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Report: Puget Sound Multifamily Market Dynamics Display Economic Resilience

Kidder Mathews, Seattle, Tacoma

By: Natalie Nagy

After the projected health and vibrancy of multifamily housing in the first quarter of 2022, all eyes were on the second quarter’s sales pricing to see if it would reflect the same trends. Kidder Mathews has recently released its report on the Puget Sound multifamily market, showing that the region’s fundamentals remain strong. 

According to the second quarter of 2022 Apartment Market Dynamics report, this resilience is seen throughout the rising rental rates, sustained low vacancy rates and strong investor demand, across four Washington counties: King, Pierce, Snohomish and Kitsap. 

According to Dylan Simon, executive vice president at Kidder Mathews, the start of 2022 was defined by a push and pull on both sides of the market’s fundamentals.

“Low unemployment, yet not enough skilled workers; rising rental rates and housing unaffordability met with stabilizing occupancy; low treasury rates hitting a wall of rate hikes,” said Simon. “Nevertheless, the Puget Sound soldiered on, demonstrating economic resilience through the tumult.”

In urban King county, the market trend showed that rental rates grew by 1.7 percent. Along with that, the quarter-over-quarter vacancy in Seattle increased by six percent from 0.2 to 6.2 percent.

However, Simon is not concerned about this matter.

“With the turbulence of who is going back to work and when, we expect another 12 months of vacancy around six percent as the market absorbs the supply of new apartments and offices alike,” the report states. 

In the past year, rent has also increased in North King County by more than 10 percent. Although the vacancy is slightly higher, Kidder Mathews suggests this is to be expected with rent growth. Cap rates also continued to rise as interest rates increased.

Where East King County continues to lead with the highest average rent across the region, South King County continues to hold one of the strongest overall occupancy rates in the Puget Sound. And although there was a rent increase of 13 percent this past year, South King County has not had a negative average rent drop since the Great Recession.

South King County recorded an average cap rate below four percent for the first time. Overall,  building sales will be down in 2022 according to the report, but there is a prediction that the total sales volume will pick up.

“Even if we’re in a ‘rental bubble’ right now, the drivers for South King County are too strong,” the report states. “Along with the amount of momentum in the area, we’re confident that this trend will continue.”

An aggressive market is also present in Snohomish County where investors are willing to pay. Rents continue to increase, up four percent in the last 90 days. Vacancy is at a healthy 4.9 percent, and cap rates are trending downward by almost two percent in the last two years.

“Snohomish owners have seen their properties increase substantially in value in the last several years and this is in direct relation to where cap rates are,” the report states.

Urban Tacoma, on the other hand, has continued to see a rise in vacancy as tenants and workers search for more affordable housing options in suburban Pierce County.

At the end of last year, rents reached a high at $1,500 for the first time in Pierce County. According to the report, as the trend continues in the “right direction,” tenants are getting up to a 30 percent discount compared to Urban King County and more than a 35 percent discount compared to East King County.

“We’re starting to see nicer renovations and finishes in certain markets that never had enough demand for those units. Consequently, this new demand is providing more upside for deals, as well as making the South Tacoma market more attractive for investors chasing yield outside of King county,” Kidder Mathews states in the report. 

The overall confidence in suburban Pierce County continues to remain strong, according to the report. From a 4.4 percent cap rate in 2021 to a 3.4 percent cap rate in the first quarter of 2022, buyers are taking risks for South Tacoma.

Furthermore, Kitsap County has continued the trend of being desirable to renters, apartment investors and developers, with the renter pool mainly comprising military members.

Although investor appetite is not a predictor for the months to come, Kidder Mathews is expecting a strong market in the future.

“The Puget Sound’s economic fundamentals remain the strongest in the nation and the solid rental rate growth and stable occupancy levels throughout the last quarter demonstrate health in the region’s rental market. As such, we expect pricing to stabilize and remain strong as investors continue to seek a seat at the table in this market,” the report states.