DC Metro • Second Quarter • 2012

Multifamily Snapshot

www.cassidyturley.com

Economic Indicators

DC METRO MULTIFAMILY

Market Tracker Vacancy3.9%*Arrows = Current Qtr Trend

Net Absorption894 Units

Completions327 Units

Asking Rent$1,476

A large portion of apartment demand is driven by an expanding economy and employment growth. Despite a slowdown in federal job creation, the Washington regional employment market continues to expand. After a robust first quarter in 2012, second-quarter employment growth continued in the metro area, albeit at a slower pace. The Washington DC region added 12,200 non-farm payroll jobs in the first quarter of this year, and 8,000 jobs in the second. We expect this moderate job growth to continue through the November elections and into 2013. However, the types of jobs being created have changed. Twelve to eighteen months ago the Federal Government and the Professional and Businesses Services sector were the top job producers in the region. At the end of the second quarter 2012, the Education and Healthcare sector led employment growth gaining 8,000 payrolls since the beginning of 2012. The Federal Government downsized by 4,900 payrolls – the equivalent of 1.3% of the regional federal workforce – during the same timeframe.

As the regional employment picture generally continues to improve, more people are forming households. More of those households are renting. The homeownership rate in the Washington metro area decreased for a second consecutive quarter, registering 65.8% in the second quarter of 2012 after reaching 68.2% in in the fourth quarter of 2011. Based on the total number of households, this decline in homeownership equates to an additional 48,000 households who rent.

Such increased demand from these additional renters is helping to prop up multifamily fundamentals in the region. Net absorption for apartments in the second quarter of this year was 894 units metro-wide – a slight up-tick from that reported in the previous quarter. The number of new apartment completions in the second quarter was more than double that of the first quarter. Despite new apartment deliveries, the vacancy rate decreased 0.1 percentage point over the quarter ending at 3.9% metro-wide. Average asking rental rates were $1,476 per month across the region, a 0.9 percentage point increase over the quarter. Once again, Northern Virginia boasted the highest rate increase on average, a gain of $16 during the quarter to $1,569. Rents in the District increased $14 to $1,500, while those in suburban Maryland rose $10 during the quarter to $1,359.

After a slow start early in the year, multifamily sales picked up steam in the second quarter. For the first half of 2012, $1.4 billion in multifamily sales transactions took place. A majority of these sales occurred in the suburbs with $576 million transacting in Northern Virginia and $569 million in suburban Maryland since the beginning of the year. The average price per unit was $202,000. The highest dollar transaction in 2012 to date has been Equity Residential’s purchase of 4701 Willard Avenue in Chevy Chase for $209 million or $393,000 per unit.

Forecast

• Multifamily construction continued to increase in the second quarter of 2012. Multifamily starts were up 57% compared to one year ago while permits were up 23% during the same time frame. Through 2014, an estimated 30,100 multifamily permits will be pulled compared to the 13,800 permits issued from 2009 to 2011. Expect single family construction to make a recovery as well with over 40,000 permits being issued through 2014. That is a 77% increase compared to the prior three years.

• Net migration to the Washington DC metro area will continue to increase, albeit at a slower rate. Moody’s estimates a net 66,300 people migrating to the region through 2014. This compares to the 140,700 people who migrated to the metro from 2009 to 2011. Therefore, multifamily demand will stem more from current residents versus new populace to the region.

• We expect employment growth to be tempered through the federal elections later this year. This may push some demand for housing from this year into 2013. With large amounts of supply forecast to deliver over the next 12 to 24 months, certain submarkets may see vacancy rates rise in the short term. Still, the Washington Metro continues to boast one of the lowest multifamily vacancy rates in the U.S.

Vacancy Drops, Despite New Supply

Absorption, Completions & Vacancy

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

10,000

2007 2008 2009 2010 2011 2012YTD

# of

Uni

ts

0%

1%

2%

3%

4%

5%

6%

7%

Net Absorption Completions Vacancy

2Q 2012 2Q 2011

Employment 3.030 M 2.987 M

Population 5.765 M 5.704 M

Median Income $89,170 $86,654

MF Permits Issued 2,650 2,163

MF Starts 1,887 1,199

Asking Rents

$1,200

$1,250

$1,300

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

2007 2008 2009 2010 2011 2012 YTD

DC NoVA Suburban MD

Source: REIS

Source: REIS

www.cassidyturley.com

Jeffrey Kottmeier Vice President, Director of Research

2101 L Street, NW

Suite 700

Washington, DC 20037

Tel: 202.463.2100

Fax: 202.223.2989

Jeffrey.Kottmeier@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 © 2012 Cassidy Turley. All rights reserved.

Cassidy Turley Multifamily Market SnapshotDCMetro•SecondQuarter•2012

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SUBMARKET INVENTORY* COMPLETIONSVACANT

STOCKOCCUPIED

STOCKVACANCY

RATENET ABSORPTION

AVERAGE

ASKING RENT

Anacostia/Northeast DC 33,688 - 1,879 31,809 5.6% 64 $1,068

Capitol Hill/Southwest 7,662 - 452 7,210 5.9% 15 $1,548

Downtown/Logan Circle 10,075 - 282 9,793 2.8% 20 $1,780

Dupont Circle/Adams Morgan 11,716 - 199 11,517 1.7% 24 $1,654

Foggy Bottom 5,487 - 274 5,213 5.0% 28 $1,876

Northwest D.C./Georgetown 10,058 - 412 9,646 4.1% 10 $1,762

Woodley Pk./Cleveland Pk./Van Ness 10,162 - 254 9,908 2.5% - $1,983

DISTRICT MARKET TOTALS 88,848 - 3,752 85,096 4.2% 161 $1,500

Columbia Pike/Shirlington/NE Alexandria 19,617 - 803 18,814 4.1% 65 $1,524

Falls Church/Annandale/Skyline 34,116 - 933 33,183 2.7% 68 $1,472

Loudoun County 7,805 - 359 7,446 4.6% 8 $1,480

Old Town 5,169 - 202 4,967 3.9% 25 $1,669

Pentagon City/Crystal City 9,841 - 384 9,457 3.9% 29 $2,211

Prince William County 15,885 - 620 15,265 3.9% 79 $1,187

Rosslyn/Ballston 16,477 46 626 15,851 3.8% 44 $1,901

SE Fairfax County 15,588 - 436 15,152 2.8% 78 $1,477

Tysons Corner/Fairfax City 12,261 - 662 11,599 5.4% 25 $1,666

W Fairfax County 21,582 281 626 20,956 2.9% 145 $1,517

NORTHERN VA MARKET TOTALS 158,341 327 5,651 152,690 3.6% 566 $1,569

Bethesda/Chevy Chase 8,545 - 239 8,306 2.8% 60 $1,989

Gaithersburg/Germantown 16,090 - 434 15,656 2.7% 33 $1,392

Kensington/Wheaton/NE Montgomery 16,741 - 497 16,244 3.0% 2 $1,389

Rockville 10,603 - 615 9,988 5.8% 11 $1,772

Silver Spring 9,649 - 550 9,099 5.7% 19 $1,559

Takoma Park 10,845 - 206 10,639 1.9% 11 $1,249

Central Prince George's County 23,659 - 820 22,839 3.5% 51 $1,179

N Prince George's County 24,503 - 1,328 23,175 5.4% (38) $1,330

S Prince George's County 24,273 - 1,251 23,022 5.2% 18 $1,088

SUBURBAN MD MARKET TOTALS 144,908 - 5,940 138,968 4.1% 167 $1,359

DC METRO TOTAL 392,097 327 15,343 376,754 3.9% 894 $1,476

Key Sales Transactions 2Q 12

PROPERTY UNITS SELLER/BUYER PRICE PRICE/UNIT

4701 Willard Apartments 532 Irene S. Pollin/Equity Residential $209,325,000 $393,468

Axiom & 909 at Capitol Yards 493 JPI/JPMorgan Asset Management $189,306,000 $383,988

Villages of Morgan Metro 1242 Hunt Companies/Harbor Group Management $182,000,000 $146,538

Palladium Court 556 LaSalle Investment Management/The Praedium Group & The Milestone Group $125,500,000 $225,719

Woodway At Trinity Centre 504 CBRE Global Investors/Home Properties, Inc. $96,000,000 $190,476

Sources: REIS, Cassidy Turley*All figures are multifamily units except vacancy rate.