Joel Deis, Marcus & Millichap in Seattle
The Seattle-Tacoma metro area is one of the top-performing multifamily commercial real estate markets in the nation. Locally, employers are adding jobs at one of the fastest paces in the country, supporting a strong rental market in the region.
In Tacoma, State Farm and other companies have energized the area’s economy and strengthened its apartment operations. In Seattle, companies like Amazon, Zillow and Julep Beauty are supporting new job growth, and many of these new job opportunities are attracting young workers who need apartments.
There were 8,800 jobs were created in the metro in the beginning of the year. About 130,000 workers were added to payrolls over the past three years. The primary renter cohort of residents between the ages of 20 and 34 years old grew nearly twice as fast as the metro population in 2013, greatly increasing the need for apartments. This year, strong job growth will also support demand for area rentals as the total jobs in the metro will rise nearly 4 percent above the pre-recession high. While there are plenty of new jobs, the median household income needed to qualify for a mortgage on a median-priced home in the metro is $83,150, assuming a 20 percent down payment. With a metro-wide median income of $68,320, many households will find it difficult to qualify for a mortgage. The monthly payment on a median-priced home in the metro is almost $300 more than the median rent for apartments that have been constructed since 2000. The surge in home prices makes homeownership unattainable for many tenants, keeping them in the renter pool longer.
New construction of about 11,000 rentals is anticipated by the end of this year. The surge in construction will push marketwide vacancy upward, although the rate will remain below the 5 percent threshold, allowing operators to lift rents, though at a slower pace. Development is concentrated mostly in the Seattle urban core, as Downtown and adjacent areas north of Downtown will account for nearly 60 percent of all new apartments this year. Development outside the urban core was mostly concentrated in Seattle and Bellevue in 2013. This year, development is occurring in all but three south metro submarkets.
As construction nears a 20-year peak, absorption of nearly 8.4 units will fall short of deliveries, pushing vacancy up 30 basis points to 4.6 percent. The large volume of new properties coming online will continue to attract institutional buyers as some developers list assets to redeploy capital into new ventures or exit before the market is overbuilt.
Joel Deis, Regional Manager, Marcus & Millichap in Seattle. This article originally appeared in the November 2014 issue of Western Real Estate Business magazine.