%27%

16%21%

70%

26%

-13%

31%

-40%

-20%

0%

20%

40%

60%

80%

0

50,000

100,000

150,000

200,000

250,000

18-24 YearsOld

25-34 YearsOld

35-44 YearsOld

45-54 YearsOld

55-59 YearsOld

60-64 YearsOld

65-74 YearsOld

75-84 YearsOld

85+ YearsOld

2005 2007 2012 Percentage Change 2005-2012

At 4.9%, the DC Metro area boasts one of the lowest unemployment rates in the nation, significantly lower than the national rate of 6.3%. Additionally, the region boasts the highest median household income in the nation at $88,000. These factors make the area a particularly attractive place to live, as evidenced by the nearly 41,000 people who moved to the region in 2013.

After finishing 2013 third in the nation among major metros with $8.0 billion in sales volume, which was driven by the $4.3 billion Archstone disposition, the DC Metro returned to typical quarterly transaction volume in the first quarter of 2014.

After the first quarter, 2014 is on pace to surpass the all-time absorption high reached in 2010.

The renter population continues to grow among nearly all age cohorts.

Key Sales Transactions 1Q 2014

PROPERTY UNITS SELLER/BUYER PRICE PRICE/UNIT

Cider Mill- 18205 Lost Knife Circle, Gaithersburg, MD 864 Home Properties/ Donaldson Group JV Angelo Gordon $110,000,000 $127,315

The Point at Pentagon City- 1201 S Eads Street, Arlington, VA 348 Carlyle Group JV Bainbridge Companies/ Pantzer Properties $101,100,000 $290,517

Point at River Ridge- 20300 River Ridge Terrace, Ashburn, VA 467 Dune Real Estate Partners/ Klingbeil Capital Management $89,500,000 $191,649

Yale West- 443 New York Avenue, NW, Washington, DC 216 IBG Parnters JV Greenfield Partners/ WRIT $73,000,000 $337,963

Ridgewood II- 4209 Ridge Top Road, Fairfax, VA 191 Whiteco Industries/ GID $58,200,000 $304,712

* Cassidy Turley Transaction

Source: REISSource: US Census Bureau

Source: Moody’s Analytics Source: Cassidy Turley, Real Capital Analytics

D.C. accounts for 4% of total U.S. apartment sales volume Q1

2014