Seattle’s year-to-date average rental rates are rising at over 10 percent, which is almost double the national average of 4.2 percent, making it the second highest in the nation, according to Yardi Matrix’s June 2016 Rent Survey report. Dylan Simon, a vice president for Colliers International in Seattle, says that even though the city’s rental rates continue to rise, rates remain competitive and continue to attract employee talent, which shows room for additional growth.
According to Simon, job growth is driving the rising rental rates, specifically growth from employers such as Amazon, Microsoft and Expedia. “What spurs any growth is supply and demand. Seattle has just had tremendous job growth at the higher income segment, and a lot of the newer apartment developments are more expensive units,” said Simon. “We’re lucky because we continue to have a steady stream of marquee employers growing their presence in Seattle, which creates more demand for apartment units.”
We’re lucky because we continue to have a steady stream of MARQUEE employers growing their presence in Seattle, which creates more demand for apartment units
Many of the new housing developments have been high-rises, which come with higher rates than older developments with less height. Once these new, more expensive developments are fully leased, the rental rate growth numbers tend to rise. Simon says this skews the numbers slightly because its isn’t necessarily organic rental growth, instead the growth is created by an increase of new development. “The market has experienced people willing to pay more, but units are not actually renting for more money than their previous rental rate,” said Simon. “We’re just adding a stock of more expensive units.”
Yardi Matrix’s report states that history teaches that anything that upsets the global financial markets must be taken seriously. In the immediate wake of the UK’s vote to leave the European Union, the global stock markets fell. The negotiations will bring a potentially long period of uncertainty, which could lead global corporations to pause hiring and growth plans, says the same report.
However, Simon believes Seattle will continue to see an increase of growth throughout the next few years. According to his estimates, the city’s development pipeline is one of the top five in the nation, outpaced by a few others such as New York. “If you break down the growth that the market has experienced, most recently that growth has been in the older stock of apartments. So what’s happened is that since there is so much new apartments being developed, there’s more competition for that renter. There are many renters that can’t afford that higher rate, so they’re moving to what I call second ring markets, such as North Seattle, Newcastle and East Bellevue.”
Older apartment buildings built before the year 2000 are seeing more rent growth than the brand new buildings because new development is having to compete with other new development, which will continue to be delivered year and year, says Simon. “My prediction is that we’re going to continue to lease up new buildings and see rental rates continue to rise overall, because we’re building new higher quality buildings that are pushing average rental rates,” said Simon. “Yet, I also think the greatest rent growth is going to be in markets out of the core of Seattle, because they’re not having to compete with the addition of supply.”
According to Yardi Matrix’s report, the high-end Lifestyle segment led gains with a one percent growth on a three-month bases, while rents for working class were up 0.8 percent. Seattle experienced the second highest growth in the nation for this ranking, which are households with sufficient wealth to own but choose to rent.