October 3, 2016

2 apartment reports see boom continuing

Two market analysts — Dupre + Scott and Apartment Insights — published separate multifamily reports this month and both offer interesting takeaways for the very heated Puget Sound market.

Dupre + Scott reports a slight uptick in the Seattle vacancy rate, rising from 3.5 percent last spring to 3.7 percent now. Still, that's up considerably from a very tight 2.5 percent in the spring of 2013. Since then, builders have been racing to keep up with demand.

Yet because of the high construction volume of new Seattle apartments, which charge premium rents, Dupre + Scott says that for the region, “rent distortion is becoming significant.”

Even if regional rents are up 9.3 percent from a year ago, the firm cautions, the picture isn't necessarily so rosy for apartment investors. In the city, “Excluding new units that opened in the past year, Seattle rents rose 5.6 percent in the past 12 months. That's less than the increase in the region.”

Dupre + Scott forecasts even more inventory in the next three years: 14,000 in 2017 and projections for “almost 57,500 units between 2017 and 2020” — though not all will be built and some may become condos.

Apartment Insights' third quarter report follows apartment buildings with 50 or more units (as opposed to 20-plus units for Dupre + Scott). Looking at King and Snohomish counties, Apartment Insights sees a vacancy rate of 3.9 percent, up slightly from the second quarter, essentially flat year-over-year.

Like Dupre + Scott, Apartment Insights reports a rise in regional rents of about 9 percent. Downtown Seattle is the most expensive submarket, with an average monthly rent of $2,337, while South Lake Union had the best absorption rate for the quarter, at 372 units.

Apartment Insights also sees much more multifamily inventory coming. The firm counts over 6,000 units now underway in Seattle. For the region, “The grand total for all of the units in various stages of the pipeline is 72,056. In the past two years the pipeline has grown 50 percent!”

Until now, says Apartment Insights, “demand has still outpaced supply.” But of that hypothetical 72,056 figure (not all of which will be built), the firm warns that it would add 36 percent to existing rental inventory. “This is a very large number, and for us a cause for concern.”