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2021 Mid-Year Update – Seattle & Puget Sound Apartment Rent & Vacancy Overview

Posted In — Market Research | Trend Article

The year 2020 marked a great migration from urbanism to the region’s submarkets; but, in 2021, that shift has already begun to unwind.

A Region Well Into Recovery

The Puget Sound region’s apartment markets all reacted very differently to the COVID-19 pandemic. For instance, urban markets across King County – both in Seattle and Bellevue – were most affected as far as falling rental rates and increasing vacancy. To that end, urban markets were the only apartment markets where rental rates declined in all ages of buildings. However, as 2021 has progressed, Seattle’s mild recovery just can’t match the Eastside’s rocket-fueled rental rate growth.

Meanwhile, the region’s suburban apartment markets were the net benefactors of the flight from urbanism in 2020, although each of these markets performed a bit differently during the last year. That’s because, as renters were less concerned with commute times and the focus shifted on lifestyle outside of work and minimizing living costs, the more affordable submarkets attracted and retained the most renters. At the same time, more expensive submarkets – as well as those needing to stabilize recently delivered apartment buildings – generally maintained rental and occupancy rates, while less-expensive markets added to their rental rates and experienced a compression in vacancy.

Overall, each market remains in transition as we enter the second half of 2021. Specifically, the social, economic, and public health considerations that massively affected rental rates and vacancy rates this past year are beginning to fade and, with that change, markets will begin to settle into a “new normal.”

Urban King County

In 2020, effective rents for apartment buildings built prior to 1995 declined 3.6% Y-o-Y, while rental rates for apartment buildings built after 2010 declined 14.2%. However, the Urban King market has already established its resiliency midway through 2021, posting a new record effective rental rate average of $2,062 per unit – 1.4% higher than pre-pandemic rental rate levels.

The first year that Urban King County rents exceeded prior peak rents from 2008 was in 2013. But, as of July 2021, effective rents in Urban King County had already exceeded 2019 pre-pandemic rates.

Toward the end of last decade, many believed that Seattle’s nation-leading growth was bound to end — but no one predicted how abrupt it would be: In 2020, Seattle experienced a double-digit decline in rents as vacancy nearly doubled across the city’s densest neighborhoods. And, while the effects of the pandemic were unavoidable, a hyper supply of new apartments has been a lurking threat to the region’s rent and vacancy rates long before 2020. COVID-19 may have changed the short-term behaviors and needs of Seattle renters, but we believe that continued employment growth and unmet resident demand to live/work/play will lead to both short- and long-term prosperity for the region.

North King County

North King rents and occupancy growth continue to march forward despite this influential last year.

As the light rail continues to push north, we’ve seen rents increase slightly – even through the pandemic. Now, working from home and the anticipation of easy accessibility to downtown in the near future has residents looking outside of the city core and into neighborhoods like Northgate, Greenwood, and Shoreline – all of which are demonstrating continuous growth.

Moreover, despite the pandemic, average vacancy decreased compared to last year. Furthermore, more than 6,000 units have been delivered since 2010; as a result, the market is working to absorb the newer product and, as expected, vacancy rates in these cases are higher than they are in the existing apartment buildings. To that end, steadily declining vacancies – paired with increases in rents – make this an area in which investors and developers continue to look for opportunity.

East King County

East King continues its hot streak as the region’s top rental market, boasting the highest average rental rate at $2,148. Clearly, East King is as desirable for renters as it is profitable for investors.

Renter demand for East King remains robust: Average rental rates across all building ages are the highest in the region – up 12% over last year and an impressive 7% above 2019 rental rates – thereby demonstrating East King’s resiliency. And, despite appearing to be higher, the average vacancy rate was actually artificially boosted due to many new buildings going through lease-up cycles across the submarket. Conversely, vacancy levels in older buildings are well below market – 4.3% for pre1995 and 2.8% for buildings that were built in the last cycle.

Likewise, although East King delivered 6% of its existing stock of units since the start of 2020 – the largest increase in the region – vacancy has continued to compress since 2019; even with the high numbers of new units being delivered, absorption remains healthy. What’s more, opportunity remains for savvy owners of older apartments to renovate units to compete with and draft slightly below the sky-high rental rates of newer apartment buildings. But, if that feels like too much work, just give us a call; investors are paying top dollar for older apartments in East King.

South King County

Lack of new inventory keeps vacancy low and rental rates strong throughout South King County.

Year-to-date, we’ve only seen one apartment building completed and delivered to the entire South King submarket. However, this trend is due to change as the current development pipeline of new apartment buildings is substantial, accounting for 14% of the total inventory in South King. And, although the development of more apartment buildings is on the horizon, the region will continue to benefit from high demand – in addition to renters falling in love with the more affordable rental rates, larger units, and more modern apartment living available spanning from Renton down to Enumclaw.

At the same time, South King has been one of the fastest-growing rental markets in all of Puget Sound, with rental rates here cumulatively increasing nearly 20% in the last five years. And, while we expect residents to migrate back into Urban King as businesses come back to life, South King will continue to grow and be a great place to call home for downtown workers who are priced out of Seattle and Bellevue.

Snohomish County

Snohomish continues to prove itself as one of the best apartment markets in the region with high year-over-year rental rate growth and low vacancy.

Snohomish County has the largest apartment units in the region and, if COVID proved anything, it was that renters were looking for space: With an increase of 8.4% in rent and only a .1% increase in vacancy, it was apparent that renters were moving from Seattle up to Snohomish County’s cities, such as Lynnwood, Edmonds, Everett, Snohomish, and many others. Here, buildings built prior to 2010 are experiencing vacancies near 3%. Meanwhile, newer buildings make up 15% of the total inventory and experienced slight year-over-year increases in rental rates, but sharp increases in vacancy as units were absorbed more slowly into the market.

In the next several years, apartment developers are primed to add more apartment units than they did in the previous decade, with major developments planned in Everett, as well as along the planned light rail lines. The introduction of notable new apartment inventory is also evident in the trend of higher vacancy rates in newer buildings as they begin to stabilize.

Pierce County

The sprawl of suburbia to the outlying Puget Sound markets led to the lowest vacancy rate ever recorded in the Pierce County apartment market.

Vacancy rates weren’t the only record-breaking triumph for the county; year-to-date (YTD) rental growth hit record highs, as well, at a 9.8% Y-o-Y rental rate growth. And, after a notable decrease in new construction in 2020, we’re starting to see a strong uptick of developments following the light rail line. In fact, many of these new deliveries are changing Tacoma’s rapidly urbanizing downtown, and record-high rental rates are a direct representation of this gentrification.

The current equilibrium between supply and demand; strong job growth in both urban and suburban Tacoma; and the light rail on the way are all factors for these strong market trends. Granted, delinquency has been more of a problem in Pierce County than King County, but the continual rent increase – along with high occupancy rates – is a trend that we see continuing in Pierce County to the benefit of apartment owners.

Kitsap County

Kitsap County continues to outdo itself, boasting the lowest average vacancy rate coupled with the highest rental rate growth of all area submarkets.

It’s been a banner year for Kitsap County, as renters and investors alike continue to flock across the Sound in search of new opportunities. Kitsap bounced back quickly from a tumultuous 2020, posting an average vacancy of 3.3% across the submarket – the lowest in the Puget Sound region. Impressively, Kitsap also has the highest average rental rate growth of all area markets, coming in at a healthy 13% increase over last year.

As predicted in last year’s sales market study, there was an increase in sales of older, value-add apartment buildings; now, those units are starting to hit the rental market after extensive renovations. The data also clearly supports this development, as the average rental rate for apartments built prior to 1995 is nearly 20% higher than those built in the last cycle (1995 to 2010) – a considerable difference of $250 per month. As a result, expect more post-value-added, renovated units than were previously available in this market to hit the rental market this year and be scooped up quickly by renters seeking more modernized and livable apartments.

Read the full study at the link below.

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Contact

Simon | Anderson Multifamily Investment 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

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