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Report: Puget Sound Records Stable Occupancy, Rent Increases in Multifamily Market During Third Quarter

Seattle, Puget Sound, Kidder Mathews, Fairwood Landing, Terrace View

By Kate Snyder

Across the Seattle and Puget Sound region, rental rates have maintained a consistent month-over-month growth that shows the area is leaving the “dog days of the pandemic” behind, according to a Kidder Mathews report on apartment markets in major western Washington counties.

In the group’s 2022 third quarter apartment market dynamics report, research also shows rental rate growth is up 10 percent year-over-year amid stable occupancy rates.

“Despite national concerns about a possible recession, the Seattle and Puget Sound economies continue to kick into high gears for both hiring and income growth,” said Dylan Simon, executive vice president of Kidder Mathews.

For Seattle, research points to the rental and interest rate races to answer which direction apartment prices will go. Over the past decade, sellers have seen an increase of 230 percent in building values and can still now meet a four percent cap rate, though the report notes that rate of value growth may not continue forever.

Privately-owned small properties drove down the annual vacancy rate for five- to 50-unit buildings to 4.4 percent – the lowest recorded in history – however asking rents for those properties, according to the report, are approximately two-thirds of larger apartment communities. For 50+ unit apartment buildings in Seattle, average asking rents were up 23 percent with an 8.4 percent net increase from 2019, according to the report.

“While rent recovery appears to be well underway, the skew of new apartments is artificially inflating asking rents,” the report stated. “These new buildings were also the root cause of the high vacancy rates (8.5 percent) recorded in Q2 2022.”

Research shows King County’s eastern sector “topped the region in all rent and sales metrics,” while the north experienced a continued comeback in sales and the south courted significant interest from investors.

East King County, per the report, had the highest average sales price per unit at $534,000 and sales price per square foot at $623 as well as the region’s highest average rent at $2,569 per month, coming at an increase of 14 percent compared to a year ago.

“Larger buildings also pushed up rents as new developments from the previous year stabilized and renters completed leases initiated during COVID,” the report stated.

In other increases, more than 30 deals – the most since 2019 – are on track to close in North King County, and rents increased 4 percent for five- to 50-unit buildings, up from 2021, and 13 percent for 50+ unit buildings.

South King County continues to lead the market in overall occupancy rate, according to the report, mostly because in the past year, just 150 units were delivered. The average price per unit was as projected – approximately $250 – and because of that, it seems the suburb is moving on from pricing below $200 per unit.

“As was evident through two Simon and Anderson closings — Fairwood Landing at $61 million and Terrace View at $22 million — buyers looking outside of Seattle appear to be chasing off-market properties,” the report stated. “They’re also willing to be extremely aggressive in pricing to do so.”

Cap rates for the county were recorded at a consistent 4.5 percent for the north, 3.2 percent in the east – the lowest in the region – and 4.1 percent in the south.

Despite slow sales for Snohomish, Pierce and Kitsap counties, the former looks to continue its streak as one of the hottest in the region while the latter two also show potential for growth.

There were 13 transactions this quarter in Snohomish County, per the report, down by 12 from the prior quarter, but those sales involved larger apartment buildings and the total sales volume hit $318 million.

According to the report, metrics trended in favor of owners, particularly in vacancy for five- to 50-unit buildings, and rents for 50+ unit buildings went up more than 13 percent over the previous year.

Interest is still in Pierce County as it recorded six sales of 50+ unit buildings despite overall sales volume still decreased since the county’s record-breaking 2021, research showed. And with a 12-month change of 8 percent in rents, developers are more confident coming into the county, in spite of Pierce contending with an increase in the vacancy rate from 3.5 percent a year ago to 5.1 percent now. Cap rates in the county also fell below 5 percent – 4.4 percent – for the first time.

Coming off its banner year in 2021, Kitsap meanwhile has only recorded four sales so far this year but according to the report, “despite the slow first half of the year, we expect sales volumes to pick up, with Kitsap finishing the year with healthy metrics.”

And the few hundred dollars of difference in rents between 50+ unit buildings and under-50 unit buildings built prior to 2010 means that owners of the older, smaller buildings have an opportunity to upgrade units and see large rent increases, according to the report.

“Have no fear, Kitsap remains the Puget Sound Region’s darling market and still has a tremendous amount of value-add opportunities and rent growth potential,” the report stated.