Market Report

MARKET REPORT

SEATTLE MULTI-FAMILY MARKET REPORT

CoStar Group

OVERVIEW

Consisting of King, Pierce, and Snohomish County, Seattle is among the largest multifamily markets in North America, with around 367,000 market-rate apartment units and about 25,000 more under construction. Formation of new apartment households has slowed after a record year of growth last year. Absorption does remain above historic averages, and over the past 12 months, the region gained about 8,400 new apartment households. This deceleration in demand comes at a time when the construction of new apartments remains near an all-time high. Developers delivered 11,000 new units over the past year, and 25,000 units remain under way.

As a result, the near record low vacancy rates that the Seattle area enjoyed over the last year are beginning to rise. Concessions have returned to the market, as well. In downtown areas, about half of the properties are currently offering some form of concession, a trend that is driven by many new communities competing for tenants.

Supply pressure is affecting rents across the metro as new supply exceeds the immediate demand for new units. For example, the Downtown Seattle and Lake Union submarkets are seeing a wave of construction that is delivering new units far exceeding recent demand. These areas have some of the highest vacancy levels in the region, and rent growth has decelerated as a result.

This has led to rent growth deceleration, particularly in downtown Seattle, where a large amount of new inventory hit the market this year. That area was the first in the metro to record negative annual rent growth, but growth overall is decelerating across the metro.

While sales volume remains near record levels, pricing has been affected by shifts in capital markets. The cost of debt has been on the rise, and as such, Seattle has seen upward pressure on its extremely low cap rates. Price per unit has decreased in recent quarters, and market players have reported repricing or backing out of deals as of late.

12 MO. DELIVERED UNITS

8,409

12 MO. DELIVERED UNITS

11,200

VACANCY

The Seattle metro's vacancy rate has been on the rise. The rate sits at 5.6%, compared to the 10-year average of 5.9%. A surge of construction recently at a time of decreasing demand caused vacancy to increase from a near-record low of 4.9%.

Vacancy rates differ by submarket as some submarkets are still catching up to spikes in demand while others are seeing more new units delivered than absorbed in the near term. Areas that have seen rapid growth recently saw vacancy spike with the delivery of new product. Submarkets in this category include Downtown Seattle, Lake Union, and Redmond. While vacancy spiked in these areas recently, they tend to see strong demand and properties that have completed their lease-up period continue to see relatively low vacancy rates by comparison.

A lack of affordability in the home buying market keeps people in apartments, and more than four out of 10 households in the metro rent. For a significant share of the population, homeownership is out of reach, thanks to price appreciation that has been among the strongest in the nation for several years and reached record levels last year. A recent ranking by Florida International University and Florida Atlantic University showed that Seattle was among the top five cities in the nation where renting is a better option than buying in 2022. A slowing economy at a time when significant new supply is arriving to market may have a cooling effect on the housing market prices. However, a rapid increase in interest rates recently has amplified affordability issues.

In addition, typically more than 60% of the population growth in the Seattle region in any given year is due to in-migration. As households move to a new city, it is common for them to rent until they become established in a new city.

The region's tech presence has been a draw and has had a significant impact on apartment demand in the urban core and on the Eastside. While it appears those trends will continue, large tech companies have an outsized presence on the Eastside and many have indicated a slowdown in their plans for growth in light of economic uncertainty. This could provide some headwinds in the short term.

Looking ahead, vacancy expansion appears to be on the horizon. Construction of high-end units has reached unprecedented levels, especially in urban core areas like the Downtown Seattle and Lake Union submarkets and in Eastside cities like Redmond.

VACANCY RATE

5.6%

RENT

Seattle's average market rent sits at $1,950, compared to the national average of $1,620. Over the past decade, rent in Seattle grew faster than most other metros in the nation but has grown slower than the national average over the past 12 months.

Rent growth has begun to decelerate in the Seattle area and is now below pre-pandemic levels after reaching a recent all-time high of 10.7%. Annual rent growth sits at 3.5% over the past 12 months, compared to the 10-year average of 4.3%. A correction was to be expected after stellar growth in 2021, and rent growth will likely fall below historic averages in the coming months before moving upward toward the historic average by the end of 2023.

Renters seeking affordability have caused lower-priced properties to see stronger rent growth than newer highquality assets. Annual rent growth in 4 & 5 Star assets sits at 2.7%, compared to 4.9% for more mid-tier 3 Star properties.

Concessions have increased overall, especially for newer high-quality assets that are still in their lease-up periods. The effective annual rent growth for the overall market now sits at 3.4% when concessions are included. That figure is down from a recent high of 12.3%.

12 MO. ASKING RENT GROWTH

3.5%