Seattle Multi-Family Market Report - July 2024

OVERVIEW

12 Mo. Delivered Units - 11,704 

12 Mo. Absorption Units  - 8,300 

Demand picked up in 24Q1, with quarterly absorption topping 2,500 units. This pushed Seattle's 12-month trailing absorption above 7,000 units. That is an increase from a recent low of 5,500 units. 

The metro's 3 Star tier drove the uptick. After falling negative in 2022, trailing 12-month absorption for this tier was 1,400 last quarter. The 12-month trailing absorption in 4 & 5 Star assets was 6,300 units, compared to 6,700 units one year ago.

A return of in-migration bolstered the region's apartment demand. Last year, Seattle added about 20,000 residents through migration. A vital job market has also driven growth. Some companies have decreased headcounts, but overall job growth is positive. Coupled with return-to-work requirements by major employers, this has driven demand higher, particularly in areas close to office hubs and transit. Seattle's urban centers and areas with new light rail stations underway have add ed households at the fastest rate in the region. These are mainly within a 10 mile radius of Seattle and Bellevue's downtowns.

Submarkets with the most robust demand over the past year were down town Seattle and Tacoma. Occupancy increased by roughly 1,000 units in both areas last year. Over the past three years, Redmond saw the most occupancy growth, adding about 3,000 new apartment households, edging out downtown Seattle over that stretch. 

While demand has ticked up, construction activity has outpaced absorption. Developers added about 8,400 units over the past year. The pace is slowing but the number of units under construction is still 40% higher than the 2010s average. The gap between supply and demand is closing, bringing balance to the market. Vacancy increased over the past year but has risen less rapidly than the national benchmark. With the pipe line slowing, the vacancy rate may be reaching a peak. A slowdown in starts should provide some reprieve. The number of units that broke ground over the past year was down by about half compared to one year ago.

Downtown Seattle, Redmond, Shore line, and Tacoma are among the busiest areas for new construction in the region and on the West Coast. Transit investments have had an impact on developer interest in these areas.

With construction slowing and demand rising, rent growth should increase over the coming quarters, ending the year with rent growth more above Seattle's historical average of 2.5%. 

VACANCY

Vacancy Rate 7.0%  
The absorption of multifamily units in the Seattle metro area increased last quarter. Unlike most of last year, new construction and absorption were relatively balanced.

Renters absorbed about 2,800 units during the quarter, and about 3,000 units were delivered. The quarter ended with an overall vacancy rate of 6.9%. 

This represents a shift from 2023 when absorption of about 6,500 units did not keep up with the 8,400 units delivered, pushing vacancy to 6.9%. That compares to a low point of only about 5.1% in 2021 when the area saw a surge in demand. Over the past 12 months, vacancy rates have increased across property quality segments by a similar amount, but this masks a shift in demand.

Over the past year, mid-tier properties saw a return in demand after seeing negative absorption in 2022. Demand for 3 Star units has accelerated over the past few months, likely reflecting the sectors that have seen job growth over the past year. 

During that period, the demand for 4 & 5 Star units decreased slightly, even though this tier still accounts for most of the rise in occupied units. That slow down reflects the decline in employment over that period for higher-paid jobs such as those in tech.

Demand has been strongest in dense areas well-served by transit. Tacoma and downtown Seattle continue to be the top submarkets for absorption. Redmond is also one of the region's top areas for apartment demand. While the area is seeing a significant amount of new deliveries, the opening of light rail and Redmond's low vacancy rate should help that area outperform this year. 

Mountlake Terrace, Lynnwood, and Shoreline will also benefit from new rail service starting at the end of August 2024. The development of light rail has driven an apartment development boom in Shoreline. As a result, heightened competition from construction could be a challenge in the short term for property operators in the city. That area has seen vacancy rates climb to double digits and has enough units under construction to raise inventory by more than 40%. Mountlake Terrace and Lynnwood have also seen bumps in construction activity, though not nearly as dramatic.

Rent

12 Mo. Asking Rent Growth - 2.5%

Rents in the Seattle metropolitan area have risen for several months, and year-over-year rent growth has resumed. In the first quarter, average asking rents topped $2,000/month for the first time since mid-2022. 

As of the second quarter of 2024, annual rent growth sits at 2.5%. Performance does vary by segment, with 4 & 5 Star properties seeing average annual gains of 3.0%, and 3 Star properties seeing the average rent increase 2.3%. Those in the 1 & 2 Star tier, which tends to be older properties that have aged into affordability, have seen gains of 1.0%. 

The average market-rate rent in Seattle is $2,040/month, compared to the national average of $1,710/month. Rents vary by tier, with luxury units averaging $2,400/month, mid-tier $1,900/month, and lower-rated properties averaging $1,400/month. Rents also vary dramatically by submarket, with urban areas like Lake Union, Bellevue, and Downtown Seattle at the top of the spectrum. Submarkets to the south of Seattle tend to have more affordable rents. Tacoma and McChord have the most affordable rents, on average. 

Areas with significant new construction tend to see high concession levels as those properties lease up. New construction has also placed pressure on rent growth, and submarkets with the largest amount of new deliveries have seen slower rent growth and elevated concessions. In one example, as of April 2024, Canopy Apartments in Shoreline offered up to two free months of rent upon lease signing. At the time, the project was nearing its halfway point for lease up. 

Rent growth is expected to continue throughout 2024. However, new construction in pockets like Shoreline could temper this growth, at least in the short term. Stronger rent growth can be expected in areas with tight vacancy, such as Redmond, and in those with little new apartment construction but strong demand, such as downtown Bellevue.

CoStar market and submarket reports focus on market rate communities, but affordable housing is an import ant component of the inventory not included in these market statistics. As incomes are lower in the area, afford ability is a major issue. Much of the new development in the area take ad vantage of a multifamily tax exemption that requires a certain number of units to be set aside for lower-income families, restricting the rents that can be charged for those units.

© 2024 CoStar Group – Licensed to Rental Housing Association of Washington – June, 14, 2024