Home Industry News Report: Seattle Remains an Enticing Option for Renters, Multifamily Investors

Report: Seattle Remains an Enticing Option for Renters, Multifamily Investors

Kidder Mathews, Seattle, King County, Pierce County, Snohomish County, Kitsap County
Image Courtesy of Zhifei Zhou

By Jack Stubbs

The Emerald City has long been viewed as a desirable place to live, with several different factors contributing to its attractiveness. According to a report, “Q4 2022 Apartment Market Dynamics,” recently released by Kidder Mathews’ multifamily team, this situation shows little signs of significantly changing.

“As cities around the globe struggle to find their way in a hyper-inflationary environment, the Pacific Northwest continues to demonstrate economic vigor in the form of wage growth, job stability, and lifestyle desirability,” Dylan Simon, executive vice president at Kidder Mathews, said.

The report, which analyzes current market trends and 15 years of historical data for rental and vacancy rates and sales across the four major Western Washington counties (King, Pierce, Snohomish and Kitsap), found that the third quarter showed sustained strong rental rate growth and occupancy – yet a marked slowdown of apartment investment sales.

Across the broader Puget Sound region, results were mixed in terms of rental rates, vacancy rates, and apartment sales. Renter demand – evidenced by rising rental rates and falling vacancy – continued to surge through mid-year, notes the report. In the third quarter, average rents stood at $1,961 per month, compared to $1,991 per month in the second quarter and $1,870 per month in the third quarter of 2021. Vacancy rates stood at 5.5 percent, 5.4 percent and 4.9 percent, respectively.

With the exception of East King County, urban markets – and their suburban counterparts – experienced slowing rental rates, rising vacancy, or both. The report paints a more complex picture with regards to apartment sales.

“Notably, the inevitable slowing of apartment sales due to threats of recession and massively rising interest rates is not yet evident in the data. In fact, quarterly sales volume is nearly on pace with previous years, and cap rates have yet to reflect interest rates nearly doubling from 12 months prior. That said, expect quite a different picture once end-of-year [fourth quarter] sales are posted.”

There were 103 sales in the third quarter of 2022 and 89 in the second quarter, with 141 sales posted in the third quarter of 2021. Sales volume followed a similar correlational trend, with $1.8 billion, $1.2 billion and $3.2 billion, respectively, posted during that time period.

As for the Seattle market specifically, rental demand trends still remain relatively uncertain looking forward. Since the pandemic, sales activity has been fluctuating, with the last couple of years having witnessed somewhat of a back-and-forth narrative.

“Sales volume and pricing slid during the height of COVID. Then, the path to greater pricing recovery experienced briefly from mid-2021 to early 2022 was stymied due to a lack of employers requiring their staff to return to downtown offices. Of course, this was also coupled with rising borrowing costs, as well,” the report states.

There were 37 sales in the third quarter of 2022, 33 during the second quarter and 43 in the third quarter of 2021. For the same three time periods, sales volume reached $496 million, $330 million and $593 million, respectively.

The pandemic has also had knock-on effects on rental and vacancy rates in Seattle over the last couple of years, with factors like working remotely versus in the office among several contributors.

“Renters clearly prefer to remain in Seattle’s urban neighborhoods post-COVID, as demonstrated by rising rental rates and falling vacancy until mid-2022,” the report states. “Even so, third-quarter data illustrates that a limited return to work is hurting sustained rental rate growth. Similarly, continued urban development is causing some imbalances in supply and demand.”

In the third quarter of 2022, average rents stood at $2,279, compared to $2,313 in the second quarter of this year and $2,226 in the third quarter of 2021.

Further afield of Seattle, North King County – encompassing cities like Bitterlake, Northlake and Lake City – rents and sales activity remained relatively consistent up until the third quarter. There have been, notably, an increased number of sales of smaller properties, and North King County has accumulated $39 million in total sales volume year-to-date and more sales than in 2021. There were nine property sales in the third quarter of 2022, seven in the second quarter, and five during the third quarter of 2021.

Overall, in terms of the discrepancies region-by-region in and around the Emerald City, fluctuating rental and vacancy rates and sales activity – while by no means certain looking forward – indicate that the Pacific Northwest still represents an appealing quality-of-life.