It looks like condos are making a long-awaited return, in some markets at least.
In Washington, D.C., the condo pipeline has increased for the first time since 2005, according to Alexandria, Va.,-based research firm Delta Associates. With 3,100 units either being marketed or sold in and around the nation’s capital, supply has actually grown by a few hundred units over the past six months. And condo prices have jumped 12 percent year over year.
Active builders include Horsham, Penn.,-based public Toll Brothers and local heavyweight JBG Cos. But developers are jumping back in like they did during the mid 2000’s, though the scope of development is a little less ambitious.
“The size of the projects are smaller than they were in the last boom cycle,” says William Rich, senior vice president and multifamily practice director at Delta.
Washington, D.C., isn't alone. Earlier this year, The Wall Street Journal reported that more than 1,800 units would be completed in downtown Miami in 2015. New York has been a strong market for awhile. In markets like Charleston, S.C., and San Francisco, smaller condo projects in the 50- to 100-unit range are beginning to appear, according to Brian E. McAuliffe, senior managing director for Los Angeles-based CBRE Group.
“I expect condos to be a trend with growing momentum, but only in elite AA and AAA-type locations and on the upper end just because of the difficulty in financing for home purchases,” he says.
With stringent mortgage finance rules still limiting demand, it’s doubtful this condo boom ever balloons to the disastrous mid-2000 levels, but there is growing demand in certain markets.
“Part of it [the demand] is rental prices,” Rich says. “There’s also a shortage of product in the market.”
In Washington, D.C., new condos get most of the attention, but McAuliffe thinks condo conversions could soon follow in hot spots around the country.
“If it [this cycle] follows past ones, then the next area [of investment] is the condo conversions,” he says. “We’re seeing that in all markets on a smaller scale with the exception of New York [where there are bigger projects].”