- The Washington Times - Thursday, June 17, 2004

The market for apartment buildings in Washington area is one of the strongest in the country for investors, despite low interest rates that have encouraged people to buy homes rather than rent.

Employment gains in the area have led to demand for more than 8,000 new apartments in 2004, up from 6,800 units last year, real estate brokerage firm Marcus & Millichap said this week. Developers in the District alone have more than 2,500 apartments planned, the highest amount of apartment construction in more than a decade.

And though interest rates are still historically low, they have risen sharply in the past three months, leading some analysts to predict a return to renting.

The rate for a 30-year fixed mortgage rose to 6.32 percent last month, nearly a point higher than in March, and economists have predicted rates could reach close to 7 percent by year’s end.

“Vacancy increases will be short-lived and expected higher interest rates will cause absorption to accelerate as homeownership becomes more difficult to achieve,” Marcus & Millichap said.

Economists said residents in the Washington area will fill more apartments than in other areas of the country because more of them are working. Employment growth in this region is expected to reach 2.3 percent by year’s end, compared with 1.5 percent nationally. The region will create 65,000 jobs in 2004, many of them in high-paying industries, Marcus & Millichap said.

Analysts cautioned, however, that people are not flocking to apartments just yet. Apartment vacancy rates are expected to reach 5.3 percent in 2004, up from 4.8 percent at the end of last year. Investors will be betting that vacancies will begin to decline by the end of the year, and that rising rents will offset the lack of revenue from empty apartments.

Asking rents in downtown Washington will rise 3.2 percent this year, from $1,125 to $1,160 per month, Marcus & Millichap predicted. Rents in 2002 rose just 1.6 percent. The higher rents could lead to higher prices on the sale of apartment buildings; Marcus and Millichap estimated that properties will sell at $90,000 per unit, about 10 percent more than last year.

In other news …

• Ground was broken Wednesday on the Collington Trade Center, a 200,000-square-foot warehouse and office project in Upper Marlboro. The complex, located at 15800 and 15850 Commerce Court, is the first of its kind in Prince George’s County in more than a decade and will be developed by Gingery Development Group and the Tower Companies. Blocks of space ranging from 7,000 square feet to one entire building are available for prelease.

• The General Services Administration signed a three-year lease for 17,440 square feet for the Federal Emergency Management Agency in the Renaissance Park in Herndon. Transwestern Commercial Services negotiated the lease with FEMA and the landlord, OTR.

• Software firm Sentori Inc. relocated its offices from Laurel to two separate buildings in Silver Spring and Reston. The move, necessitated by the company’s recent growth, gives the company an additional 4,239 square feet. Chicago-based Equis Corp. helped negotiate five-year leases at each property.

Property Lines runs Fridays. Tim Lemke can be reached at tlemke@washingtontimes.com or 202/636-4836.

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