Kidder Mathews Releases its Latest Research on Seattle and Puget Sound Apartment Markets

Posted In — Market Research | Trend Article

This year marks a major tidal shift as apartment investors regroup amidst a rapidly changing economy and capital markets environment.

The 12 months of 2022 gave us the most volatile interest rate environment in four decades. Accordingly, pricing dynamics shifted from immense pricing velocity and investor demand at the start of the year to a risk-off, wait-and-see mentality by the beginning of 2023.

Pricing in Puget Sound slowed massively in Q4 2022, and data captured in the last 90 days was the leading indicator of a stalled marketplace. Although it’s not yet evidenced in capital rate expansion, expect higher capitalization rates and lower prices per square foot and per-unit sales until mid-year, at the earliest.

Throughout the region, rental income increased year-over-year, despite declining in Q4 2022. These trends captured the traditional seasonality of the Puget Sound market, although they might also serve as a precursor of a slowing economy.

Given that vacancy increased in every market during the last 12 months, expect less near-term vacancy decline – even if rental rates follow their traditional spring run-up. The potential for a slowing economy in 2023 will likely appear first in declining occupancy and then rental rates.


Buyer demand for Seattle apartments remains robust with an average of 5.3 offers on listings since Q2 2022. That said, buyers are also accepting lower returns due to interest rates. Will sellers then adjust their expectations to meet the market?

Sales Insight

Apartment sales averaged $475 per square foot from 2019 to 2022. However, Q4 2022 reverted to 2018 pricing, which was the last time interest rates edged above 5%. In this case, “listers” (owners who are not serious about selling) will try to hold onto what was, while “sellers” with multiple offers will select the most qualified buyer and complete their sale.

Rent/Vacancy Insight

Average vacancy for apartment buildings was up 1.6% from 2021. Even so, vacancy is 2% lower than pandemic rents, holding steady between 2022 and 2021 averages. Keep in mind that the luxury apartment market ($3,000+ per month) is still susceptible to rent declines as higher wage earners are laid off for the first time in several years.

North King

Rents continue to trend up year after year in North King, providing one of the most consistent and safe investment areas in the Puget Sound.

Sales Insight

North King finished the year with $192 million in sales volume with 26 transactions, the majority of which were smaller properties. In fact, the number of transactions in this submarket was the most since 2019, with volume equating to almost half of 2021’s total. While 2022 began with a flurry of investment activity, this slowed by the end of the year due to the rise in interest rates. Nevertheless, we continue to see deals on smaller properties, whereas owners of properties with 50 or more units continue to hold. Additionally, the average cap rate for the year was 4.2%, which was one point lower than it was in 2021.

Rent/Vacancy Insight

Rents for North King have been rising since 2016. Even moving into Q4 2022, rents continued to increase despite a typically more challenging leasing time of the year. Vacancy also increased by nearly a full basis point from last year for buildings with fewer than 50 units, while larger properties (50+ units) increased only 0.3 basis points (bps). Historically, investors have pegged 5% as a standard vacancy for properties; therefore, considering this is the toughest part of the leasing season, it’s so far been a success for North King owners.

East King

No surprises here: East King is once again the top dog, leading the region in both sales and rental rates.

Sales Insight

East King hit the golden trifecta in sales metrics with highest average price per unit, highest average price per square foot, and lowest average cap rate. This clearly indicates that investor demand for East King has not slowed. Notably, our team had the privilege of listing and selling Heartwood – the highest price per unit and highest price per square foot sale in East King – for $767,000 per unit and $762 per square foot, respectively.

Rent/Vacancy Insight

East King has been the region’s top rental market for the last several years and it continued its reign in 2022. Specifically, the region boasted the highest average rental rates for small and large buildings at a whopping $2,350 per month to best second-place Seattle by an impressive 14%. Undoubtedly, renter demand remains exceptionally strong for the oasis that is East King.

South King

With leading occupancy and continual cap rate compression, South King County continues to impress through difficult market conditions.

Sales Insight

Overall sales have continually dropped every single year since 2019. That said, cap rate compression has also continued annually, thereby demonstrating confidence from investors in the future of South Sound.

Rent/Vacancy Insight

The story of South King County has been that of extremely high occupancy as rents slowly increase year-over-year. And, with the light rail soon becoming a reality and new apartments beginning to get absorbed into the area, South King’s occupancy levels will be tested in 2023.

Snohomish County

Snohomish investors continue to seek investments across the county with reduced opportunities to purchase.

Sales Insight

Sales lagged in Snohomish County to a total of five transactions in Q4 2022 as compared to 34 sales in Q4 2021. Conversely, transaction volume was on pace to hit $1 billion in 2022, but rising interest rates slowed sales toward the end of the year. However, even with sales volume and transactions down from 2021, price per unit and price per square foot increased, proving that Snohomish is still a very attractive market for investors.

Rent/Vacancy Insight

Rents continued to increase year-over-year in Snohomish County. With some of the largest units in the Puget Sound, renters have been enticed by larger spaces with many making it their home and office. Here, a slight increase in vacancy in Q4 can be attributed to seasonality and the annual slowdown of the holiday months. As such, we fully expect vacancy to trend in the right direction come springtime.

Pierce County

After a raging 2021 in the Pierce County market, sales were down more than 50% in 2022, although cap rates compressed dramatically.

Sales Insight

Cap rates dropped more than 60 bps in Pierce County, in addition to compressing into the 4% range for the first time in the county’s history. We anticipate that this will expand as interest rates increase in 2023.

Rent/Vacancy Insight

Overall, operations in Pierce County were steady in 2022. While vacancy and rent didn’t seem to move, delinquency in Pierce improved significantly as the county continues to help apartment owners.

Kitsap County

Traditionally the darling market for sales, rent and vacancy metrics, Kitsap County had a bit of a lackluster year.

Sales Insight

Kitsap experienced a steep drop in sales activity from last year, with both its number of transactions and its total volume falling to levels nearly half those of 2021. As a result, expect to see activity pick back up this year as buyers head across the water for higher in-place returns and greater upside.

Rent/Vacancy Insight

While Kitsap rents didn’t repeat last year’s huge jump in rent growth, they managed to increase incrementally and remain strong. What’s more, vacancy jumped significantly due to new buildings coming online and navigating the lease-up process. Here, vacancy should normalize and average rents increase as these buildings lease-up.

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, Vice President
Brandon Lawler, Vice President
Winslow Lee, Associate Vice President
Max Frame, Associate Vice President
Jack Counihan, Associate | Financial Analyst

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