Leasing activity has remained strong, easing the rise in vacancy rates after a historic construction surge. With pricing now adjusted to higher interest rates, a more robust recovery in investment activity is expected in 2025.
On the sales front, it’s too early to call a full recovery even as investors continued to wade back into the water in Q4 2024, transacting a total of $1.2 billion during the quarter. While this represents a healthy, 63% increase compared to the same period last year, total figures for 2024 still finished below historical averages. Even so, as borrowing costs begin to stabilize, we expect the financing environment to allow for a more normalized year of investment volumes in 2025.
Vacancy rates across Puget Sound averaged 7.3% at the end of 2024 – approximately 100 basis points (bps) above the historical average and up about 40 bps year-over-year. This increase was largely driven by high levels of recent development activity, which led to a record year of deliveries. However, we think the key readthrough here is developer confidence in the region – which, so far, has proven valid given the vigorous leasing and defensive rental rates we’re seeing.
At the same time, cap rates continue to tick up in the region – despite showing signs of decelerating – and are hovering in the mid-5% range. And, with borrowing costs sitting slightly above that level, cap rates may need to adjust a bit higher to reach a more balanced market. That said, borrowing costs are expected to decline gradually throughout 2025, so that adjustment may indeed be very minimal.
In many respects, 2023 represented a low point for investment activity in multifamily real estate. As such, it didn’t take much to show signs of improvement in 2024. Even so, it’s too early to call a full recovery as sales activity is still well below historical averages. But, we do expect 2025 and beyond to see continued growth as markets normalize.
Seattle
Last year, the Seattle market benefitted from strong growth in jobs– including office-based roles, which is a contrast to the trends witnessed in 2023. This has helped investors continue their return to the Seattle market as they gain more confidence in the overall market outlook.
- Sales Insight
Seattle closed the year with 101 multifamily transactions totaling $1.6 billion. While this represents a clear improvement from 2023 figures (the number of sales and total volume were up 23% year-over-year and 82% year-over-year, respectively), more typical levels of transaction activity should take place throughout 2025 as borrowing costs continue to stabilize. - Rent/Vacancy Insight
Rental rates in Seattle remained relatively unchanged year-over-year, up about 1% on both a per-unit and per-square-foot basis across building size categories. However, vacancy rates didn’t demonstrate the same uniformity: The smaller product saw some tightening year-over-year, whereas the larger product (50+ units) experienced a 100-bps increase in vacancy to finish the year at 8.8%.
North King
Following a very quiet Q3, sales activity came back to life in Q4 with four transactions recorded for a total of $31 million. Here, the larger product leased up incredibly well after last year’s deliveries to drive vacancy rates back down to levels that were at or below historical averages.
- Sales Insight
As sales volumes returned to North King in 2024, so did pricing clarity: The average cap rate among transacted properties in 2024 was 5.2% – a 20-bps increase year-over-year and slightly below the majority of the Puget Sound submarkets. - Rent/Vacancy Insight
Much like the rent growth seen in Seattle throughout this past year, rents in North King were up modestly (1% to 2% year-over-year, depending on product type). While there was a modest pullback in Q4, this is typical seasonal behavior that should not necessarily be extrapolated further.
East King
Owners are still hesitant to meet the market in East King as the number of sales in Q4 was unchanged relative to the same period last year. Even so, larger deals are being done; the average deal size this quarter exceeded $100 million.
- Sales Insight
East King stands out among Puget Sound submarkets as the only one in which the number of transactions was actually down relative to 2023. But, this was only in terms of transactions: The actual transaction sizes increased this quarter to bring the total dollar value traded to $907 million — up 61% year-over-year. - Rent/Vacancy Insight
On the rental rate side, year-over-year growth has been healthy, ranging from 2% to 3% across product size categories. Here, too, there was modest pullback last quarter, which is typical of the seasonal nature of the multifamily sector. Changes in vacancy also illustrate the patterns of construction and absorption that we’ve seen recently as early-year deliveries subsequently lease up nicely.
South King
Multifamily operations in South King were strong in 2024, posting positive rent growth and declining vacancy throughout the year. At the same time, South King has also shown its resilience in the face of the seasonality that often works against Q4 performance.
- Sales Insight
Sales volume in South King totaled 27 transactions valued at $569 million in aggregate during 2024. Moving forward, we expect this “half recovery” in investor activity witnessed last year to continue in full recovery mode in 2025, barring any unforeseen negative economic shocks. - Rent/Vacancy Insight
Demand for rental product in South King has been steady as new properties continue to lease up and vacancy falls across product types. It’s worth noting here that rental rate growth remained positive even throughout the typically slow fourth quarter of this year.
Snohomish
Snohomish experienced positive, but modest growth throughout 2024 – a pattern seen amongst the majority of Puget Sound submarkets. Additionally, rental rates continue to grow in the 1% to 2% range, and vacancy has also remained in healthy territory.
- Sales Insight
Sales activity continued its recovery in Snohomish during Q4 2024 with 25 transactions recorded for a total of $305 million. Granted, this is only a partial recovery as investment activity was still well below historical averages. Now, with more clarity on fundamentals and an improving financing environment, we expect this recovery to continue into a more normalized 2025. - Rent/Vacancy Insight
Rental rates continued their steady, but modest ascent in Q4 2024, both on a per-unit and per-square-foot basis. In fact, among the larger property types, vacancy rates were still climbing even into the fourth quarter of 2024 – a pattern unlike most other Puget Sound submarkets.
Pierce
The Pierce County multifamily market might be described as the dark horse of Puget Sound: Here, investors are only inching back into the market (apart from some compelling examples).
- Sales Insight
Reflecting a pattern that we’re seeing across the more rural Puget Sound submarkets, investor activity in Pierce has returned at a much slower rate than Seattle or South King, for example. Although 34 transactions were recorded during the year (a year-over-year increase of 42%), that nevertheless equates to only 30% to 40% of pre-pandemic levels. It’s also comparable to the Puget Sound average, which averaged ~50% of historical transaction averages in 2024. - Rent/Vacancy Insight
Year-over-year rental rate growth was remarkably healthy, particularly for smaller properties, where rents are up approximately 3%. Add the post-construction absorption and falling vacancy rates on top of that and we have a market that may deserve more attention from investors.
Kitsap
Another quarter with no sales leaves little to report on. However, figures for the full year 2024 (albeit small figures) do show an improvement from last year.
- Sales Insight
Although significant sales activity is fairly rare in Kitsap County, 2024 was particularly quiet with Q4 2024 marking the second quarter in a row of zero transactions. As such, we have no readthrough to fair valuations, apart from those derived from neighboring counties, many of which do have properties similar to those in Kitsap. - Rent/Vacancy Insight
Year-over-year, rental rates are up solidly in Kitsap with an increase of up to 5% among the larger product. It’s worth noting that this strength was in spite of the high number of deliveries seen in the first half of the year. After initially driving vacancy rates up 400 bps in the first three quarters of this year, this supply has continued to benefit from steady demand, which then caused a pull-back of 50 bps in vacancy rates in Q4 2024.
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 10 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.
About Kidder Mathews
Kidder Mathews is the largest fully independent commercial real estate firm in the Western U.S., with over 900 professionals in 19 offices across Washington, Oregon, California, Idaho, Nevada, and Arizona. We offer a complete range of brokerage, appraisal, asset services, consulting, and debt & equity finance services for all property types. Kidder Mathews averages over $10 billion in transaction volume, manages more than 57 million square feet of space, and conducts 2,600 appraisal, consulting, and cost segregation assignments annually. For more information, visit kidder.com.
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Contact
Simon | Anderson Multifamily Investments Team
Dylan Simon, Executive Vice President
Jerrid Anderson, Executive Vice President
Matt Laird, First Vice President
Max Frame, Vice President
Elijah Piper, Vice President
JD Fuller, Associate
Jack Shephard, Associate
Tony Herrmann, Associate
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