Apartment Insights Washington

On-Site Magazine
July 2011

Rents Take Off as Vacancies Shrink in Brisk Second Quarter

Seattle – Apartment Insights shows rents surging 2.6% in the second quarter, reports Tom Cain of Apartment Insights.  The data are from his Seattle firm’s 2^nd quarter statistics and trends on 50+ unit properties in the King/Snohomish market. 

VACANCY:  4.69%

The vacancy rate for conventional, stabilized properties continued its decline.  It dropped from 4.96% last quarter to 4.69% in the second quarter. 

The last time the vacancy rate was under 5% was when it was 4.88% in the fourth quarter 2007.  The vacancy rate peaked at 7.2% in the second quarter of 2009.  The gross vacancy rate for all properties, which includes those in lease up and out of service, tightened from 6.2% in the previous quarter to 5.97%.

For the second straight quarter the vacancy rate in Snohomish County (4.48%) was lower than that in King County (4.66%).

The three submarkets showing the greatest improvement from the first quarter were all on the Eastside.  These were Kirkland at 5.02% vacancy, Eastside North at 3.97%, and Eastside South at 4.81%.  There was a 100+ basis point improvement in each of these submarkets. 

The strongest submarkets in King County are Seattle North Central (to 85^th St.) and Seattle First Hill, both at 3.5%.  The submarkets with the highest vacancy rates are SeaTac (6.36%) and Federal Way (6.37%).

RENTAL INCENTIVES:  $38 (3.64%)

Rental Incentives declined from $48 per month last quarter to $38 (3.64%) in the second quarter.  Forty-five percent of properties are offering them, down from 48% in the first quarter, and from 53% a half year ago.

Of the King County submarkets, the downtowns of Seattle and Bellevue continue to offer the lowest percentage of incentives, at 1.12% and 1.22% respectively. 

The highest rates of incentives are concentrated in south King County.  Des Moines, Federal Way and SeaTac all have incentives above 6%.  Last quarter the Everett Mukilteo submarket had the highest rate of incentives at 9.42%.  It dropped dramatically to 5.41%.

ABSORPTION: 1,211 Units

There were 1,211 units absorbed this quarter, somewhat more than the 979 units absorbed in the first quarter.  Redmond had the highest absorption, followed closely by the Bellevue West and Queen Anne/Magnolia submarkets.

RENTS:  $1,072 per Unit

                 $1.27 per Square Foot

Rents increased an impressive $27 per month to $1,072 per unit and $1.27 per square foot in conventional, stabilized properties.  This is the fifth consecutive quarter that rents have increased, and this quarter’s $27 (2.6%) is the largest by far.  Rents have increased 5.1% over the past year.

We expect rents to break into uncharted territory next quarter, and exceed the high of $1,076 achieved in the third quarter of 2008.

The dramatic rent increase in the Capitol Hill (SCH) submarket was caused in part by the exceptionally high rents in two properties totaling 499 units, which transitioned from lease-up status into the stabilized rental pool.  Even without these two properties, the rental increase in the Capitol Hill submarket is $57 per unit and $.10 per foot. 

Capitol Hill, Bothell and King North (145^th St. to the Snohomish Count line) all had gains in excess of 5% over the previous quarter. Overall, the submarkets in south King County registered the smallest rent increases, averaging about a half percent.

NEW CONSTRUCTION

This has been a busy quarter for new properties opening their doors to renters, consisting of seven properties totaling 1,048 units.   This represents over half the 1,913 total we expect to be completed in 2011.  This is about 60% of last year’s level, and less than a third of the 6,349 units built in 2009.  We have revised our estimate for 2012 downward to 1,570 units.

As a result of a robust rental market together with relatively few units coming online this year and next, developers are feverishly taking measures to get projects moving.  Last quarter there were 2,001 units under construction, compared to 3,520 this quarter.  That’s quite a jump in just three months.

The 195-unit Link featured in the photo recently opened.  Managed by Indigo Real Estate Services, it is located at 4550 38^th Ave. SW in West Seattle.

There are 5,065 units that have entered or satisfactorily completed the development/design review process.  This is down slightly from the first quarter because some of those units are now under construction.  An additional 7,430 units have received zoning approval, up from 6,140 units in the first quarter.   

Of the units that are under construction, 85% are in the city of Seattle, with the balance on the Eastside.  Ninety percent of the units that have entered or satisfactorily completed the development/design review process are located in the city of Seattle.  Areas experiencing the most units currently under construction are downtown Seattle, followed by Queen Anne and the Seattle Central, South submarket.

OBSERVATIONS

This quarter’s performance is remarkably strong.  The vacancy rate dropping 270 basis points and rents increasing 2.6% in one quarter is much more than most in the apartment industry could have hoped for.  We don’t expect that the market can sustain this level of quarterly increase.  As pointed out previously, rents have increased $52 per unit, or 5.1% during the past year.  During that time the vacancy rate for stabilized properties has dropped from 6.05% to the current 4.69%.

We expect continuing improvement in the rental market through 2012 as long as our local economy continues to grow at its current pace.  The low level of new construction during this time period, the reluctance among the vast majority to buying a home when values are declining, and the influx of Generation Y into apartments will all but guarantee it.

Tom Cain of Apartment Insights is a member of the nonprofit Central Puget Sound Real Estate Research Committee in charge of providing apartment rent and vacancy data.  Tom has been a member of the Committee for over 25 years, and has been researching apartment market trends in the Seattle area since 1978.  His company surveys the five counties in Central and South Puget Sound.

This article highlights survey results that subscribers can access from an online database of all 50u+ properties. Apartment Insights also provides customized rent reports and market reports.   www.apartmentinsightswa.com  206-632-2220