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Multifamily Report: “No Market is Really Struggling” 

Colliers, San Francisco, Seattle, Portland
Courtesy of Luke van Zyl

By Meghan Hall

While economic contractions can certainly have their fair share of impacts on the commercial real estate market, one truth always holds true: people need a place to live. With this in mind, the multifamily asset class has seen tremendous growth over the past year despite the challenges posed by COVID-19. While some of the Northwest region’s more urban markets, such as San Francisco and Seattle, are still lagging, Colliers Research Manager Bob Shanahan noted in a recent interview that “no market is really struggling” when it comes to multifamily demand.

“Overall, the region is really thriving,” said Shanahan. “As of the fourth quarter, we’ve really seen the recovery that had started in the first half of 2021 really gain a lot of momentum…There is really no market that is struggling at this point, outside of maybe downtown San Francisco and downtown Seattle.”

Shanahan added, “Rents and occupancy rates are above pre-pandemic levels, and sales volume is on the rise as investors really continue to pour into the apartment sector.”

By the middle of 2021, national apartment price growth clocked in at 10.1 percent–higher than even those for industrial assets. Occupancy is also up, with Central Portland posting a 1.5 percent increase in occupancy, while downtown San Francisco and downtown Seattle saw occupancy increase 2.1 percent and 3.6 percent, respectively. 

“It’s really just a fact that people have to live somewhere, and I think that in the early months of the pandemic a lot of young people moved back in with family or doubled up their household counts as people were laid off,” explained Shanahan. “However, a lot of these markets have really strong economies…They’ve definitely suffered from some layoffs, but overall household incomes are rising and people are able to afford their rents.”

Trends that were already in motion prior to the pandemic, such as renters’ flight to the suburbs, have accelerated over the course of the pandemic. Occupancy, according to Shanahan, has reached 20 year highs in low density markets. By the end of 2021, suburban markets such as Sacramento, Stockton and Modesto were seeing occupancy rates of 99 percent. 

Markets such as Reno, Nevada, are also in the 97 percent range. By August of last year, more core markets such as San Francisco, the Peninsula, and Seattle/Puget Sound had occupancy rates between 91.8 percent and about 95 percent. While urban submarkets have had slower recoveries, experts like Shanahan are banking that renters will return with the opening of more commercial offices. 

“As people come back to the office and in-person, I think it will result in people wanting to be close to those offices,” said Shanahan. “…We could see some softening in the suburban submarkets that saw a lot of growth over the course of the pandemic as workers return to urban employment centers, but overall, apartment renter demand is showing no signs of slowing down.”

Demand for apartments reached a new record in 2021, according to Shanahan. For some industry experts, the renting frenzy has been spurred on by for-sale housing prices, which in many northwestern markets are reaching all-time highs. Redfin, for example, recently reported that January was the most competitive on record for homebuyers, with 70 percent of sales resulting in bidding wars.

However, Shanahan believes this to be largely untrue.

“A lot of people believe really high single family housing prices are keeping people out of the market, but I feel that that is a myth,” said Shanahan. “There are a lot of people that would just prefer to rent; it’s just a more seamless lifestyle…A lot of people, if they want to buy they can buy.”

According to Colliers, “near-record” demand has ensued for rentals, pushing up prices across the board. Region-wide, rents rose to nearly $2,000 per month within the first half of 2021. Prices are expected to continue rising in the near future. 

However, long-term the northwestern multifamily market could reach equilibrium, as apartment development activity has largely continued unabated. Shanahan noted that 40,000 apartment units, nearly 8,000 per quarter, are expected to deliver across the northwest markets, from the Bay Area to Seattle. The rapid pace of development will put “renter demand to the test,” but current fundamentals mean that available units could go quickly. 

“Multifamily has really become the darling of commercial real estate,” said Shanahan. “In the fourth quarter alone, across the country, one out of every $3 went into the apartment sector…I think we’re going to see more dollars poured into multifamily in 2022. The market has a lot of runway left for growth.”