By Dylan Simon, Executive Vice President and Multifamily Specialist, Kidder Mathews
It’s always easy to pick on the new kid. Seattle has enjoyed its emergence as a global city and, as such, exemplified “New Kid-itis” — yet it’s roaring back to life, and critics should take notice.
It was only 18 months ago that Seattle could do no wrong. The city was teeming with young, upwardly mobile and highly employable apartment renters clamoring for places to live while selecting high earning jobs of their choice. Skyrocketing demand across nearly all sectors of commercial real estate was palpable, especially apartments.
Dylan Simon, Executive Vice President and Multifamily Specialist, Kidder Mathews
The impacts of COVID-19 and social unrest that ravaged the nation had a disproportionate impact on many urban centers. Arguably, its effects on Seattle lingered the longest. Demand for high-rise office space remained questionable as apartment renters second guessed urban living altogether. Civic dysfunction amplified the questioning of downtown Seattle’s livability, causing the apartment market to noticeably suffer.
Yet spring is a time for regeneration and growth, and spring 2021 marked a turning point for the Seattle region and the entire apartment market.
Occupancy Returns to Pre-Pandemic Levels
The Seattle region’s multifamily market unquestionably enjoyed a bull run this past decade. Average occupancy levels remained at or below 95 percent for almost the entire decade, despite a record 100,000 apartment deliveries during that time.
Then COVID-19 impacted occupancy levels quite harshly. By fall 2020, vacancy rates were spiking across the region. In the hardest hit areas, vacancy levels rose above 20 percent, with marketwide vacancy rates hitting 7 percent. Yet, once the calendar turned to 2021, demand picked up at a rapid pace. Now, occupancy is well beyond stabilized, with most owners reporting their buildings are back to pre-pandemic occupancy levels.
Establishing full occupancy was just the first step in the trifecta that hit the region: falling occupancy, significant concession loss, and waning rental rates. Now that occupancy is back, and concessions are nearly burned off in most markets, taking a harder look at rental rates is the final piece to the equation of market stability.
Rental Rates Rebounding and Growing
This past year was the first year in a decade when the Seattle region experienced a notable decline in rental rates. Annual seasonality in the region demonstrates a near perfect sine wave of accelerating and slowing rental rates, yet 2020 marked a massive decline across the entire year.
Suburban markets generally held their rental rates, though collection loss was greater than in urban markets. Urban markets did not experience too much in the way of collection loss. However, the sell-off in rental rates was steep and many were not sure when the freefall would end.
The region’s urban markets demonstrated surprising resiliency at the beginning of 2021, and growth in rental rates steadily mounted. As of spring 2021, loss in rental rates was back in the single digits, with a full recovery rates looking likely by the end of the year.
A Look Ahead
Many predicted Seattle would have a much steeper road to recovery, yet the strength of the region continued to impress. Seattle’s unemployment rate — at 4.8 percent as of June 2021 — now leads the state and is well below the national average of 5.9 percent. Washington also gained 197,000 jobs over the past 12 months, many of which were in high wage sectors or associated with downtown, such as hospitality, retail and professional services.
This past year was an easy time to pick on the new kid. However, Seattle, its counterpart and neighbor of Bellevue and the surrounding submarkets are some of the most attractive markets in North America to live, work and play. The new kid came back swinging. Expect more than a full recovery — we’re headed for
nation-leading growth once again!