Urban Pace's 2022 Year End Report

2022 YEAR END REPORT

Welcome and thank you for taking the time to view our annual report. It is our pleasure to provide this review of the 2022 DMV Condominium Market with a look ahead to 2023.

For over twenty years, Urban Pace has been providing real estate developers and investors with market insights and unparalleled market research to guide them in the development process. Alongside our clients, we have endured many ups and downs during that time, and 2022 tested our mettle with a jarring combination of challenges. Rising mortgage rates, declining sales activity and consumer confidence, ongoing increases in construction costs, and lingering pandemic impacts affected the entire industry.

With the pipeline running thin and the population growing, the market is bound to bounce back at some point—the question is when and how quickly. Today, as we navigate current market conditions, we are busier than ever working on potential new condominium projects that would not deliver until 24 to 36 months from now, beyond our current market challenges. Developers making plans now who are able to integrate lessons from 2022 while innovating and pivoting for the future will find themselves well-positioned for success.

Urban Pace is here to partner with you to create that success. As the Mid-Atlantic leader in development real estate services including marketing, sales, leasing and advisory, we have worked on more than 300 communities across all price points. We hope that this report is a valuable tool for you in helping contextualize 2022 and adapt for 2023 as you plan your condominium and apartment projects—we can’t wait to hear about them.

Wishing you success,

Clint Mann President, Urban Pace

cmann@urbanpace.com

2022 YEAR END REPORT

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EXECUTIVE SUMMARY

Urban Pace is pleased to present its 2022 Year-End Condominium Report for the prime urban markets in the Washington, DC region. The first section of this report provides an overview of all activity in the DMV for condominiums, townhomes, and single-family homes using a combination of data from Bright MLS and our proprietary database, UPVelocityTM. Our research shows that rising mortgage rates had increasingly large effects as the year went on and led to the lowest sales activity levels in the last five years. Additional factors, including a decline in consumer confidence and lingering effects of COVID-19 compounded the impact of increased mortgage rates, leading sales activity to drop by 24% year-overyear. No jurisdiction or product type was spared from the downturn in activity, but pricing stayed strong and grew slightly over 2021. Rents also increased as concessions from 2020 and 2021 expired, increasing housing costs for both buyers and renters. Our study of the new construction condo market found that condo fees rose significantly, and recent sales continued the trend toward efficiently sized units, including a noticeable uptick in price per square foot for units with dens. Finally, we considered how these trends will continue or change course in 2023. We expect activity in the spring market to be a leading indicator of the rest of the year’s volume and consumer confidence.

2022 TAKEAWAYS

Mortgage rates drove up the cost to own (the estimated payment for the average sale price in December was 38% higher than a year before).

Market conditions curbed sales activity (-24% yearover-year).

Despite decreased activity in the market, pricing remained strong (+5%).

Inventory remained low for both new construction and resale condos.

DMV MARKET

MONTHLY PAYMENTS AND MONTHLY SALES VOLUME – % CHANGE FROM 2021

Monthly Payments and Monthly Sales Volume – % Change From 2021

Assuming 20% down, 30-year fixed rate

MORTGAGE RATES

Following three years of historic lows, mortgage rates began to creep up at the end of 2021. In January 2022, Freddie Mac’s national market survey pegged the average 30-year fixed rate at 3.45%, 71 basis points higher than a year before and the highest rate since March of 2020, but still near the all-time low of the survey’s 50-year history. In the spring, the Federal Reserve began raising rates aggressively to curb accelerating inflation, and mortgage costs increased accordingly.

The increased mortgage rates drove average monthly payments up dramatically, and the decreased affordability had cascading effects on demand. Consumers who secured mortgages with the lower rates of the past decade were less inclined to move, which constrained the inventory coming onto the market. The unprecedented pace and scale of the Fed’s rate hikes shook consumer confidence and sparked public discourse about a possible recession.

These market conditions cooled activity in the DMV’s residential real estate market, as illustrated by the chart below. Urban Pace used Freddie Mac’s survey to estimate monthly payments on the homes bought each month,

assuming a 20% down payment and a 30-year fixed rate. As rates increased steadily, monthly sales volume fell short of 2021’s totals by growing increments. Per Freddie Mac’s survey, mortgage rates peaked in late October at just over 7%, and in November and December, sales volume was 45% lower than in 2021.

Lenders have been pushing more diverse products in an effort to meet consumers at a point that makes buying feasible. Adjustable-rate mortgages, which made up just 3% of new home loans in 2021, surged in late 2022 as rates climbed, and finished with 10% of the year’s market share. That’s the first time they have had a double-digit share of the market since before the financial crash of 2008, when they made up over a third of all mortgage applications in a much less cautious atmosphere. Lenders are offering other incentives as well, such as buydowns and free future refinancing.

The Fed has signaled that rate increases are not over yet, but also acknowledged that inflation has started to meaningfully ease. Whether or not that trend holds will be a significant factor in the vitality of 2023’s housing market.

TOTAL SALES VOLUME (UNITS) AVERAGE SALES PRICE

TOTAL SALES VOLUME (UNITS)

Residential sales volume in the DMV began with approximately 4,000 closings in January, nearly matching the pace set by 2021, which had the highest volume of the last five years. 2022 totals continued to mirror 2021 for the rest of the first quarter before falling behind 2021’s robust pace in the spring market as interest rates crept up. In the second half of the year, volume was consistently short of 2021 levels by a significant margin. While the first six months of the year totaled 14% fewer closings than the previous year, July through December missed the mark by 34%, causing 2022 to end with 55,034 sales compared to 72,460 in 2021, a 24% decline.

AVERAGE SALES PRICE

The average sale price in the DMV climbed by 5% in 2022, marking the fifth consecutive year of price growth. Pricing fluctuations followed the same seasonal patterns as 2021, but tapered off in the second half of the year as escalating rates suppressed demand.

AVERAGE SALES PRICE BY COUNTY

The year’s decrease in sales activity was shared evenly across all counties in the DMV and in the District itself. Volume drops ranged from 19% in Prince Georges to 30% in Loudoun. At the end of 2022 sales totals were comparable to 2019, the last full pre-pandemic sales year. While activity was down, prices were up in every jurisdiction, with the largest increases in the least densely populated counties: Fairfax, Loudoun, Montgomery, and Prince George’s.

BY PRODUCT TYPE

The challenging market conditions affected sales volume of all product types. Sales of single-family homes and townhomes both dropped by about 25%, while condo sales slipped by 21%. Single-family home prices increased the most, climbing 8%, while townhomes and condos grew moderately, up 4% and 1% respectively.

RENTAL MARKET SUMMARY

The DC area’s Class A rental market saw a significant slowdown in leasing pace and overall demand in 2022. Granted, the torrid absorption rates of 2021, when thousands who abandoned the city during the pandemic came flooding back, were always going to be hard to follow. Vacancies were essentially re-stabilized by the first quarter of 2022 at 10.3%.

Rents followed exaggerated seasonal trends in 2022, surging through the first half of the year before tapering off in the Fall, and finishing Q4 with a 2% year-over-year increase. Many renters have likely seen their rents go up as the generous concessions that lured them back to the city expired. Class A renters are one of the primary consumers for new construction condos in the region, so it might have been expected that these rent increases would push many to consider buying. However, the increased mortgage costs and general economic uncertainty likely discouraged many of them from making a purchase until the market steadies and in turn supports rent growth.

The rate of rent growth will likely slow in 2023. According to CoStar, the DC region is projected to set a record for new apartment deliveries this year, with nearly 15,000 market-rate units scheduled to come online. It will be difficult for absorption to keep up, which means vacancies will likely increase and rent growth will stagnate.

The Liz, Five Squares Development Photo Credit: David Madison

The Liz, Five Squares

Photo Credit: David Madison

PRIME URBAN CONDO MARKET TRENDS

2022 NEW CONSTRUCTION PRICING

The chart below plots condo submarkets that had significant new construction sales activity by price, price per square foot, and volume. The Southwest Waterfront had the highest average price per square foot at $1,410 due to December settlements at Amaris, Hoffman & Associates’ latest development at The Wharf, and the highest-priced condo project in DC to date. West End’s average sale price was $2.6 million thanks to two ultra-luxury projects selling their last units, 2501M and Westlight. Similarly, Rosslyn was carried single-handedly by strong prices at Pierce, Penzance’s ultra-luxury high-rise with views of Washington, DC. Alexandria had the most sales of any submarket with 141, and the waterfront sites of Muse and Robinson Landing pushed its average price per square foot to $947. Eckington led the way in DC with 67 sales. With no more new construction projects recording sales in Bethesda, Chevy Chase, or Rockville, Silver Spring was the only Maryland submarket to have settlements in 2022. All 22 of its sales were at Kadida Development Group’s office-to-residential conversion, Elan.

2022 NEW CONSTRUCTION CONDO PRICING

CONDO PRICE PSF BY CONSTRUCTION TYPE

In 2022, prices for new construction condos in DC were flat at $664 per square foot, while resale condos increased 2% over last year to $613 per square foot. This squeezed the per-square-foot premium for new construction product down from 11% in 2021 to 8% in 2022.

Remarkably, resales of units built or renovated within the last ten years fetched $672 per square foot, $8 more than new construction, though this was largely a function of smaller average unit sizes (962 square feet versus 1,032). These higher-priced units make up 40% of all resales in the District, boosting the average price of resales substantially.

The average absolute price of a new condo in DC increased 4%, while resale prices decreased slightly, stretching the spread between the two from 15% in 2021 to 20% in 2022. Considered in combination with the persquare-foot figures, this pricing data illustrates the depth and quality of DC’s inventory of recently built and newly renovated condos.

The premium for new construction is much higher in the primary submarkets within Maryland and Virginia, but that figure is not usefully significant given the makeup

of the sample. These areas are less densely developed than DC, build fewer condo buildings each year, and thus have a larger age difference between new construction units and resales. While recently built or renovated units make up 40% of resales in DC, in Maryland and Virginia submarkets they are 25% of the resale stock. This smaller sample size and greater variance in quality and age leads to a larger price premium for new construction and greater variance in that spread year-to-year.

In 2022, new condos in Maryland sold for 62% higher per square foot than resales, but there were only 22 new condos sold (just 3% of the total) and they were all at Elan, an officeto-residential conversion positioned as an affordable option for first-time homebuyers.

In Virginia, 218 sales of new condos were recorded, and the premium over resales was 114%. Of those 218 sales, 61 were at Muse, Pierce, Robinson Landing, or Venue—each either an ultra-luxury projects or offering waterfront views—and eclipsed $1,000 per square foot. These prices reflect the exceptional nature of the locations and views, but they are not representative of the entire submarket and distort any comparison between Alexandria and DC proper.

NEW CONSTRUCTION SALES BY UNIT TYPE

After a few years with numerous luxury projects on the market, 2021 and 2022 have had a varied group of commodity buildings recording sales. This shift in product grade provides more significant insights into the value propositions consumers are selecting. Since 2020, the most notable changes in pricing by unit type are significant price growth in large units and notable price resilience in units with dens. Two- and three-bedroom units have both seen prices climb by 15%. One-bedroom-and-den units increased 8% and two-and-dens have been level. One-bedroom units and studios have dipped considerably.

While urban condos have been trending toward more efficiently sized units for some time now, the pandemic changed the role and use of homes and spawned new needs and preferences among consumers. Chief among these new needs is additional flex space for working, exercising, or other activities that often take place at home now. In high-priced markets like DC, dens can be something like a Goldilocks solution, offering residents more functional space without the significant jump in price that comes with a full second bedroom. The growing consumer preference for dens may be a lifesaver for owners of struggling downtown office buildings who are considering converting to residential. The deep floor plates of office buildings often result in windowless rooms that once appeared to consumers as an ugly compromise. Now, they may see value.

CHANGE IN PRICE PER SQUARE FOOT SINCE 2020

CHANGE IN PRICE PER SQUARE FOOT SINCE 2020

CONDO FEE ANALYSIS

Condo fees have increased steadily over the past few years. Starting at $.54 per square foot in 2019, fees climbed $.02 per year in 2020 and 2021 before jumping $.05 in 2022 to $.63 per square foot. These increases were driven by a confluence of factors, including inflation and labor shortages that have increased the cost of maintenance and staffing. Some of the same economic forces that have escalated the costs of new construction have made maintenance projects and repairs more expensive. The amenities arms race between large, new multifamily buildings has influenced some condo programs as well, especially given the way consumer preferences have evolved post-Covid-19. In recognition of the increased costs of ownership, there is a growing trend among some developers toward scaled-down amenities in condominium buildings, with the aim of lowering monthly fees.

Note: The previous charts include all Bright MLS data for 2021 and 2022. Urban Pace pulls, reviews, updates and corrects this data throughout the year on a weekly basis to increase accuracy. In addition, we augment the data by adding in new construction data from our proprietary database, making these numbers the most comprehensive representation of activity in the market. The charts referencing DC include sales from Washington, DC. The charts referencing MD include Montgomery and Prince George’s counties. The charts referencing VA include Arlington, Alexandria, Fairfax and Loudoun counties. Any charts referencing the DMV include all counties mentioned previously in DC, MD and VA.

UPVELOCITYTM HEAT MAP 2022 VOLUME BY UNITS FOR NEW CONSTRUCTION CONDOMINIUMS

Urban Pace tracks the new construction condo market in the DMV meticulously, collecting and processing data from several sources. This granular approach to our research and analysis allows us to provide our clients with customized reports ranging from high-level market trends to targeted data for a submarket or specific site.

UPVelocityTM is Urban Pace’s proprietary database that is updated in real time and has data visualization capabilities such as the heat map above, which shows where sales of new construction condos are concentrated. Among the busiest submarkets are Eckington, Navy Yard, Petworth/Takoma, Shaw, Trinidad and Carver/Langston, Alexandria, and the Rosslyn-Ballston Corridor. The final section of this report features submarket summaries that provide a detailed snapshot of the new construction projects in each of these neighborhoods, the region’s most active submarkets for new condo sales.

SUBMARKET SUMMARIES

ECKINGTON

NAVY YARD

PETWORTH TO TAKOMA (WALTER REED)

SHAW

CARVER/LANGSTON AND TRINIDAD

ALEXANDRIA

RB CORRIDOR

ECKINGTON

SUBMARKET STATISTICS 2022 RECAP

Quincy Lane, the new mixed-use development in Eckington built by JBG Smith, LCOR, and Grosvenor, has slowly come to life over the past year. Two condo buildings delivered in 2021, one sited on each side of the cobblestone promenade that serves as the spine of the project. 1625 Eckington, a 179-unit building at the west entrance to the new street, represented 62% of settled sales in 2022. The building’s efficiently sized one-bedroom units went fast during the early sales period, so 2022’s sales were mostly made up of larger units. As a result, average size and absolute prices went up, while per-square-foot prices trended down. Another 23% of settlements were at City Homes, the townhome-style condominiums at the other end of the development that have struggled to generate much sales velocity. Eckington’s remaining condo sales came from conversions of the neighborhood’s abundant townhomes. As a rental market, Eckington is still new on the scene, with just three Class A buildings, two of which delivered in 2021. Solid rents ($2.93 per square foot) and low vacancy (11.3%) indicate there’s room for more growth.

CLASS A RENTAL PROJECTS

Hanover 8th Street

Judd & Weiler ONE501

The Gale Eckington

RENTAL ANALYSIS

CLASS A BUILDINGS

The Lexicon and 1625 Eckington are two of the largest condo buildings in DC. Combined, they had over 100 units still available at the end of 2022.

NEW CONSTRUCTION SETTLED SALES

SELECT CONDO PROJECT SNAPSHOTS

UP OUTLOOK WHAT’S NEXT…

Eckington will keep developing as a residential submarket in 2023. Quincy Lane brought over 600 new residences to what was previously an industrial corner of the neighborhood, and the area should continue to evolve into a market attractive for its retail and leisure options. We expect the for-sale pipeline to feature boutique conversions, mid-size developments (60 units or fewer), and new townhome communities. Eckington’s future growth will likely be boosted by its proximity to two of the most rapidly changing neighborhoods in the city, Union Market and NoMa.

NAVY YARD

SUBMARKET STATISTICS 2022 RECAP

A trio of condo buildings are wrapping up sales in Navy Yard. eNvy, Jair Lynch’s 127-unit project with views into Nationals Park, is finishing the strongest, with the most sales and the highest price per square foot in 2022. 43% of Navy Yard’s new construction sales were at eNvy, with another 30% at Avidian and 27% at Kennedy on L. These projects maintained strong pricing as they close out the last of their inventory. Navy Yard is still relatively new as a residential destination, and this is reflected in the low volume and high prices of resale units—there aren’t very many and they aren’t very old. The rental market has more than tripled in size since 2016 and bounced back quickly since the pandemic, with vacancy at 11.4% in Q4 2022. Rents are at pre-pandemic levels.

SELECT CONDO PROJECT SNAPSHOTS

Average Sales Price

AVERAGE SALES PRICE

PRICE PER SQUARE FOOT

UP OUTLOOK WHAT’S NEXT…

With no new projects under construction, Urban Pace sees opportunity for more for-sale development in Navy Yard. Over the next 12 months, the region’s combination of low inventory, high pricing, and yet higher demand will lead many developers to identify higher and better uses for underperforming properties. Considering the success of Navy Yard’s recent new construction projects, some operators may be prompted to convert existing rental and commercial buildings to for-sale condominiums over the next several years.

PETWORTH TO TAKOMA

SUBMARKET STATISTICS 2022 RECAP

In recent years, new construction sales volume in this area was driven by The Brooks, the first condo offering from the joint venture partners behind The Parks at Walter Reed. With efficiently sized units and one of the most enviable locations in the city, The Brooks consistently achieved a strong premium over the surrounding submarket. In 2022, as The Brooks sold through the last of its inventory, an abundance of smaller boutique projects in conventional neighborhoods delivered. Some of these projects, such as The Emery and Eight39, sold well, but the change in composition of the available stock is evident in the dip in new construction pricing. With further development underway both at The Parks and the numerous corridors that have proven viable for boutique projects and townhome conversions, the area’s revitalization is far from complete. The Class A rental market was relatively undisturbed by the pandemic, with vacancy rising to just 10% on average among the 8 buildings in the submarket and rents recovering by Q3 2021. The Vale at the Parks delivered in late 2021 and the next building on the campus, The Hartley, is coming in early 2023.

The rapid evolution in this part of the city is evident in corridors like Kennedy Street NW between 5th and 9th, where 83 new condos have settled at nine different addresses in the last two years.

NEW CONSTRUCTION SETTLED SALES

AVERAGE SALES PRICE

Petworth To Takoma

Average Sales Price

SALES VOLUME

SELECT CONDO PROJECT SNAPSHOTS

UP OUTLOOK WHAT’S NEXT…

THE BROOKS

Urban Atlantic, Hines and Triden Delivered, Selling

Total Units - 89 Pace - 1st Half 2022: 3.2/Month 2nd Half 2022: .8/Month

Average Size - 875 SF Projected Sellout - Low $700s PSF

PRICE PER SQUARE FOOT

THE EMERY

925–927 Kennedy Inc. Delivered, Selling

Total Units - 22 Units Sold - 16 Pace - 1.2/Month

Average Size - 748 SF

Projected Sellout - High $500s PSF

In the coming years The Parks at Historic Walter Reed will deliver hundreds of new condos, townhomes, and rental units. The newest project, the 109-unit condo building Kite House, is actively selling and scheduled to deliver in mid-2023. Major employers such as Children’s National Hospital, JLABS, and the State Department are opening offices on the former hospital campus, and retail attractions such as Whole Foods Market and new restaurants and bars are arriving soon. As the community grows in scale and population, Urban Pace expects this area of Northwest DC to feel much more connected to the rest of city. In turn, we project that the neighborhoods surrounding the mixed-use development will experience increased absorption and pricing over the next few years.

SUBMARKET STATISTICS 2022 RECAP

Shaw had no significant deliveries of new construction condos in 2022, though a couple projects had inventory carry over from 2021. Perla, a luxury development near the historic O Street Market, sold eight units in 2022 at $789 per square foot. The other main driver in the submarket was The Fold, which featured more efficient units and averaged two sales per month at $811 per square foot. Outside of those projects there were multiple townhome conversions and the introduction of Intersect at O, the latest offering at the City Market at O development. It features 74 rental units and five brand new luxury townhomes. The rental market remained tight in 2022, with vacancies at 3% and even while rents dipped -4% year-over-year.

In 2022 The Fold’s average sale price was less than half that of the rest of the market ($534,000 vs. $1,071,000) but it had the second-highest per-square-foot price, $811.

NEW CONSTRUCTION SETTLED

CLASS A RENTAL PROJECTS

– CLASS A BUILDINGS

SELECT CONDO PROJECT SNAPSHOTS

UP OUTLOOK WHAT’S NEXT…

While new deliveries were slow in 2022, Shaw will remain an active submarket for residential development. It is centrally located, has premier shopping and dining destinations, and offers convenient access via Metro to the nascent tech hub in National Landing. We won’t see many large-scale projects like those going up in newer neighborhoods, but there are a few infill development opportunities left and the deep inventory of 19th century townhomes have proven to be very popular and successful as boutique condo conversions.

CARVER / LANGSTON AND TRINIDAD

SUBMARKET STATISTICS 2022 RECAP

Trinidad and Carver/Langston have emerged as an affordable option and good investment opportunity for consumers pushed out from the city’s more expensive core. Abundant redevelopment drove the submarket to the highest new construction sales count of any submarket in DC in 2022. The average price per square foot was $477, a substantial discount from the city’s overall average of $664. The vast majority of new construction condos here are boutique redevelopments, though larger-scale construction is viable on Bladensburg Road where zoning is more permissive. One example is La Demuren Vue, a 45-unit building that accounted for 42% of the neighborhood’s settlements at $471 per square foot. Just off that corridor were The View, which closed ten units at $598 per square foot, and Ten19, which reached five sales and $514. The balance of sales derived from more than a dozen different boutique projects. The rental market is similarly populated by smaller buildings, with the exception of Union Heights, a 582-unit building that has not recovered from the pandemic exodus and remains less than 50% occupied.

In 2022 Trinidad and Carver/Langston had new construction settlements at over 15 different multi-unit buildings tracked by Urban Pace, more than any other submarket.

La Demuren Vue

The RIL Plaza

MelMar Hillmor

Ten19

The View at 17

Average Sales Price

AVERAGE SALES PRICE

Trinidad/carver/langston

Average Sales Price

SALES VOLUME

SELECT CONDO PROJECT SNAPSHOTS

TEN19

Total Units - 11 Units Sold - 6 Pace - .5/Month Average Size - 782 SF Projected Sellout - High $400s PSF

PRICE PER SQUARE FOOT

THE VIEW AT 17

YW Capital Development Delivered, Selling

Total Units - 47 Units Sold - 40 Pace - 1.3/Month

Average Size - 600 SF Projected Sellout - Low $600s PSF

UP OUTLOOK WHAT’S NEXT…

Given their proximity to central DC compared to other up-and-coming neighborhoods and the considerable affordability it offers, Trinidad and Carver/Langston have plenty of opportunity for continued redevelopment and price growth. Numerous residential projects are planned for the area around Starburst Plaza, the intersection at the seam of Trinidad, Carver/Langston, and The H Street Corridor. The biggest chapter in the neighborhood’s evolving story is still unwritten: the long-awaited redevelopment of the dated and car-oriented Hechinger Mall. The vibrant new retail destination hoped for by many residents and local organizations would transform the character of the neighborhood and boost demand dramatically.

ALEXANDRIA

SUBMARKET STATISTICS 2022 RECAP

Alexandria had the most robust sales figures of any submarket in the DC region last year. Two Carr Companies projects began settlements after years of presales: Venue, a townhome and condo development in Old Town North, closed 82 sales at an average of $884 per square foot, and Muse, their luxury condo offering on the waterfront a few blocks north, closed 25 and averaged $1,046 per square foot. Combined they made up 76% of Alexandria’s settlements. Other projects contributing to the area’s healthy volume included Robinson Landing, which is nearly sold out and averaged over $2 million for its ten sales, and The View on Washington, which sold out at an average of $733 per square foot. 1,505 Class A rental units delivered in Alexandria in 2021, but they were absorbed quickly and vacancy was stable at 11% by the end of 2022.

NEW CONSTRUCTION SALES

SALES VOLUME

SELECT CONDO PROJECT SNAPSHOTS

MUSE

Carr Companies Delivered, Actively Selling

Total Units - 73 Units Sold - 42 Pace - 1.6/Month

Average Size - 1,400 SF

Projected Sellout - Low $1,000s PSF

TOWNGATE NORTH

Brookfield Residential Delivered, Selling

Total Units - 82 Units Sold - 45 Pace - 4.1/Month

Average Size - 1,298 SF

Projected Sellout -Low $900s PSF

UP OUTLOOK WHAT’S NEXT…

Alexandria is not done yet, with a handful of condo projects under construction and in pre-development. Towngate North, an 82-unit office-to-residential conversion near the southern tip of Potomac Yard, was about half sold at the turn of the year, and Braystone, a 31-unit low-rise on King Street, is giving hard hat tours. While Alexandria has been dominated by luxury product the last few years, we believe it is also ripe for moderately priced condos for first-time homeowners, such as Community Three’s upcoming TideLock project. This 152-unit waterfront development offers views of the Potomac River and Washington, DC with the smallest average unit size of any recent waterfront project in the submarket, making it the most affordable new waterfront development in Alexandria.

RB CORRIDOR

SUBMARKET STATISTICS 2022 RECAP

The Rosslyn-Ballston Corridor has a deep inventory of multifamily units, but much of it is dated and the vast majority of units are rentals. Condo deliveries have been sparse in the last decade, so the average offering has older finishes, outdated amenities, and notably limited technology features. Into that void stepped 2000 Clarendon and Pierce, two modern buildings that combined to sell at a premium of greater than 65% over quite respectable resale prices in 2022. Pierce topped $1,000 per square foot with an ultra-luxury product while 2000 Clarendon, which started closings in 2021, offered attractive absolute prices that averaged $862 per square foot thanks to efficiently sized units. The well-established rental market weathered the pandemic better than most in the DC region and had a single-digit vacancy rate throughout 2022. Rents remain above pre-pandemic levels.

NEW CONSTRUCTION SALES

AVERAGE

RB Corridor

SALES VOLUME

SELECT CONDO PROJECT SNAPSHOTS

UP OUTLOOK WHAT’S NEXT…

PIERCE

Penzance Companies

Delivered, Selling

Total Units - 104

Units Sold - 72

Pace - 2.4/Month

Average Size - 1,700 SF Projected Sellout - High $900s PSF

With 2000 Clarendon sold out and Pierce wrapping up sales, the new condominium market in the Rosslyn-Ballston Corridor will likely be idle again soon. Urban Pace believes this submarket is ripe for new developments and conversions of office and/or hotel to condominium product, as the area continues to have an undersupply of newly built units. The corridor is well oriented for continued growth and is generally a more affordable option to prime DC neighborhoods. Another factor to consider is the new Silver Line extension. While ridership is still low compared to pre-pandemic, the extension has shifted the RB Corridor further from the end of the line closer to the middle, where it can now be a central location for people who commute to either DC or Reston. That said, it’s too early to draw conclusions, as Reston Town Center averaged only 440 daily boardings in December 2022. Can the extended Silver Line boost the RB Corridor as a residential hub for commuters heading in both directions? Time will tell.

URBAN PACE 2023 OUTLOOK: MARKET CONDITIONS

2022 is behind us. It was a difficult, challenging year, but not one that left us without valuable lessons learned or depleted of opportunity and optimism for the year ahead. Read on to see what we can expect from 2023.

MORTGAGE RATE INCREASES WILL SLOW

Given the number of variables that factor into the Fed’s rate increases, predicting future rate changes is difficult, but the most recent rate hike was the smallest adjustment since March and inflation has eased meaningfully. Experts are generally in agreement that mortgage rates are past their peak. Goldman Sachs projects that the 30-year fixed rate will end 2023 at 6.5%, Freddie Mac forecasts it to end at 6.2%, and the Mortgage Bankers Association expects to see it at 5.2%. Continued signs of inflation stability and economic recovery could lead to a quick decline in rates and increased sales activity.

INVENTORY WILL REMAIN LOW

While more consistent mortgage rates will instill more consumer confidence, the increased monthly cost to own will still dissuade many owners from changing homes. This will keep significant inventory off the market and maintain upward pressure on pricing even as affordability may have eroded for many buyers. The pandemic and its accompanying effects interrupted the condo pipeline in 2020 and 2021. Disruptions to the supply chain, increased construction costs, and pervasive economic uncertainty killed or delayed numerous developments. Several condo

projects that started selling during the first year of the pandemic converted to rentals when slow presales and climbing costs changed the math on profitability.

Low inventory may help the condo market correct, as it will keep pricing high and increase absorption for standing inventory. There are relatively few options for buyers to choose from, even with less buyers on the market.

MODEST RETURN TO PRESALES

Lower inventory levels will limit the choices of buyers and lead some to consider presales at new construction projects who ordinarily would demand something movein ready. We expect buyers will be willing to commit to a purchase 6 to 12 months before delivery once the economy shows continued signs of recovery and mortgage rates begin to decline. This will help developers achieve more presales than in 2021 and 2022, but still fewer than in previous years. Consumer demand remains focused on immediacy, so developers will need to find ways to meet that demand with smaller developments that can pencil with fewer presales.

RETURN OF ADJUSTABLE-RATE MORTGAGES

The new elevated rates for 30-year fixed-rate mortgages will create demand for other, more flexible products. Chief among these options will be adjustable-rate mortgages. These loans may work better for buyers who can expect their income to grow or don’t plan to stay in the home for

more than 5-10 years. Adjustable rates can be an entrée to affordability or create savings on interest in the case of a sale. We also expect to see increased long-term rate options offered by developers during presales.

RENTAL MARKET

The historic increase in deliveries expected in 2023 will likely lead to competitive pricing and substantial concessions at the newest, largest buildings. However, supply has rarely outpaced demand for long in the DC market, and the young, well-educated, and growing DC population will probably catch up with the market’s glut of availabilities quickly.

INCREASED PIPELINE ACTIVITY

The current frigid state of capital markets creates a window of opportunity down the line for those that can get projects started soon. Optimistic multifamily developers taking sites under control today may bet on capital markets being considerably thawed when they wrap up design and entitlement a year or so from now. Delivery 24 to 30 months after that would find a market with stronger economic conditions, pent-up demand, and continued supply constraints.

WE’LL KNOW (SOMETHING) BY SPRING

While 2022 ended with activity and pricing at year-overyear lows, the winter is always the slowest time of the year for residential sales, and a lack of consumer confidence likely compounded the already slow season. Even if market conditions do not make an abrubt turnaround, it is likely there are buyers simply waiting for some consistency in the economic indicators in order to purchase with more confidence. If things remain steady, we could see this pent-up demand released in a mild spike of activity in the spring. If 2023 instead starts sluggishly, we expect the lag may last for the rest of the year.

URBAN PACE 2023 OUTLOOK: LIFESTYLE, DESIGN, AND MARKETING

Most of the multifamily developments over the last three years were designed pre-pandemic. In 2023, projects will come to market that were fully designed to meet the needs of the consumer in a post-covid world. We expect to see increased focus on health and wellness, designed workspaces in units and in common areas, and increased attention to sound attenuation.

Urban Pace is working on many projects in pre-development and represents the majority of new construction product selling in the city today, so we have unique visibility into future market trends. Beyond our immediate real estate experience, Urban Pace pays keen attention to trends in other areas that influence the way people live. Whether it’s toward the runways at Fashion Week or into the Metaverse, it is vital we look beyond our immediate industry for inspiration and to fuel innovation.

FINISHES AND FEATURES

Au natural, Biophilic Design

Individuals in a 2020 UVM study reported significant increases in outdoor activity during COVID-19. According to the study, people also experienced a shift in why they value nature. During the pandemic, respondents said connecting with nature harbored greater sense of mental health and wellbeing. The desire for this cherished connection with the natural environment has carried over as we proceed through a post peak-pandemic world.

Even without that extra outdoor time, we all know wood isn’t grey. Biophilic design theory says humans evolved in accordance with the natural world, and therefore, architecture that incorporates natural elements can have a positive effect on our health and well-being. Expect a return to warm, natural tones and finishes in wood, emphasis on natural light, and access to green space and the outdoors.

When staging and design model homes, favor low- to no-maintenance authentic plants and greenery instead of faux. Authenticity leads us into the next on our list…

The Daphne, 1606 Strategies Photo Credit: Jeff Cornett

Brookland Grove, TriPointe Homes Photo Credit: Studio Trejo

Small Batch Creators

The butcher, the baker, the candlestick maker (and cheesemonger, glassblower, jeweler, et cetera) are back. Experts are predicting the rise of a new artisan economy fueled by disillusioned workers in the fallout of pandemic malaise.

At the end of 2015, Etsy, the online bastion of custom and handmade products, served 1.6 million active sellers and 24 million active buyers. By the end of the third quarter of 2022, it was serving 7.4 million active sellers and 94.1 million active buyers. Amazon Handmade, a smaller market within Amazon Marketplace, launched in 2015. Within five years, the number of active makers increased 750% while the worldwide selection increased 2,000%. Today, tens of millions of products have been sold globally.

Authentic, artisanal accents throughout the home are an opportunity to support small and local businesses and connect with buyers and tell memorable, compelling stories in a competitive market. Possible areas include door hardware, cabinetry, lighting, and plumbing fixtures.

When it comes time for move-in and closing gifts, nobody wants wine glasses or towels with their community’s name on them. Here is another opportunity to think local and artisanal. Loop & Tie is an online gifting platform offering thousands of options sourced from small business across various price points. You can even give residents the option to select their own gift or donate a sum to charity if none of the items spark their fancy—which also means a gift “miss” won’t end up in landfill.

418 M Street, 1606 Strategies Photo Credit: Jeff Cornett

Wardman Tower, NASH / JBG Smith Photo Credit: Jeff Cornett

Wardman Tower, NASH / JBG Smith Photo Credit: Jeff Cornett

Vibrancy

Natural finishes and features pair well with an infusion of color. Viva Magenta, Pantone’s 2023 Color of the Year, is a statement-maker. Pantone describes it as “an unconventional hue for an unconventional time.” Compared with 2021’s Color of the Year, Ultimate Grey, which represented steadiness, this year’s Color of the Year and 2022’s Very Peri show an evolution toward brightness and daring as we turn to color for some much-needed happiness quotient.

Benjamin Moore echoes this sentiment with its 2023 Color of the Year selection, Raspberry Blush.

On the runways, where home design and décor color trends often initiate, we also saw lively hues reign. Valentino’s fall/winter 2022/2023 collection embraced colors including royal blue, neon green, and vivid orange. Jean Paul Gaultier showed pinks, reds, and blues.

After years of contraction and still lingering uncertainty, color represents an unrestrained burst of impactful energy poised to infuse joy.

Introduce color thoughtfully in high-impact areas such as branding, front doors, kitchens, and bathrooms.

418 M Street, 1606 Strategies Photo Credit: Jeff Cornett

Seneca House, PT Blooms Development Photo Credit: Chris Spillman

AMENITIES

Urban Sanctuaries for Privacy and Wellness

Tranquility and peace can be hard to find in the city. Pockets of calm that offer an escape from the frenetic energy of urban life without sacrificing its convenience are attractive to city-dwelling buyers and renters.

Amazon’s HQ2 in the bustling National Landing will feature an outdoor hiking trail winding up the exterior of the structure, populated by plants indigenous to the Blue Ridge Mountains.

In the hospitality industry we are seeing the launch of destination spa-like resorts in major metros. Aman New York opened in 2022 with one in Beverly Hills due to open in 2026. In Europe, Six Senses Rome will open in March. Edition hotels designed a plant-filled refuge in the middle of Tokyo which began welcoming international travelers in 2022.

Like the future of luxury travel, we also want to offer our prospects and residents the best of both worlds: quiet, secluded, comfort with culture, excitement, and adventure on-demand.

With the neighborhood as our greatest amenity to accomplish the latter, how do we create this sanctuary environment (without being an actual spa) to accomplish the former?

We can start with the ability to shut out the city noise. Better sound attenuation, with a focus on specific areas of the residence that are dedicated for work and rest can help residents relax or focus.

Speaking of the indoors, indoor air quality has been a strong focus considering Covid’s airborne transmission, recent strings of wildfires, and a greater awareness of the links between air pollution and human health. Built-in air purifiers and even the transition toward induction cooking are ways IAQ is coming into focus in new construction.

Circadian, or human-centric lighting, mirrors the natural path of the sun from dawn to dusk and can be incorporated into units and common areas.

Outdoor space is vital but adding a layer of privacy will enhance a sanctuary like experience. This can be accomplished with dedicated outdoor space for individual residences or in common areas with green walls, cabanas, and smaller seating groupings.

WFH, but make it Five-Star

We are always borrowing ideas and taking inspiration from other asset classes in real estate—and now it’s office looking toward hospitality. Employers are looking to five-star experiences to draw employees back to the in-person office.

L’Oréal’s Los Angeles office offers a concierge service for employees subsidized at $5 per hour. This concierge picks up dry cleaning and fills gas tanks while employees enjoy an uninterrupted in-office workday and incentivizes workers to come into the office to access the concierge.

In London, Google’s Kings Cross development will feature a pool, rooftop running trail, and on-demand massages.

The past few years have created a class of workers who value the comforts of working from home, but may be starting to feel the growing pains and malaise of trying to make their home work as an office. Now that many people are working from home for at least part of their workweek, functional workspace both in and out of the individual unit is not a luxury—it’s a requirement.

Earlier in this report we discussed indications that dens may be in higher demand as working from home becomes more common. Beyond providing the basic space to office at home, how else can we uplevel the work-from-home experience at our communities? Quality sound attenuation is also relevant here as is uncompromised high-quality, high-speed internet throughout the community. PrintWithMe is a network of self-serve wireless printers that can be installed in multifamily communities that can provide resident printing either for a cost or as an amenity.

Concierge services at home also allow for greater productivity. We can look beyond traditional concierges to partnering with broader service providers who can tackle some of the more routine daily tasks that traditionally have to be accomplished outside of the home.

Future-proofing, Now

The last several years have shown significant growth demand for electric and hybrid-electric vehicles. EV and HEV sales soared in 2022. In the U.S., sales volume surpassed 800,000 vehicles for the first time in 2022, representing a 65% increase over 2021. Bolstered by government-backed incentives and new product offerings, Cox Automotive is forecasting 1 million EV sales in 2023.

Home charging is often an essential consideration to justify the lifestyle change and higher price that comes with electric vehicles. A new study from the University of Maryland’s Center for Global Sustainability (CGS) finds that homebuyers are willing to pay a premium in areas where there is access to charging stations.

Research finds that increased availability of EV charging infrastructure increased home values by nearly 3.3% in California—boosting an average house by $17,000. Including EV charging stations has long been a “wait and see” with many developers taking the preliminary step to wire, but not fully install. However, now may be the time to take the next step in providing accessible EV charging stations.

Low-maintenance and therefore low-stress is one of the largest appeals of new construction. However, even in new construction, issues arise, and it can be incredibly time consuming and frustrating for owners and developers alike.

Birdwatch, servicing Washington, D.C. and Philadelphia, provides homeowners concierge preventive maintenance and repair work via an ongoing membership service. Things going wrong in a new home can quickly sour what should be an exciting and joyful time. This service-based amenity can help ensure that the sparkle does not fade.

Brand as an Amenity

The Ritz-Carlton Residences at Chevy Chase Lake commenced sales in spring 2021 as the third Ritz-Carlton Residences in the D.C. area, but the first stand-alone residences without a hotel component. Ritz-Carlton is renowned for its legendary service and buyers see this as a desirable and key amenity.

Apartments by Marriott Bonvoy was announced in late 2022. Unlike Marriott’s existing extended-stay product, Apartments will not provide traditional hotel services, such as food and beverage, meeting spaces, and retail, but will be backed by be Marriott’s reservations engine and Marriott Bonvoy loyalty program. These apartments also won’t be within existing hotels, but rather will be standalone developments.

The 90-unit JW Marriott Residences at Reston Station is scheduled to deliver in late 2024.

Infamous WeWork founder Adam Neumann has a new residential concept. Branded as “Flow” it will work to “disrupt the world’s largest asset class” by introducing a model that combines the best parts of renting and homeownership.

The idea of branding a product is creating the expectation for consistent services and features. By branding communities, developers are hoping to use this shortcut to create a compelling value proposition.