By Jack Stubbs
The frenetic activity in the multifamily market continues to be a topic of considerable interest, both for those directly involved in the market and for all those watching the larger trends unfold.
This summer, Colliers’ Seattle Multifamily Team released its mid-year market review, a study that examined a burgeoning multifamily market driven by employment growth and influenced by various office market dynamics such as rent, vacancy rates and sales trends throughout urban King County in particular.
In the introduction to the report, the Multifamily Team notes that, at the beginning of the year, the market was preparing for “uncertainty, volatility and hyperactivity.” However, despite the unpredictability that has characterized the multifamily market, one key factor lending consistency to the Seattle real estate market in general—and the multifamily market in particular—is job and income growth.
The rate of employment growth remains a key indicator of this year’s market conditions. Over the last twelve months, regional employment grew by 2.5 percent (equating to 85,200 new jobs). This regional employment growth is particularly noteworthy, since the national growth stands at 1.5 percent. The region’s unemployment rate currently checks in at 4.5 percent (.2 percentage points higher than the national average). In comparison, Seattle’s unemployment rate is significantly lower, standing at 3.5 percent.
Predictably, Amazon continues to set the trend in the technology sector in terms of employment activity, with an average of 13,005 monthly job postings in King County this year. The next two most active employers this year are dwarfed in comparison, with the University of Washington and Microsoft posting 2,333 and 1,337 jobs, respectively. The tech sector appears to show no signs of slowing, either, with the computer and mathematical sector contributing 3 percent of employment nationally and 7.6 percent in Seattle. The national hourly wage stands at $42.25 and $53.26 in Seattle, a 26 percent difference.
Framing the intense activity that has characterized the first half of 2017, the report highlights several statistics that demonstrate how things continue to heat up. The average rent per unit is $2,040 (compared to $1,974 in 2016); a three-year cumulative rent grown stands at 14 percent; median income has climbed to $80,349 (compared to $70,594 in 2010). Finally, 7,526 units have been delivered year-to-date in 2017 (compared with 6,616 in the entirety of 2016)—with another 35,990 planned for construction over the next three years.
Referring to prominent office market dynamics, the report outlines a characteristic feature of 2017: a simultaneously pronounced addition of more office space and continually decreasing vacancy rates, substantially below 10 percent for the first time in almost a decade.
Technology companies continue to lead the way when it comes to pouncing on new office space, with Microsoft occupying 13 million square feet of space and Amazon not far behind with 12.8 million square feet occupied.
Rental rates in the Seattle and Puget Sound multifamily market indicate how the rental market continues to become more competitive in urban King County due to the increased demand for apartments. In the first half of 2016, the average rental rate for units built between 2000 and 2017 was $2,075; for the same time frame in 2017, the average rental rate stands at $2,913, with a 5.7 percent increase. One of the contributors to increased rental rates in urban King County is newly-completed apartment units driving up rental rates. Newly-constructed apartment units are also in competition with five-plus year old buildings that receive substantial upgrades and redevelopments. Even taking into account the extensive rent growth that urban King County is experiencing, the fact that the vacancy rate remains below 4 percent—and is dropping year after year—is particularly noteworthy.
Sales trends in urban King County—for large- and small-scale developments alike—have fluctuated significantly over the past year as well. From January 1st to June 30th of 2016, there were 52 sales of apartments with between 5 and 50 units; in the first six months of this year, there were 40 sales. The transactions involving bigger developments in particular catch the eye when comparing 2016 to 2017. In the first six months of last year, there were 4 sales of developments with 50-plus units; since then, there has been a 100 percent change, with 8 developments (50-plus units) solid in urban King County.
This year, the average price per unit for larger developments is $332,332, while last year the average price for a large development was $288,218, an increase of roughly 15 percent. In terms of price per square foot, the average price is $561 this year versus $514 last year, an increase of just over 9 percent. As the report indicates, the significant increase that occurred between now and twelve months ago is part of a larger pattern. Sales prices above $600 net rentable square feet for newly-developed multifamily properties has seemingly become the new normal, while prices exceeding $500 net rentable square foot set the basic standard for multifamily sales.
If the results of the first half of this year are anything to go by, the multifamily market could be set for an active few months ahead. All those who have the trends over the last 12 months up till now will be waiting to see whether 2018 bucks or reinforces the current trajectory that continues to gather pace.