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Equity Residential Sheds Light on Seattle, San Francisco Apartment Markets

Fairfax Financial Holdings, Kennedy Wilson, Pacific Western Bank
Courtesy of Felipe Galvan

By Catherine Sweeney 

Equity Residential, a firm that invests in the nation’s top apartment markets, recently held a first quarter earnings call in which it discussed its investment activity as well as some larger trends that have been observed in its multifamily markets over the past quarter. During the call, the Chicago-based REIT shed light on some of its West Coast markets, particularly discussing its presence in both Seattle and San Francisco. 

“Our remaining two west coast markets of San Francisco and Seattle have posted respectable quarter-over-quarter revenue growth with good demand, but pricing power remains less than desired, especially in the urban centers of both of these markets,” Mark Manelis, executive vice president and COO at Equity Residential, said. 

While headquartered in Chicago, the firm focuses on the acquisition, development and management of residential properties located across the country. According to the earnings report, the firm owns or has investments in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California, Denver, Atlanta, Dallas/Ft. Worth and Austin. In total, the company has investments in 301 properties consisting of 79,351 apartment units. 

Of these properties, Equity Residential operates 43 apartments throughout the Bay Area and 42 apartment properties in the Seattle market, the firm’s website shows. 

According to Manelis, the San Francisco market is continuing to perform as expected, observing a slow recovery throughout the past several quarters. The use of concessions in downtown markets, like San Francisco’s, is also a continued trend observed by the firm. Likewise in downtown Seattle, Equity Residential noted in the call that it is observing similar trends. The downtown market lacks pricing power and concessions are being used on approximately 70 percent of the firm’s applications. 

“So concessions for us right now are really concentrated in those urban centers of Seattle and San Francisco… [On] the fourth quarter call, I was telling you that the demand was picking up, and you saw the concessions starting to slow down across most of the markets that absolutely held true almost all of the markets now have weaned themselves off of the concessions, except what we saw in somewhere around that middle of February and into March, you really saw the concession use pick up in those downtown urban centers of Seattle and San Francisco, and they’ve been fairly constant,” Manelis said.

While these trends are being observed in downtown core markets, surrounding markets, such as in the South Bay, are seeing signs of improvement. Manelis said in the call that this likely has to do with a combination of factors, including more stable employment in the region as well as better quality of life outside of downtown markets. 

In Seattle, the overall market continues to demonstrate a lack of recovery. However, the East side submarket continues to perform slightly higher than its downtown counterpart but is still facing challenges due to supply pressure, layoffs and overall less employment opportunities.  

Market reports for each of the two regions are showing similar trends. A first quarter report from Kidder Mathews for Seattle’s multifamily market showed an increase in vacancies year-over-year from 4.9 percent to 6.8 percent – an approximate increase of 38 percent. Average asking rents also trended up slightly over the past year, rising just 1.36 percent to $1,866 per month on average. At the same, the average sales price per unit dropped slightly from $341,346 per unit in the first quarter of 2022 to $324,220 per unit in the first quarter of 2023. 

Overall, under 20,000 units sold in 2022 compared to more than 25,000 sold back in 2019. So far in the first quarter of the year, there have been under 5,000 units sold, according to the report. 

San Francisco saw similar trends with a first quarter market report from Kidder Mathews also showing that under 20,000 units sold in 2022 compared to more than 25,000 sold back in 2019. In the first quarter of the year, there were also just under 5,000 units sold, according to the report. 

The market also saw an uptick in vacancy rates by about 19.6 percent year-over-year. In the first quarter of 2023, the multifamily market reported a rate of 6.1 percent, compared to 5.1 percent the year prior. Average asking rents remained mostly unchanged at $2,500 per month on average in the first quarter of 2023 compared to $2,472 per month the previous year. At the same time, year-over-year sales price decreased by nearly 6 percent, showing an average unit price of $382,808 compared to $405,914 per unit during the same time in 2022. 

Despite this, the last couple months have shown some signs of improvement, Manelis said, with demand beginning to increase in both markets. 

“I’ll tell you the last couple of weeks, we see a little bit of hope right now that the demand is picking up. Application volume is picking up in those areas, and you could start to see us get to a place where we could start pulling them back again. But for the most part, just in the rearview mirror, they’ve been constant for the last couple of months for us,” Manelis said.