The Sustainability of the Seattle Apartment Building Boom
With all the recent froth in the multifamily markets, knowledgeable observers are expressing concern regarding all of the cranes that are sprouting around Seattle. To assess the apartment market, we have compiled data recently published in the “March 2015 Apartment Development Report” by Dupre + Scott Apartment Advisors.
The Seattle Metro area is in the midst of an apartment development boom, with an estimated 17,400 units under construction, 12,000 units to be completed and ready for occupancy in 2015 and 11,000 units to be delivered in 2016. There is an additional 25,000 additional units in various stages of planning for delivery over the next five years.
This new construction is in response to low vacancy rates (3.5 percent in the Seattle MSA, excluding vacancies for properties in initial lease-up), job expansion and related in-migration to the area. These trends have resulted in rising rents for new projects, up more than 7.4 percent in the region in the past 12 months (skewed by rents in newly opened projects).
The new units under construction or proposed are heavily weighted to the close-in neighborhoods surrounding the Seattle CBD (Belltown, Downtown Seattle, South Lake Union) and close-in neighborhoods north of Lake Union (Ballard, Greenlake/Wallingford, North Seattle, Shoreline and the U-District). As of March 2015, the close-in CBD market was reported by Dupre+Scott as having almost 7,300 units under construction (plus more than 13,100 proposed for delivery over the next five years) and the close-in neighborhoods north of Lake Union totaled about 2,700 units under construction (plus 4,200 proposed over the next five years). Taken together, these two submarkets represent 57 percent of the units under construction and 69 percent of the units proposed in the Tri-County area.
The Tech Effect – Demand for apartments is being generated by job growth in the information/software development sector and related in-migration. The influx of Gen Ys/Millennials into the workforce, coupled with the turnover/retirement of the Baby Boom generation is buttressing apartment demand. Amazon.com alone accounts for a Seattle workforce estimated of more than 29,000. This is projected to grow to more than 75,000 in the next five years, replacing Boeing as the region’s largest employer. Supplemented by workforce additions at Google, Facebook, Twitter, Tableau and all of the tech spin-offs/startups, demand for new apartment units is likely to continue over the next five years.
Affordability – Seattle is ranked as the 10th most expensive major city for renters in America, as reported by Zumper’s National Rent Report. However, the average one bedroom rent of $1,600/month is less than half the rent for a comparable unit in San Francisco, influencing the in-migration of tech jobs to the Seattle area.
The rapid expansion of the supply is projected to result in rising vacancy rates, peaking at close to 7.5 percent in late 2017, but stabilizing at about 5 percent by late 2019. Rent increases many developers are anticipating should be expected to slow in 2016 and will more than likely flatten in 2017. This flattening of rent growth is a reflection of the near-term spike in inventory, and probably does not represent over-building, as vacancy rates are projected at 7.5 percent at its peak. Near-term employment trends and changing attitudes regarding rent vs. own, are concluded to support the under-construction and proposed-inventory, particularly in the close-in Seattle neighborhoods. Clearly, the market is delivering an ample supply of new units, but not in excess of market demand.
By Allen N. Safer, Senior Managing Director, Integra Realty Resources. This article originally appeared in the June 2015 issue of Western Real Estate Business magazine.