March 22, 2016

Apartment rent hikes are slowing

Less than a third of apartment owners expect to raise rents in the next six months, a sign that the thousands of new apartments in the region may be starting to affect the market, according to a new report.

Dupre + Scott Apartment Advisors said 32 percent of property owners surveyed planned to raise rents an average of 3.6 percent over the next six months. Dupre + Scott said this is a big change because between 2011 and 2014 more than 60 percent of property owners consistently said they would raise rents.

Rents have increased 3.3 percent in the region since September and 9.1 percent over the last year. Take out the brand new buildings, which fetch higher prices, and rents rose 7.2 percent.

Not counting new construction, rents in Seattle have risen 1.5 percent since September and 4.6 percent over the last year.

Thousands of new units will blunt rent hikes over the next few years, Dupre + Scott said. In King, Pierce and Snohomish counties, developers opened 10,500 units last year, and another 12,500 units could open this year.

Those units are filling up. Dupre + Scott say 74 percent of units still leasing up are occupied.

Of the 58,000 new units planned to open between 2016 to 2020, Seattle will get almost 36,000. Bellevue will be second in apartment development activity at approximately 4,600 units.

Even with thousands of new apartments flooding the market, the region's vacancy rate for all properties is 4.7 percent, unchanged from last fall. Take out new projects still filling up, and vacancy is at 3.3 percent — the lowest in decades, Dupre + Scott said.

Vacancy rates dropped on the Eastside, most of south King County, and in Pierce and Thurston counties, but rose in Seattle. Market vacancy — which does not include new projects still leasing up — rose to 3.5 percent, the highest it has been since fall of 2010.

Including new units, Seattle's vacancy rate is 6.1 percent, up from 5.9 percent from last September. Dupre + Scott said increased vacancy in Seattle is expected because 60 percent of new construction is happening there.

Dupre + Scott expect the apartment market to soften because so many new units are opening and the local economy may not be able to keep up its booming pace.

Dupre + Scott cited a Conway Pedersen Economics March forecast of 93,000 new jobs in the region over the next three years, a decrease from December when the estimate was 105,000 new jobs. Over the last three years, the region has added approximately 163,000 jobs.