Over the last five years there have consistently been approximately ten times as many apartments built in the Puget Sound region than condos. Industry reports have indicated that this trend continues into today’s market and is being forecasted to continue for another five years.
In a historically apartment-dominated market, developers did not want to be the first ones entering the condo market. Even today, only a few are willing to make the investment. “There was a period of time where developers were really skeptical about entering the market,” said Miles Garber, the vice president of research for San Francisco-based Polaris Pacific, a condominium brokerage and advisory firm. “So when they saw another developer build a condo project and do well, they began to see that they could do a project on the same scale. This also made the construction lenders more confident.”
“Condos aren’t always as quick of a turn around as apartments are.”
The apartment market was the first to recover from the recession, according to Kidder Mathews’ 2015 Fourth Quarter Seattle Apartment Report. Development started in earnest in 2012 with 23,000 units delivered between 2012 and 2014. The 2014 total of nearly 7,900 was the highest annual production since 1991. Deliveries jumped to 11,146 new units in 2015, with a slightly higher number planned for delivery in 2016. Currently, there are some 16,358 units under construction, part of 46,753 planned for delivery between 2016 and 2019, peaking at a forecasted 16,052 units in 2017, according to the same report.
According to Polaris Pacific’s March 2016 Seattle Condo Market Report, February saw 6,566 apartment units under construction and 5,316 more approved. However, only 916 condos are under construction and 169 approved, according to the same report. The average price of these condos is $388,000, or $461 per square foot, and there are 511 active listings, according to JLL’s Seattle Market Data Report. In February of last year, the average price was $320,000, or $360 per square foot, and there were 854 active listings.
One of the newest condo developments is Gridiron, a 107-unit tower that is in construction by Daniels Real Estate, LLC. Centrally-located in the Pioneer Square neighborhood of Seattle at 589 Occidental, it is situated in one of the most connected transit hubs in the city and offers prices ranging from $383,250 for a studio to $1,206,610 for a two-bedroom unit, according to the Polaris Pacific report. Jessie Culbert, a marketing director with the listing agent, Redfin, says pre-selling began last October, and the grand opening will be in summer 2017. Approximately 17 percent have sold.
According to Culbert, the reason Gridiron was built as a condo instead of an apartment development is because it’s important for a neighborhood to have full-time residents, and the Daniels team is really invested in Pioneer Square. Having people who are owners, in addition to renters, is a part of the strength of a neighborhood. “There are a number of reasons why a developer would chose to build apartments versus condos,” said Culbert. “The Daniels team really prides itself and has a long history of having a patient investment. Condos aren’t always as quick of a turn around as apartments are. For this team and this project, it really is an investment into the neighborhood.”
The primary demand driver for housing is population growth, which is mostly supported by employment growth. According to Seattle’s Office of Economic Development, the city added nearly 15,000 new jobs between 2012 and 2013. That number has continued to grow into this year as companies such as Microsoft, Amazon and Google expand their workforce in Seattle and throughout the region.
“The demand for homes to buy in Seattle as a whole is very high,” said Culbert. “As an example, in 2015 there were only 13 individual home sales in Pioneer Square, despite thousands of people who are searching our Web site for homes in that area during the year. As Seattle grapples with our population boom and the lowest housing supply in decades, we’re seeing demand that is higher than ever.”
According to Kidder Mathews’ report, the ratio of homeowners has gradually declined over the past seven years as fewer households are buying homes, either by choice or due to financing being more difficult to obtain. The downward trend in homeownership may slow, although most economists expect it will continue to decline, according to the same report. “It seems like the demographics we have here in the Seattle area are empty-nesters, as well as Y and X generations who are having children later in life,” said David Young, a managing director for JLL in Seattle. “It seems like the condo market should pick up, I just don’t know if it’s now.”