By Meghan Hall
The past 18 months have presented a lot of uncertainty for those in the multifamily industry. A mixture of pandemic-induced population movement, debates about work from home, debates regarding social assistance have all made their impact. However, a recent report released by Kidder Mathews indicates that the Puget Sound multifamily market surprised many with the rapidity at which it recovered, and that recovery is now squarely “in the rearview mirror” with market dynamics back to pre-COVID-19 levels.
“I think part of [the market’s] dynamism is that people came into this year expecting it to be a very slow year as far as rental rate growth and as far as transactions…Just call it a bit of a COVID-19 hangover,” explained Kidder Mathews’ Executive Vice President Jerrid Anderson. “And what’s turned out, is that it’s been a really robust year as far as a market recovery.”
The Puget Sound currently has about 401,562 units spread between more than 8,400 buildings. Region-wide, rents have risen 13.3 percent over the past 12 months, reaching $1,873 per month. In the last 90 days, rents have risen about 3.7 percent alone.
Vacancy has also declined. During the third quarter of 2020, vacancy was at about seven percent. Now, vacancy is at 4.4 percent.
According to Kidder Mathews, recovery has come quicker than expected, especially as many of the challenges faced by the industry have not yet been solved. The main source of demand for multifamily–the vibrancy of office space–remains unclear as the pandemic continues and new variants continue to emerge.
“It has been a big surprise because people aren’t back to work,” said Anderson. “I think the expectation was that until people got back to work, we weren’t going to see a recovery in occupancy or rental rates…but in actuality, regardless of where people are working…we have seen really strong demand from renters across the region.”
Kidder Mathews notes that over the last quarter in particular, many properties have returned to full occupancy and pre-COVID-19 rental rates. Concessions also continue to decline as demand grows. The presence of major companies, many of whom are continuing to grow despite the pandemic, has been a huge bolster for the region. Additionally, unlike other markets, like the Bay Area, where many continue to talk of a mass exodus of companies and residents alike.
“I think the moral of the story is this region just has a lot of economic vibrancy because it’s a big job center,” said Anderson. “People have not left the region; they’ve stayed in the region.”
Anderson added, “I think the fact that rental rates are what they are, that’s just supply and demand. There are a tremendous amount of jobs in our region. They’re still here. They haven’t left.”
Heading into the end of the year, investment sales are also picking up again. During the first half of 2021, many investors were waiting with bated breath, watching carefully for the success of the vaccine and an end to the pandemic. However, despite the slow start, investment sales have also exceeded expectations, with $4.4 billion deals closed year-to-date at the time the report was published in November. Another $202 million of active listings were also coming to market.
Sales volume peaked in 2016, when multifamily sales volume totaled $5.6 billion. In both 2019 and 2020, sales volume totaled $3.3 billion. Cap rates continue to compress across the region, another promising sign. Currently, caps sit at about four percent, down from five percent in 2020.
“I think it’s noteworthy in the report that what we’ve experienced in the second half of this year was a huge appreciation of apartment values,” said Anderson. “Investors have accepted the new norm of the political landscape in Seattle for the most part, and there are huge demand drivers, so apartments are more valuable.”
The optimism is expected to maintain in the months ahead. According to Anderson, because of the region’s strong economy, and because of the way that locals have adapted, market dynamics are expected to improve.
“I think the growth we’re going to experience in the next market cycle is just a continuation of the last,” said Anderson. “There was really no economic faltering here. There was an interruption in commerce and an interruption in people being able to go out….and that shocked markets because people didn’t know what was going to happen. Now, we’re wearing masks, but we’re back to the same things we were doing before the pandemic hit.”