Seattle & Puget Sound Apartment Market Dynamics

Posted In — Market Research | Trend Article

Capital markets nationwide experienced a halt in apartment investment activity during Q1 2023 not seen since the Global Financial Crisis 15 years ago — a trend that is expected to persist.

Sales volume is down 50% year-over-year, with smaller (under $5 million) sales truly leading the market. What’s more, apartment sales activity above the $5 million price point slid 75% compared to Q1 2022.

While sales volume declined measurably, the change in apartment pricing is a more difficult metric to measure. Broadly, pricing is down 10% to 20% since the market peaked in early 2022, with values declining more for non-optimally operated properties.

While investors grapple with pegging apartment values in 2023, owners are experiencing their own struggles to create operational efficiencies. Although rental rates generally held firm in Q1 2023, operational costs – namely, insurance, payroll, and marketing – continue to escalate and erode net operating income.

Most markets are in reasonable supply-and-demand balance, and rental rates are holding firm or growing marginally. However, occupancy is struggling to recover from a seasonal increase during the winter. Thus, the determining factor in maintaining balance is the addition of new apartment units, but new developments are also continuing to negatively affect select markets.


Buyers want a 5.0% cap, sellers want a 4.0% cap and neither blinked in Q1 2023. The result was just 13 sales in Seattle.

Sales Insight

Seattle is on track for the fewest annual apartment sales in over a decade with only 13 recorded in 2023. Buyers cite interest rates and weak cash flow, while sellers point to regulations and replacement cost as reasons buyers should pay more today. It’s impossible to predict the outcome of this debate over the next 12 months. Buying in Seattle is a long-term wager, investors are betting on the entire region’s economy outperforming other comparable markets.

Rent & Vacancy Insight

Seattle’s legislation, fees, and developer gouging has reduced smaller infill developments, causing a 37% increase in average building size since last year, the beginning of a sharp reduction of supply of new apartments. Rent and vacancy have remained stagnant for small and large buildings since 2021. However, with fewer developers breaking ground, a significant rent growth boom is anticipated in 2025 as employers require in-person work and the supply of new apartments continues to decrease.

North King

Rents continue to trend upward year after year with investors focusing on acquisitions in and around the light rail stations.

Sales Insight

North King certainly felt the effect of the rise of interest rates with only one sale (at a price of $5 million) so far this year. For comparison, at this time last year, there had been eight sales with a total sales volume of $115 million. Clearly, the rise of interest rates were limited buying power of investors and created a pricing gap between sellers and buyers. Accordingly, as we progress through 2023, we would expect to see more properties trade in the lower price points, as opposed to the larger assets.

Rent & Vacancy Insight

Rents are steadily increasing in North King due to the new North Gate and Shoreline light rail stations, which have created higher tenant demand. With Seattle tech companies calling their employees back to the office, more workers will require accessible transportation to downtown, and light rail is a viable option. As development grows, expect a slight increase in vacancy as new products are built and leased.

East King

Despite some negative employment news, East King remains steady as the region’s top market.

Sales Insight

Sales activity is off to a slow start in East King with just four sales totaling $88 million so far. What’s more, the only sale above 30 units was a 125-unit, newer-construction sale in Kirkland that traded for more than $500,000 per unit. But, while sales volume is light so far this year, demand for East King remains high as evidenced by strong sales metrics with an average price per unit of $467,000 and cap rates still below 4%.

Rent & Vacancy Insight

East King’s rent growth continues to perform well, with a 2-3% increase in rental rates in the last 90 days. As we move into the second and third quarters, this trend is expected to continue with a strong leasing season. For buildings with less than 50 units, vacancy remains steady at 5%, while those with more than 50 units saw vacancy rise by 1.5% in the past year to 7%, likely due to the opening and leasing of new buildings.

South King

Expect South King’s transaction volume to increase as investors grow impatient and sellers recognize the reality of a changed market.

Sales Insight

Sales activity in South King during the first quarter was sluggish, reflecting the trend observed in other Northwest markets. In Q1 2023 there were only three recorded sales with a total sale volume of $13 million. Additionally, the average cap rate of 3.3% suggests there are not enough sales to demonstrate the obvious change in capital markets. Despite these challenges, our team remains optimistic about the future of the South King market and anticipates an increase in sales activity as we enter summer months and the second half of the year.

Rent & Vacancy Insight

Conversely, the rental market in the region is experiencing a steady increase in rental rates across all building ages and sizes, from five- to 50-unit buildings to those with more than 50 units. While there was a slight increase in vacancy rates from the previous quarter, the trend of rising rents is expected to continue as we move into stronger leasing months. Moreover, with the anticipated return of tech company employees to their offices, there will also be an increased demand for housing in the region, which will further increase rental prices.

Snohomish County

Cap rates in Snohomish stabilized at a more historical rate of 5%, indicating that it remains an active market.

Sales Insight

Snohomish sales continue to move along with a total of eight in the first quarter. Here, we’re seeing smaller assets trade with an average of $10 million per transaction, as compared to the larger price points during the last couple of quarters, which averaged more than $20 million per transaction. Plus, sellers and investors have also been able to come together with average cap rates closer to 5% this first quarter. That’s a significant jump from an average of 3.5% in Q1 2022.

Rent & Vacancy Insight

Rents continue to rise for both small and large buildings, despite increased supply, causing vacancy to increase by over 1.5 basis points from Q1 2022. Owners are still increasing rents, and with new supply coming to market in Alderwood and Lynnwood, more units will be available in the coming years.

Pierce County

Pierce’s reputation as the “Sweetheart of the South” (Puget Sound) suffered during Q1 2023 due to declining sales values and softening fundamentals.

Sales Insight

There were just barely enough sales (only six, and all below $8 million) posted in Q1 2023 here to forecast any definitive trends. That said, higher cap rates and lower pricing metrics throughout the course of the last six months justify the conclusion that no market is immune to higher intertest rates.

Rent & Vacancy Insight

Although rental rates held reasonably firm in the last quarter, vacancies are on the rise. This is especially true for larger properties in urban Tacoma, which are competing for residents at higher price points and against the competition of new construction delivering more supply to downtown Tacoma.
Meanwhile, suburban areas in Pierce County continue to outperform urban Tacoma. Therefore, apartment developers betting on urbanization and new employment in downtown Tacoma will likely need to wait another year or two as the market absorbs new supply and awaits a return-to-office mandate.

Kitsap County

Kitsap is in for a few tough quarters as it deals with a decrease in sales activity and falling rent and vacancy metrics.

Sales Insight

The Kitsap real estate market has seen a decline in sales activity from the previous year, with only two sales recorded so far and a total sale volume of less than $10 million. This slowdown may present an opportunity for investors seeking to capitalize on current market conditions, with a promising regional economy and population growth indicating a potential uptick in sales activity. Investors should consider taking a renewed look at Kitsap and positioning themselves to take advantage of potential opportunities.

Rent & Vacancy Insight

While the departure of the USS Theodore Roosevelt has had a negative impact on the rental market in Kitsap, the local economy is still showing signs of growth and potential. The Kitsap Economic Development Alliance has been actively promoting the region’s unique advantages, including its skilled workforce and natural beauty, to attract new businesses and investment. With several large-scale development projects underway, such as the Kitsap Innovation and Technology Center and the Port of Bremerton’s Industrial Park, there is potential for job growth and economic activity in the region, which could eventually lead to a rebound in the rental market.

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
Winslow Lee, Associate Vice President
Max Frame, Associate Vice President
JD Fuller, Associate
Jack Counihan, Associate | Financial Analyst

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