Seattle Multifamily Market Soars to New Heights
Seattle’s multifamily market continues to ride a wave of demand that is being buoyed by corporate office expansions, record prices for land development deals and robust investor interest for a wide spectrum of CRE assets. The latest market reports from virtually every brokerage company reveals Seattle’s strong job growth and enviable base of corporate HQ and tech occupiers is fueling growth and demand across the office, industrial, retail, multifamily and even life science sectors.
Jobs are driving the surge, as Seattle emerged as a major job creator during the current economic cycle. Market expansions were executed by Bay Area tech companies such as Apple, Facebook and Google, as well as growth came from homegrown tech titans such as Amazon and Microsoft. A tech-savvy labor force has blossomed in Seattle, and that hasn’t gone unnoticed by tech companies.
The multifamily sector continues to exhibit positive momentum, largely because job growth has created a need for more housing. Demand for apartments has been fueled by Seattle’s rising cost of single-family housing, as well as delayed decisions by Millennials to start families, many of whom are preferring to remain in urban settings longer.
Marcus & Millichap reports that record year-to-date absorption catapulted Seattle-Tacoma to the top spot in its Midyear Index, as strong regional economic growth attracted more young heads of households who exhibited a high propensity to rent. The company predicted rent growth should reaccelerate as a result of Seattle’s robust demand, which is expected to push Seattle’s year-end numbers above the national average.
Seattle ranked behind only New York, Los Angeles and Dallas in terms of new multifamily deliveries for the year ending Q2 2019, according to research by CBRE. There were 14,100 units completed over the past 12 months ending Q2 2019. Seattle’s net absorption for the four quarters ending Q2 2019 was 14,700. Reflecting the high demand, net absorption as a percentage of completions hit 104%.
Puget Sound has been one of the most active markets in the country for multifamily construction this cycle, boosting inventory by 85,000 units since 2010, reported Marcus & Millichap. It says more than 20,000 apartments are anticipated for completion over the next two years, rising primarily around employment hubs in the urban core and on the Eastside.
Kidder Mathews pegged Seattle’s Q2 multifamily vacancy rate at 4.9%, compared to 5.3% in the first quarter. Q2 asking rents increased 3.6% to $1,630 from $1,575 a year earlier. The Q2 average price per unit had also jumped 6.7% to $206,682, compared to the same time last year, according to Kidder Mathews.
Seattle experienced an acceleration of $20 million-plus transaction volume year-to-date, according to Marcus & Millichap research. That clearly shows just how strong the investor appetite is to continue deploying capital into the market. The investment brokerage predicted 2019’s investment sales total could eclipse the cycle’s peak reached in 2016, if the high volume continues.
Sustained demand for assets has created increased competition and compressed the average cap rate by 30 basis points in the last 18 months to 4.3%, reports Marcus & Millichap. Recently-completed mid-rise and high-rise properties in and near downtown have piqued institutional buyers. Investors favor assets in walkable, live-work-play locations with professional or high-tech resident profiles. Several properties have closed with cap rates in the neighborhood of 4%.
Meanwhile, current valuations continue to capture the attention of owners and developers, a factor that continues to fill the disposition pipeline. That encompasses recently-built stabilized assets in Seattle as well as older, garden-style assets in suburban Puget Sound markets.
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