These are uncertain times for the rental market in Washington, DC. In this year’s feast-or-famine market, chances are that if you filled a vacant residential rental unit in DC this past year, you were either very quickly successful or spent a long time waiting. There wasn’t a whole lot of in-between. Owners of vacant commercial properties have had a tougher year and may still be waiting for improvement in the market.
Perhaps the biggest factor determining how successful you were in placing a residential tenant was the time of year. Property owners who experienced turnovers during the months May through July were generally much more successful than the unlucky landlords whose vacancies occurred before or after those months.
The rental market in Washington, DC normally follows a predictable pattern. This year, however, the COVID-19 pandemic has upset normal market trends thereby creating a lot of unease among owners of rental properties. While typically the spring rental market is fairly active, this past year there was virtually no market at all as tenants hunkered down, mostly conforming to city-wide stay at home orders and postponing plans to move. In May, talks of lifting these orders began and tenants flooded the rental market seeking more suitable housing for their work from home needs. These needs drove an unusually brisk summer market. As tenants found suitable housing for the coming year, the demand slowed in August and has remained very slow ever since.
Consistent with a slow market, rental rates seem to be falling as landlords, eager to fill vacancies, try to lure tenants by offering bargain prices. At the moment, units that tend to move more quickly are those offering COVID-safe features such as private entrances and work from home spaces while the hardest hit are those in multi-unit properties with shared common areas. Basement units are also moving more slowly as there are currently above-ground options for tenants at bargain rates.
Recently, my office has been fielding requests from existing tenants to lower rent. Such requests, though few so far, have come from tenants with COVID-related reduced income or job loss, or more recently, from tenants struggling to find roommate replacements. Tenants looking for roommate replacements are experiencing the same market slow-down my office has seen; some tenants unable to locate roommate replacements but don’t want to move may now be considering a move as their only option if their landlord is unwilling to lower the rent.
Because the pandemic has altered the rental market dynamics in so many ways, my office is having a difficult time predicting what the near-term future will look like. We are hopeful that the coming elections will provide a boost to the market. Nonetheless, until the market picks up appreciably, we are evaluating requests from tenants to reduce rent individually and recommending to owners that they carefully consider their options before making a decision. At the moment, in some circumstances it may be better to tolerate a temporary reduction in rental income than to risk a vacancy. Factors to keep in mind include the quality of existing tenants and the need for improvements at the property. A slow market is sometimes an opportunity to improve a rental property and/or to take care of deferred maintenance.
Many commercial businesses have been particularly hard hit by the pandemic. For example, tenants operating restaurants, gyms, and parking lots are experiencing extreme difficulties and in some cases landlords have had to reduce and even waive rents for an undetermined period of time. Demand for office space is also very low right now. I believe that demand for office space may increase briefly after the elections though overall demand will probably remain low for a longer period of time, while area businesses with large numbers of employees learning how to successfully work from home re-evaluate their need for office space.
While the effects of the COVID-19 pandemic have altered the Washington, DC rental market, I believe those effects will eventually bring the market to a new “normal.” Extreme changes in demand we have seen this year will probably fade and predictable patterns will re-emerge. Some changes, however, may be here to stay. Commercial properties may see the biggest changes and many may have to be re-purposed to meet the shifting demands of the market. As more people are working from home, many companies will be re-evaluating their needs for office space and vacancy rates may remain high for a while. Growth in the city was slowing even before the pandemic, according to the DC Office of the Chief Financial Officer, and that will likely prevent rental prices from escalating rapidly.
Owners of residential units may wish to prepare their properties for the future by optimizing work from home space within their units, if possible. Work nooks, dens, and usable outdoor spaces will probably become more desirable, and offering such accommodations will likely provide a marketing advantage over other units.
I hope that you find these thoughts to be helpful.
Michael Frias is the principal of Tiber Realty Group, LLC., firm has been managing Capitol Hill properties for over two decades. Visit tiberrealtygroup.com to find out more.