URBAN PACE 2022 OUTLOOK

Our study of 2020–2021 data indicates consumers have adapted to a “new normal” insofar as the residential market’s sales activity and pricing have resumed the seasonal patterns and annual growth rates they had leading up to the pandemic. Urban Pace believes that, barring extreme circumstances beyond what we have seen to date, these general patterns will remain in place. Given some permanent new changes, some ongoing effects of the market’s adjustment, and other factors unrelated to the pandemic, we can project some of the trends and challenges to expect in 2022 and beyond.

PRICE GROWTH & LOW INVENTORY

Low interest rates and low inventory drove year-over-year price growth in the DC region in 2021. Sales volume was up across the board, reflecting strong demand that drove prices highest where inventory was lowest. While we expect to see interest rates continue to rise in 2022, they are still at historic lows and we do not anticipate a major impact on pricing in 2022 due to rising interest rates. Increased pricing in 2022 will continue due to the ongoing lack of supply.

CONSTRUCTION COSTS

Construction costs climbed during the height of the pandemic and continued to rise in 2021. Supply chain issues for appliances and essential materials such as lumber have inflated their prices and delayed construction timelines. These have in turn made project financing more difficult. It remains to be seen when relief will arrive, so Urban Pace forecasts continued high costs for new construction projects through 2022 which will also push pricing.

FIRST-TIME HOMEBUYERS

Many individuals that moved home or out of the area for lower rent were able to save money during the pandemic. They are better prepared to have a down payment for a new home. As renters start to see rental increases of 20-30% over the previous year, we predict that a significant number will pursue homeownership options over leasing an apartment in 2022. The larger challenge will be inventory shortages versus lack of demand.

SALES PACE

The pandemic’s disruption of the rental market was likely a factor in the slowed sales pace of new construction condominiums in 2021. Class A renters are one of the primary buyer demographics for new construction condos in our region. These consumers have already embraced the dense urban lifestyle and demonstrated a willingness to pay a premium for their living experience. From 2020 to mid-2021, massive concessions improved the value of renting compared to buying and served as a strong rationale to delay making a purchase. As concessions burn off and rental rates continue to rise, we expect many of these renters to enter the market for condominiums in 2022.

RETURN TO PRESALES

Like seasonality, other consumer behaviors will return to their typical patterns. During the pandemic many buyers were reticent to purchase homes that they couldn’t see in person or move into soon because they were motivated by new, longer hours at home and understandably unsure what the market would look like in the future. With the severe inventory shortage in the region, we expect to see buyers willing to commit 6 to 12 months ahead of delivery, as was common before the pandemic. With interest rates trending upward, we expect to see an increase in long-term rate options offered by developers as well.

THE AMAZON EFFECT

While the long-term impact of Amazon’s second headquarters in Northern Virginia remains speculative, we are already beginning to see accelerated development in the area. National Landing currently has more than 1,453 rental units scheduled to deliver in the next 24 months and nearly 7,000 more units in the pipeline. Surrounding submarkets like Alexandria, the Rosslyn-Ballston Corridor, Navy Yard, and DC’s Southwest Waterfront have substantial pipelines as well. In October 2021, despite industry-wide concerns about the future of the office market, Amazon announced that they were increasing their planned office space by nearly 20% to 4.9 million square feet. This expansion bodes well for the region’s housing market, which will benefit from increased high-paying jobs and new residents coming to the city.

HOME BUYING SEASONALITY

The typical seasonality of the residential market returned in 2021 after a major shift in 2020 caused by the pandemic. Fall 2020’s high sales volume did not deplete demand in spring 2021, which exceeded the activity of the previous two years, a trend that continued through the winter. We anticipate the traditional seasonal spikes of the spring and fall market will likely return in 2022.

BUILDING DESIGN CHANGES

Large-scale projects that delivered in 2021 were designed before Covid -19 and most larger projects that started pre-sales during 2021 had limited opportunities to make changes. Some developers were able to adapt if they were under construction and adjust unit sizes or amenity space for co-working areas to meet the need for work from home set ups. In 2022, we still see new projects come to market that were designed for a post-pandemic world. These will include modifications to building amenities, unit mixes, advances in building systems and wellness as developers try to meet the changing demands of buyers.

THE LUXURY MARKET

The luxury market weathered the pandemic downturn more easily than other market segments, and sales trends indicate that the time may be right for more well-positioned ultra-luxury projects. Amaris, the signature condo building of Hoffman’s second phase at The Wharf, had sold 39 of 96 units at the end of 2021, a pace of nearly five units per month. At seven-figure prices that blend to around $1,300 per square foot, the building projects to have much stronger sales than other recent ultra-luxury deliveries, suggesting that slow sales paces elsewhere may have been a result of the product being offered (inferior units/views/locations) rather than a lack of demand.

ELECTRIC VEHICLE CHARGING STATIONS

Almost all large-scale multifamily buildings that delivered in the last year offered some number of electric vehicle charging stations. With gas prices rising, consumer preferences changing, and prominent car manufacturers committing to all-electric fleets within the decade, the ownership rate of electric vehicles is bound to exceed the availability of EV charging stations soon. Considered a perfunctory and expendable amenity just a few years ago, an adequate supply of charging stations will soon become essential and a point of comparison for many buyers. The current generation of first-time homebuyers has demonstrated a willingness to pay for “green” living features, something earlier buyers appreciated but were not willing to pay for.

URBAN PACE REMAINS OPTIMISTIC

As we all continue to navigate through the unprecedented situations from this year, we are still confident that the DMV will get through this truly unique time, and we are looking forward to positive news in our community and real estate markets in 2022. Despite Covid-19 accelerating and magnifying challenges in the real estate industry, we see the opportunity for creative solutions for both our clients and our team. The past year has shown that we can work, learn, and socialize remotely, but it has also reinforced the vital necessity of inperson interactions and the inherent joy of mass gatherings. In coming years, as technology plays an ever-greater role in our interpersonal lives, Urban Pace sees an endless demand for that vibrant lifestyle that only cities can fulfill. For all these reasons, Urban Pace remains optimistic for the year ahead. We are hopeful that as we return to a “new” normal, the city will reopen and reemerge for all aspects of the real estate community and continue to be a vibrant and central hub for housing activity.