2021 EOY Seattle & Puget Sound Apartment Market Dynamics

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The Seattle and Puget Sound commercial real estate market experienced a true roller-coaster of changing dynamics over the course of the last 20 months. As we close-out 2021 — and enter 2022 — apartment investors take comfort that a broad recovery is nearly in our rearview mirrors and the region is poised for continued economic vibrancy. Despite moving through these rocky times rather briskly, understanding our recent past is critical to charting investments into the future.

The following report analyzes current and past trends for rental and vacancy rates and sales across the four major Western Washington Counties. And, while this is a high-level review of the data, our team of apartment brokers is also armed with a more granular understanding of the dynamics of each submarket and neighborhood. Our experts can offer you critical insights to help you make better investment decisions — whether you’re planning on buying, selling, or simply needing to operate your apartment building more profitably.

Accordingly, use this report to get an initial understanding of how the apartment market shifted throughout the last year. Yet, to gain a deeper understanding of both what the data means and how you can use it to your advantage, contact one of our team members.

Puget Sound

The powerhouse economy of the Puget Sound region readies for a new decade of growth and emergence as a global business center.

During this past decade Seattle landed on the national map, attracting prominent employers and top talent alike. Although it was a decade of prosperity, what lies ahead will redefine the region once again. Nearly every submarket has a story to tell. From rapidly urbanizing Bellevue to attractive suburban lifestyle centers north and south of major job centers, each segment of the Puget Sound is poised for continued growth and expansion. Apartment investors must carefully analyze the region holistically, deciding where to place bets based on how people will work, live, and recreate in this region.

Puget Sound Highlight

The storm clouds of COVID-19 receded from the Puget Sound region nearly as quickly as they formed. As of fall 2021, the region’s apartment market started to once again fire on all cylinders.

Urban King Market Trends

  • As rental rates roared back during 2021, renters preferred larger units with 21% rent growth in buildings with the largest apartment units.
  •  In the last 10 years, developers have built over 200% the number of apartments built in the prior 20 years combined, while maintaining 5.4% vacancy.
  • The average unit size in buildings under 50 units is now just 501 SF, 34% smaller than units from the prior decade.

Urban King Sales Trends

  • Low interest rates and a limited number of sales in 2021 created an imbalance in demand, compressing cap rates to an all-time low average of 4.1% YTD in Urban King County.
  • Sellers of buildings 5-50 units saw tremendous recovery across all sale metrics while 50+ unit buildings saw a more moderate recovery, largely driven by less value compression in 2020.
  • Investor demand is trailing rent growth perfectly. We believe the positive trend in rent growth beginning in Q2 2021 led to Q3 2021 posting the largest volume of sales since Q4 2019, exceeding sales in Q1 and Q2 2021 combined.

North King Market Trends

  • The Northgate area is the center of redevelopment for North King. A modernized Northgate and newly opening Northgate Light Rail Station support an almost 8% rent year-over-year.
  • Occupancy rates improved by more than 1.5% from last year. Larger apartment units and lifestyle advantages living outside Seattle contribute to the desirability of North King.
  •  As we head into Q4 2021, North King is trending towards higher rents, lower vacancy, and overall excitement about expanding retail and light rail.

North King Sales Trends

  • North King is still in a bounce back phase when it comes to volume of sales for 2021. Although sales volume already 2020, the number of buildings sold remains low.
  • Positive signs in sales metrics point to higher sales prices than pre-COVID, demonstrating investor confidence in North King.
  • As we move into Q4 of 2021 look for volume of sales to increase as sellers are looking for end-of-year closings.

East King Market Trends

  • No market felt the upswing in rental rate growth more than East King, boasting the highest average rent at $2,250 per month, which is a region-leading 16% increase over the last 12 months.
  • Developers continue to scour East King for opportunities for both urban-oriented podium development opportunities, as well as re-popularized garden-style communities.
  • The alure of the Eastside is not only attractive to institutional investors, but smaller and regional investors are hungry for the piece of the action. If you own an older sub-50-unit building, let’s chat. Now is an excellent time to capitalize on investor demand.

East King Sales Trends

  • Although the number of Sales stayed relatively consistent over the last several years, East King is on pace to triple sales volume compared to last year thanks to nearly half of the sales being north of $100M.
  • East King generally has larger units on average than the rest of the region and investors are paying top dollar for this amenity. At $450,000 per unit, East King has the highest average sale price-per-unit out of any other market by a long shot.
  • East King continues its impressive cap rate trend, compressing 70 basis points over last year to an average cap rate 3.5%. This is 60 basis points lower than any other market in the region, which further cements investor’s desire to pay-up for East King opportunities.

South King Market Trends

  • With only 541 units delivered in the past 12 months, massive renter demand and the lack of new inventory in South King led to over a 10% increase in rental rates.
  • Renton — or, as we like to call it, the region’s next Kirkland — continues to thrive as the middle-point between Seattle and Bellevue and is a great contributor to the all-time low 3.1% South King vacancy rate.
  • Throughout COVID we saw a monumental shift of renters moving to surrounding counties. As offices in Seattle start to turn the lights on, workers want to move closer to their jobs but without the Seattle address, and South King proves an incredibly popular destination.

South King Sales Trends

  • Institutional investment focus on South King is enormous – and it shows with both prices-per-unit over $250,000 and price-per-square-foot over $300 in Q3 for the first time in the region.
  • Investors are forgiving 2020 operations – in which we saw high delinquency and low NOI – and focusing more on replacement cost as a purchasing metric, leading to a cap rate compression of 70 basis points year-over-year.
  • Institutional investors wanting to stay in Puget Sound but outside of Seattle have seen pricing in South King 50+ units reach all-time highs while still purchasing buildings at over a 40% discount on a price-per-unit basis compared to Urban King.

Snohomish Market Trends

  • With the region’s second largest average unit size at 882 square feet (trailing only the Eastside), Snohomish experienced 12.7% rent growth year-over-year. Residents voiced that space matters, and even within the last 90 days we’ve seen rents jump by 4.3%.
  • Vacancy plummeted by 1.7% year-over-year, proving that even with 12% rent growth, residents enjoy a Snohomish address.
  • The excitement surrounding Snohomish has residents flocking in waves North of Seattle, with investors and developers not far behind.

Snohomish Sales Trends

  • After a year of COVID, sales volume in Snohomish rebounded strong, with just Q3 outpacing all sales in 2020 combined.
  • Investors are bullish on Snohomish, acquiring properties averaging a 4.1% cap rates compared to just a year ago at an average of 5.4%. The steep decline in cap rates validates that investors are looking outside King County more than ever, and may be looking to hold these investments on a long-term basis.
  • Analyzing all sales metrics, it’s evident that sale pricing far exceeded not just last year’s sales but rivals the record highs of 2019. Demonstrating further proof of the growing consensus that Snohomish is a place that investors will want to invest for years to come.

Urban Tacoma Market Trends

  • After successfully achieving almost a 5% annual rent increase throughout COVID, Urban Tacoma continued its strong momentum in 2021, with a 7.9% increase in rent year-over-year.
  • Urban Tacoma continues to provide an oasis away from Seattle with similar economic drivers advancing job growth, validating its low 3.7% vacancy rate.
  • As the Hilltop Light rail comes to fruition, and rent growth keeps driving the market, we will continue to see more and more developers make long term bets on Tacoma.

Urban Tacoma Sales Trends

  • 2021 will prove a historic year for the Urban Tacoma apartment sales market. This year we will see the highest sales volume and pricing ever tracked in this market.
  • We continue to see institutional buyers fighting to get into Urban Tacoma and taking major swings at middle-market apartments leading to strong cap rate compression.
  • After a very slow sales year in 2020, where we saw average sales prices under $2M, we are starting to see, and will continue, larger apartment sales transaction volume.

Suburban Pierce Market Trends

  • The most attractive factor of Suburban Pierce investing: growing rental rates while maintaining extremely high occupancy. Suburban Pierce leads all markets in occupancy by a wide margin, currently at 2.5%.
  • Throughout 2020 and the start of 2021, the story of Suburban Pierce was low vacancy yet high delinquency/non-payment of rent. Unlike King, Pierce County was quick and helpful with rent assistance and vouchers, which has increased collections dramatically and bolstered investor confidence.
  • Amazon has six fulfillment centers in Washington, four of which are located in Pierce County: Lakewood, Sumner, DuPont and Tacoma, all serving as major drivers for jobs in Pierce County.

Suburban Pierce Sales Trends

  • What once used to be an affordable market with relatively high cap rates became much more aggressive in 2021. Sales volume dropped substantially this year with more owners reluctant to sell and buyers weighing the value of lower returns in Pierce County.
  • Similar to the rest of the South Sound, we are seeing investors forgive owners for 2020 collections and focus on future metrics in the area as a whole, which has led to significant cap rate compression – 90 basis points year-over-year.
  • This past year the market experienced an average 42% increase in price-per-unit and a 95% increase in price-per-square-for for apartments under 50 units, proving that private and local buyers are gaining confidence and aggressiveness in Suburban Pierce.

Kitsap Market Trends

  • Kitsap again posted the highest average rental rate growth in the region, a whopping 19% increase in the last 12 months.
  • Kitsap also boasts the second lowest average vacancy rate in the region. Record low vacancy combined with the highest rent growth proves that renter demand is as strong as ever and Kitsap is leading the region in rental rate growth.
  • Major economic drivers remain robust as Kitsap welcomed multiple naval vessels in the second half of 2021 for extensive work and reconditioning.

Kitsap Sales Trends

  • For the second year in a row, Kitsap saw healthy cap rate compression to the tune of 120 basis points since 2019. Expect this trend to continue as more low in-place cap rate value-add deals are scooped up by investors.
  • Two impressive sales that highlight Kitsap’s strength as a market:
    – 5-50 Units: The new-construction 38-unit Walk on Bainbridge sold for a record breaking $573,000 per unit at a 4.4% cap (that’s East king pricing!)
    – 50+ Units: the 276-unit value-add Atlas apartments in Port Orchard sold for a staggering $272,000 per unit at a 4.1% cap rate.
  • So long as renter demand keeps vacancy low and continues to push rental rates to new heights, expect heavy competition from investors for the limited supply of larger apartment purchase opportunities. This will continue to benefit the owners of smaller and mid-market-sized buildings as private investors follow the big fish into the feeding frenzy in search of higher returns.

Read the full study at the link below.

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Simon | Anderson Multifamily Investments Team
Dylan Simon, Executive Vice President
Jerrid Anderson, Executive Vice President
Matt Laird, Senior Associate
Brandon Lawler, Associate Vice President
Winslow Lee, Associate
Max Frame, Associate
Jack Counihan, Associate | Financial Analyst

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