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WASHINGTON, DC-An interesting conundrum developed in Washington, DC area’s multifamily marketplace last year that is only now easing, according to Delta Associates. In 2005, class B rent rates moved close enough to class A rates that a flight to quality developed.

In another words, according to report author Grant Montgomery, renters were able to move up to class A apartments for not that much more in rent, a concept called rent compression, that created, not surprisingly vacancies in class B stock.

The dynamics are reversing this year as class A rent rate continues to rise. Class B apartment rents are rising as well, and vacancy rates are down year-over-year, according to Delta Associates; average rent rates increased to $1,225, up 6.8% for the year, while vacancy decreased by 110 basis points to 1.9% during the same period.

However, class A rental rates, up by 7.4%, are high enough now thattenants once again see class B product as an affordable alternative. Class B rents are expected to rise by 5%.

These dynamics are also reflected in investment sales in the area, according to the report. During the first half of 2006, there have been 14 class B garden apartment sales noted, trading at an average price of $153,136 per unit–a little over 33% higher than the average unit price realized during the same period last year, when 19 class B garden sales were recorded. There were three class B high-rise sales posted in the first half of 2006, at an average price of $103,018 per unit–a year-over-year increase of over 44%.

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