The largest shift year-over-year was in the projects that entered the “plan approved” phase but did not progress to the “under construction” phase. With the exception of 2020 (when the region grappled with the COVID-19 outbreak), development projects progressed swiftly into construction once building permits were issued. Even so, in the current environment, upwards of 50% to 70% of permitted sites are not progressing to construction.
Apartment Development Pipeline Snapshot
Apartment Pipeline Remains Vibrant
With more than 140,000 apartment units under development, the region’s pipeline of apartment projects is larger than ever. As a matter of fact, the region hit a record development pipeline of around 100,000 units at the end of the decade. Then, during the pandemic, construction completions/deliveries slowed, even as developers continued to propose and entitle new projects. As a result, during the last three years, the development pipeline swelled by an additional 30% to 40% to create today’s massive pipeline.
Many Construction Projects Underway, Starts Stall
Similarly, the pace of actual construction also slowed during COVID-19, resulting in a growing number of projects that broke ground but didn’t reach completion. Also contributing to that pipeline, new construction was fueled by massive rent growth and cheap financing in 2021 and early 2022. Consequently, the pipeline of apartment units under construction is currently the highest on record — besting the previous peak in 2019 by 20%.
While it’s clear that projects under construction will be finished, uncertainty abounds for projects that don’t yet have a shovel in the ground. That’s because it will take several years to absorb units that are currently under construction and, with a slowing number of new starts, demand will likely outpace new units in the next 24 to 36 months.
From 5,000 New Units to 337, Developers Have Hit the Brakes
In the last decade, Seattle has delivered an average of 5,200 units annually with a peak of 6,650 units in deliveries in 2018. Despite cooling off since then to an average of 4,300 units delivered in each of the last four years, nothing can explain the excessive halt in deliveries in 2023: As of May 2023, Seattle has delivered just 337 new apartment units year-to-date. Thus, if there was ever a “buy the dip” moment, it’s now. It could be tomorrow or 12 months from now, but it won’t be long before every deal that was missed was an exceptional one. Accordingly, rents are poised to jump, and the investors who will be rewarded are already going all in on the supply imbalance in Seattle.
Suburban King County
Transit-Oriented Development Remains Top of the Wish List for Suburban King Developers
Investors and developers continue to chase transit-oriented development (TOD) and light rail expansion. As such, it’s no surprise that the markets with the highest numbers of units under construction are concentrated around both established and growing TOD nodes (namely Redmond, Shoreline, North Seattle, and Bellevue).
Meanwhile, markets east of Bellevue have experienced a recent slowdown in new development. In this case, the exception is the once-sleepy mountain town of North Bend, where 130 new units are coming online in the next six months, and an additional 80 units are about to break ground. Notably, the addition of these units will be a nearly 50% increase compared to the current inventory.
Development Remains Consistent Throughout Snohomish County, Continues to Follow the I-5 & Light Rail
Development sites continue to emerge in the north and act like breadcrumbs following the I-5 corridor and light rail. Here, developers are looking for scale outside of Seattle, thereby resulting in larger development sites (100+ units) being planned and built. Likewise, Arlington has developers scrambling for opportunities after Amazon announced its new fulfillment center, and more than 600 units (44% growth) are already in the works. At the same time, Lynnwood continues to build, as well, with more than 1,000 units set to deliver this year.
Potential Slowdown in New Development May Give Existing Apartment Inventory Some Breathing Room
Throughout the course of the decade spanning 2010 to 2020, submarkets in Pierce County experienced apartment inventory growth from as light as 10% to as high as 150%. That said, no submarket in Pierce County experienced as much sustained new development as downtown Tacoma — and new deliveries finally caught up with demand this past year.
Specifically, the number of new projects breaking ground here has begun to subside in the last six months, and this will surely give the market some breathing room — but not until all of the units under construction are delivered and absorbed.
Rough Waters Are Ahead for Some Kitsap Markets in the Short-Term
The development pipeline is Kitsap is robust, with a 41% increase compared to the existing stock of units planned, approved, or under construction. Clearly, Kitsap has been the darling of the development market for the last several years, with developers capitalizing on their ability to buy larger chunks of land at more affordable rates than the tri-county region. That said, the near-term presents some occupancy challenges with the departure of 2,700 potential renters leaving with the aircraft carrier, in addition to new buildings coming online recently and navigating lease-up.
As large projects deliver in the next 12 months, expect them to feel the weight of this in their lease-up velocity, as well as concessions and rental rates. Hopefully, developers not yet breaking ground and still in the approved or in-review stages will be able to time the market well in order to deliver their projects as the Kitsap market eventually picks up steam and bounces back to where it once was.
About the Dylan Simon and Jerrid Anderson apartment brokerage team
The apartment brokerage team led by Dylan Simon and Jerrid Anderson of Kidder Mathews represents apartment investors, developers, and landowners in the sale and purchase of apartment buildings and development land across the entire State of Washington. The team of nine brokerage professionals specializes in the sale and purchasing of apartment buildings and development land from $1 million to more than $100 million. For more information, visit simonandersonteam.com.
Read the full study at the link below.
Simon | Anderson Multifamily Investments Team
Dylan Simon, Executive Vice President
Jerrid Anderson, Executive Vice President
Matt Laird, Vice President
Winslow Lee, Associate Vice President
Max Frame, Associate Vice President
JD Fuller, Associate
Jack Counihan, Associate | Financial Analyst