Seattle’s apartment market is strong and growing, with thousands of new units in the pipeline. The market has proven to be extremely resilient with about 30,000 apartment units delivered in King County since 2010, according to Dylan Simon with Colliers’ Seattle Multifamily Team. “Considering the amount of new development we’ve added, those 14 urban markets have performed exceptionally,” he said. Piggybacking off the growth since 2010, Simon said the area is set to receive another 40,000 to 50,000 units in the same markets based on what’s proposed under development.
But new growth in the apartment market is dependent on one major factor, according to Simon, and it’s job growth. “It’s jobs. It’s all jobs. All commercial real estate is dependent on jobs,” Simon said. “It’s really a question of job growth, and we don’t know how many jobs we’re going to add to the region,” he said. “We know how many units are getting delivered because permits are filed but companies don’t necessarily file permits about people they’re going to hire in the next four years,” Simon said. While Simon said the big predictor is how many jobs we add to the region, a subcategory of that is wage growth.
According to Simon, current projections are forecasting around 40,000 jobs coming to the region. “If it continues, supply will meet demand, and we’ll continue to see the dynamics we’ve seen in the past,” Simon said.
Something to watch out for, Simon said, is the change in the political environment. “Interest rates are starting to increase, and we’re also having a lot of new delivery of apartments, so I think the dynamic of new units added versus jobs and also increasing interest rates can slow down development,” he said. Additionally, “They (interest rates) can also slow down investment markets. So if the interest rates slow down new development, that actually might be better for the apartment community because we won’t over develop,” Simon added.
Fortunately, Simon said, we have an abundance of land, whether it looks that way or not. “There’s an infinite amount of land. If you run out of land you just knock down existing buildings and build a new one. There’s no shortage of land,” he said. What does slow down development, however, are economic drivers rather than land availability. Simon explained it this way, “Now land availability could influence pricing of land, which then impacts the dynamics of the economics of the investments.”
Developers are finding a number of ways to build in the region, including pushing development outside the downtown core. “We’re starting to see new developments in places like Bothell, Lynnwood, Shoreline and Kent,” Simon said. Another tactic developers are taking advantage of is doing smaller infill projects in neighborhoods.
But nonetheless, Simon said there’s still room in the Seattle core for builders. “You can drive through downtown Seattle, and it’s hard to drive anywhere without seeing a parking lot,” Simon said. “The Pike/Pine corridor is full of parking lots, Lower Queen Anne is full of parking lots, this is not a dense city yet,” he added.
To take advantage of the available space left in the downtown area, Simon said density is key. “Density is the answer. Every developed urban city has used density to its advantage to create more livable cities,” Simon said. As an example, he pointed to Singapore, where it’s a very dense urban environment with green space but also very livable. “We really need to focus on our building code, and we need to go vertical in certain areas, and we need to get green space in other areas,” Simon said. “But absolutely, we need to promote density and do it in a smart fashion.”
Developing vertically allows for greater options for renters and more possibility for developers. I think the renters have more options. “There are a variety of different types of products out there. There’s everything from small efficient studios to very high end buildings,” Simon said. “I think there’s this concern of a lot of high end apartment buildings and certain social movements want to slow down development or restrict it, yet the key is more product will eventually stabilize pricing and give people greater options,” he added.
More product coming online allows for more options. “I think the advantage to renters is it’s purely free market economics. The more product that comes online, the more variety there’ll be,” Simon said. “And I think for developers, the opportunity is we’re in a city with rapidly growing employment and that puts more money in people’s pockets that they can spend on living, and it’s becoming more dense.”
And speaking of opportunity, Simon said the passing of the upzone in the University District will create potential and even more opportunity. “I think any of our urban markets could benefit from having an upzone,” Simon said. He added that neighborhoods such as Lower Queen Anne and Capitol Hill could also benefit greatly from passing an upzone. But Simon acknowledges it doesn’t come without hesitation at times. “I think the challenge is often, at this point, construction costs have gotten very high,” he said. “The easy sites are gone. Now you’ve got sites that have environmental issues, zoning issues.”