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Seattle’s Multifamily Market 2021 Year in Review: Lee & Associates Report

Lee & Associates, Seattle, Grand Peaks Properties, Central Flats, Bridge Investment Group
Courtesy of Lee & Associates

By Jack Stubbs

Heading into the second quarter of 2022, the multifamily market in Seattle looks poised to continue its upward trajectory, building off of a still-recovering market in 2021. Lee & Associates, the largest broker-owned commercial real estate firm in North America, recently released its report titled “Multifamily Investment Review 2022,” which provides an overview of Seattle’s multifamily market in 2021 and discusses various factors including key economic trends, rental demand trends, apartment development supply, and an investment outlook for 2022.

In spite of the ongoing uncertainty precipitated by the COVID-19 pandemic – wherein the delivery of new units in 2020 and early 2021 slowed significantly – Seattle’s market recovery is well underway, according to the report, with investors looking to capitalize on the region’s continued job growth. “Rebounding would be the one word I’d use to describe the market this past year. We started the year with an 8.3 percent vacancy rate and bullish investor sentiments,” said Daniel Lim, associate vice president at Lee & Associates. “By mid-summer, we saw absorption rates take off and rents beginning to grow with an influx of renters returning to Seattle.”

At the national level, also, the relative health of Seattle’s multifamily market in 2021 reflected a more general trend in the local real estate market, according to the report, which states that Seattle returned to the ninth slot in the country for the Urban Land Institute’s Overall Real Estate Prospects in their 2021 Emerging Trends Report. 

Looking at investment trends in 2021 relative to 2020 and 2019 for the Tri-County market (encompassing King, Snohomish, and Pierce Counties), sales activity serves as a promising indicator of the relative health of the market, according to Lim. “We ended the year strong with sales volume within 6 percent of the highpoint in 2019 and vacancy rates in the low 3 percent range.” Volume last year dwarfed that of the two years prior, noted Dea Sumantri, associate at Lee & Associates. “[There were] over $7.8 billion in sales volume for 2021, tripling the sales volume of 2020 at $2.5 billion. An interesting part is that in 2019, there were 457 transactions while in 2021 there were 367 transactions. This indicates that the bulk of the transactions were institutional transactions that took place last year.”

There were several blockbuster multifamily apartment sales in 2021. In a transaction that closed in early February 2022, Colorado-based Grand Peaks Properties sold the 575-unit Central Flats apartment complex in Kent to an entity affiliated with Bridge Investment Group for $149 million, or about $259,130 per unit, according to the Registry’s reporting. Other deals included the $302 million sale of the 432-unit Ascent SLU & Marlowe in South Lake Union and the $279 million sale of the 618-unit Hyde Square complex in Bellevue.

In terms of investment activity, the report also outlined the relative strength of King County’s versus the Eastside’s sales numbers. There were 169 multifamily transactions in Seattle and 26 sales on the Eastside. However, the Eastside’s price-per-unit and price-per-square foot figures ($456,676 and $548) significantly eclipsed those of Seattle, which posted figures of  $314,031 and $463, according to the report.

And while there is a general sense that the market showed signs of rebounding in 2021 relative to years prior, last year also brought to bear the factor of working from home, which hadn’t previously played such a significant role in terms of investors’ and developers’ desire to enter the Seattle market, according to Lim. Working from home is also having a knock-on effect on the design of the multifamily properties themselves. “We are seeing work from home considerations manifesting through a focus on the development of TOD sites that provide tenants easy accessibility into the core for when they need to be in person, and also the incorporation of co-working amenity spaces within buildings to provide dedicated space for tenants to work from home,” he said.

Sumantri voiced similar sentiments, emphasizing how the current environment has led to a shift in strategies for investors in particular. “While some investors chose to stay with their existing strategies that have brought them success in the past, I believe there are more investors now who are specifically looking for larger units because of the hybrid work policy that most companies are adapting to,” she said.

Region-by-region, also, companies’ respective “work from home” policies will likely continue to impact decisions around the ideal geographical location for prospective multifamily properties, according to Lim.“We’re seeing Pierce and Snohomish both are getting the benefit of remote work policy. Renters who typically would find living arrangements close to their office, under the remote work policy, have the ability to live further away from the Metro area where they can get more space and affordable rental rate,” he said.

Looking at the year ahead, projected apartment development supply bodes well for the overall health of the market in the coming quarters, according to the report.

The Seattle Metropolitan Statistical Area (which includes King, Snohomish, Pierce and Kitsap counties) has 140 properties under construction, representing over 23,000 units. Last year, the market brought nearly 16,000 units online, nearly three times the number of units brought on in 2020. Lee & Associates expects 11,000 units to deliver in 2022. “Covid, and labor and materials shortages, slowed many projects slated to deliver 2020,” said Lee. “This past year and continuing through 2022, we are seeing the bulk of this prior development wave hit. But 2023 and beyond new supply is minimal and new projects [will take] upwards of 3 years to complete.”

Even considering the uncertainty that characterized 2021, the year ahead bodes well in terms of the expected trajectory of Seattle’s multifamily market, according to Sumantri.“2022 will remain a strong year…especially with the low inventory and unaffordability of single-family prices…market volatility is another reason why Multifamily investments would be a safe bet for steady returns and it’s a great inflation-proof avenue for investors.”