The Seattle MD Apartment Market Report Volume 16 Issue 2, December 2016 The Nation s Crane Capital Seattle continues to experience an apartment boom which requires constant construction of new units. At the end of 2016, Seattle had the most construction cranes in use across all of America. Seattle has three times the amount of cranes as New York City even though NYC has over 10 times the amount of people. Just one year ago NYC led the nation in number of cranes, proving that Seattle s construction has rocketed off the charts into its own category. The Emerald City has a whopping 62 cranes in service as of December 2016. With more cranes obviously comes more construction, which as we can see in the table to the right, leads to slightly higher vacancy rates. The supply of new units is slightly exceeding demand which leads to higher vacancy rates. We can see however, that the vacancy forecast for year-end 2017 is estimated to be nearly the same as it was at year-end 2016. Seattle s apartment market is a unique market in the sense that it is affected by seasonality. Mid year vacancy rates tend to be lower while year end vacancy rates have been historically higher. The rapid growth of the tech sector in Seattle has clearly been the cause for this construction boom. Microsoft and Amazon obviously contribute but other giants have moved into the area including Google, Facebook, and Apple. These companies have leased substantial amounts of space resulting in a massive influx of high paid employees and the demand for more housing. These companies have plans to expand to surrounding areas such as Bellevue, causing growth in the whole region not just specific to the city of Seattle. Breaking down the Seattle Metro Market into its four submarkets of Seattle, Eastside, Southend and Snohomish allows us to have a deeper look at the apartment market. In the Southend and Snohomish markets there is higher demand than supply resulting in lower vacancy rates. On the contrary, the Seattle and Eastside markets have higher supply and are projected higher vacancy rates over the next two years. This newsletter will include summary tables of vacancy forecasts for the upcoming years, historic vacancy charts, migration and population graphs, rent growth, rent change and more. The goal is to provide the reader a full understanding of Seattle Metro s flourishing apartment market. By analyzing Seattle and its surrounding regions, we will cover all the basics one needs to know before entering the market as a buyer, seller or builder. ~Brian O Connor, MAI, CRE
Table of Contents Vacancy Forecast..1 Vacancy Forecast Charts.2 V a c a n c y.. 3 Employment Forecast 4 Population Demographic..4 Supply and Demand.5 Rental Rate Forecast 5 Single Family Homes.6 Lease-Up Map 7 Under Construction Map...8 The Seattle Apartment Market Report is a publication of the O Connor Consulting Group, a Seattle-based real estate appraisal and consulting firm specializing in mixed-use multifamily and commercial property valuation and consultation. For more information regarding these services please contact Brian O Connor, MAI, CRE at 206-622-5100 The Seattle Apartment Market Report is edited by: Riley Corrie, Associate. Vacancy Forecast The graphs below illustrate our vacancy forecast for each of the four primary Puget Sound markets. Please note that these graphs reflect physical vacancy, not economic vacancy. Economic vacancies are Seattle Vacancy Forecast typically one or two points above physical vacancies. We expect the vacancy rate of the smaller submarkets to decrease and the larger submarkets to slightly increase. 3. 2.7% 3. 3. 3.7% 3.1% 3. 3.5% 3. 3.7% 3.1% 3.5% Eastside Vacancy Forecast 4.3% 4.7% 4.1% 4. 4.1% 4. Southend Vacancy Forecast 2.3% 2.1% 2. 2. 2. 2.1% 2.1% 2.1% 2.1% Snohomish Vacancy Forecast 2.8% 2. 2.5% 2. 2.5% 2.3% 2.1% 2.1% 2.
Vacancy The 2016 year-end vacancy survey covered just over 127,000 units, a slight increase from the 2016 mid-year survey of 126,500. Vacancy rates have increased from mid-year to year-end due to the seasonality that the Seattle apartment market experiences. The market as a whole has slowed slightly in the second half of 2016 but is anticipated to pick up again in early 2017. The end of 2016 closed with a 3.1% vacancy rate, which is expected to decrease to 2.9% by the end of the first quarter of 2017. This is illustrated in the chart above along with projected vacancy 5% 3% 1% Seattle Bellevue Everett MD Vacancy Forecast 2.9% 2. 2.8% 3. 3.3% 2.9% 2.9% 3. 3. rates through the 1st quarter of 2019. We can also identify how stable the Seattle market is by observing the slight fluctuations between quarters. The vacancy rates in the Seattle metro area are considerably lower than the national average of 6.9% (ACS). These Seattle rates are anticipated to stay low at less than half of the national average for years to come.
Employment Forecast As illustrated below in the population demographic graph, it can be seen that the majority of the population residing in King and Snohomish county are in prime working age. These people fill the vast number of jobs being created by the giants such as Amazon, Microsoft and Boeing. These companies are constantly expanding, requiring more space and people. With the expansions happening we will see an increase of population in King County and the City of Seattle. This increase will also be recorded in surrounding areas including Snohomish and Pierce Counties. With the development of more efficient infrastructure, population will increase in surrounding areas due to shorter commute times. Despite the recent growth in Seattle, economists Dick Conway and Doug Pederson have predicted employment growth to slow over the next few years. They anticipate 2016 to peak and believe that the Seattle MD employment growth at 2.33% in 2016 will be higher than both 2017 and 2018. However, these are only predictions in an erratic market. Amazon is looking to expand further into surrounding areas and create another 70,000 jobs in the next few years. The Emerald City has a population demographic that will always be demanding jobs. Unemployment in the Seattle MD is 3.7%, a full percentage point lower than the national average of 4.7% (ESD). This can be attributed to the education of the population. Over 6 of people in Seattle have at least a Bachelors Degree as compared to a national average of a meek 32.5% (DOC). These statistics support Seattle being a top job market. Population Demographic The forecasts provided in this newsletter are gathered from multiple data sources and are driven by anticipated population growth in the region. The chart below reflects data collected from the American Community Survey and displays the population demographic between King and Snohomish Counties. As is evident in the graph below, the majority of the population is between the ages of 20 and 65. This is on par with the prime working age. The economy of Seattle is flourishing allowing more workers to come fill the job openings. This influx of people is making the apartment market extremely competitive. Prices are increasing rapidly because of the constant demand provided by these people. The high rent is starting to entice many to move just outside of the expensive areas where the prices are lower. Many dream of working for the new tech companies that have moved into the area. Facebook for example moved into Seattle just a few years ago and will pay for their interns to live in South Lake Union. Amazon will also provide housing stipends to their young employees who intern but are still enrolled in University. Young adults are attracted to these types of companies who provide benefits because of the burden that student loans cause and the expensive cost of living in Seattle. King and Snohomish Counties Population Demographic 2015 Male Female 85 years and over 80 to 84 years 75 to 79 years 70 to 74 years 15,999 16,749 24,417 34,894 31,008 23,744 29,326 41,247 65 to 69 years 54,809 60,057 60 to 64 years 77,891 82,122 55 to 59 years 91,849 94,320 50 to 54 years 102,743 101,766 Age 45 to 49 years 40 to 44 years 101,619 104,952 98,882 101,584 35 to 39 years 105,494 99,353 30 to 34 years 115,536 110,436 25 to 29 years 115,807 108,494 20 to 24 years 93,890 88,643 15 to 19 years 82,556 79,047 10 to 14 years 83,306 80,906 5 to 9 years 87,015 81,469 Under 5 years 88,682 84,543 150,000 125,000 100,000 75,000 50,000 25,000 0 25,000 50,000 75,000 100,000 125,000 Population Source: ACS
Supply and Demand Summary The table below illustrates our forecast for both apartment supply and demand within each major submarket in the Seattle Metropolitan area. Our estimate of new multifamily supply is derived from a survey of all units currently in lease-up, projects under construction, and known projects in their pre-development stage. To gauge the number of units in the pipeline, we track all multifamily building permits, physically inspect the permitted sites, and reconfirm the number of units and the property type (apartment or condominium). This information was calculated for each of the four major markets within the Seattle metropolitan area. In the table below, supply and demand are displayed by the number of units over the next two years, as well as the corresponding vacancy rate. We expect supply to be slightly higher than demand with a difference of 2,232 units. If we break it down into submarkets, it is evident that the Southend and Snohomish markets have higher demand than supply. These two regions also have the lowest vacancy rates after two years because of this increased demand and low supply. The Eastside and Seattle regions are projected to have higher vacancy rates because supply is greater than demand. However the rates do not exceed in those areas showing that Seattle is still a very sought after place to live. The market size is also expected to increase by approximately 20,000 units, giving more room to the those migrating into Seattle for job opportunities. With this tremendous amount of construction the vacancy rate is projected to increase from 2.7% up to 3. after two years. Job growth, migration and employment are all expected to slow down as we re coming off one of the biggest booms in Seattle history. With the amount of cranes in Seattle there will be steady growth for years to come as the Emerald City begins to be an important player in the United States and world economies. Rental Rate Forecast The two tables on the right indicate O Connor Consulting s recent history and projected forecast of changes in rental rates for each submarket of the Seattle MD. Over the last year the total rent change in the Seattle MD has been 0.9% with the highest change in the Southend submarket. Based upon our estimates of new apartment supply and demand, we estimate rent growth in 2017 to be approximately 5. overall. From 2017 to 2018 rent growth is estimated to slightly decrease and again from 2018 to 2019. Seattle is showing signs of a stable market over and over with healthy rent growth and change. Analyzing the individual submarkets we can recognize there are only slight differences from year to year. The Seattle submarket will decrease the most from 2017 to 2019 with a 150 basis point difference. All other submarkets are expected to only decrease 100 basis points across the next two years.
Single Family Homes and Condos Steadily on the Rise in Seattle Both the single family housing market and the condominium markets have been on the rise in Seattle during the past few years. As seen to the right, the number of home sales has steadily grown since 2012 and the number of condominiums really escalated in 2014. In 2015 there was roughly five times more single housing construction sales closed as compared to condominium ones. The condos then jumped significantly in 2016 to approximately half of single family homes and continue to rise. 1,400 1,200 1,000 800 600 400 200 0 Seattle New Construction Closed Sales $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Surprisingly, the average price of condominiums has not jumped with the spike in construction sales. It actually fell sharply in 2014 when more sales were closed, since then leveling out. The average price of a single family home however has been steadily increasing along with the number of homes. It is a much more predictable market than the condominium market which as proven to jump around over the past 10 years. The graph directly right reflects the number of condos that are newly constructed and have pending sales. It shows the number of condo sales has varied over the past few years. Even though the number dropped in 2016 the average price has continued to rise. We expect to see an increase in the volume of new condos under construction. Recent condo pricing has increased to a level that will attract development. Single family homes have had a steady increase in average price since 2011 and a regular increase in the number of homes since 2012. 1,600 1,400 1,200 1,000 800 600 400 200 0 Number of Condominiums Condominium Average Price Number of Single Family Single Family Average Price Seattle New Construction Pending Sales 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Condominiums Condominium Average Price Number of Single Family Single Family Average Price $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0
Map of Apartment Projects That Entered Lease-Up in December 2016 The following map is of the Seattle-Bellevue-Everett MD that consists of every apartment project that had units in lease-up at the end of December of 2016. By mapping the locations of each project it clearly illustrates the geographic distribution of supply. When looking at the map of the entire Seattle MD, the reader can clearly see that the vast majority of projects currently in lease-up are in the Seattle Core. This submarket has the highest population density and contains the most employment opportunities in the area which explains why it has the highest number of lease-up apartments. The regional map on the right side represents 131 different apartment projects that entered lease-up in the Seattle Metro Area year end 2016. This is 50 more apartment developments entering lease-up phase than mid-year 2016. Also, the large majority of these apartments are located in the heart of downtown Seattle. There will continue to be apartments entering lease-up and absorbing into the market with the amount of cranes in Seattle. Having more cranes than that big cities such as New York, Chicago and Los Angeles just shows the potential that Seattle has. New employees of the ever growing tech giants will need places to live. This will result in constant demand for apartments and therefore construction. The boom in prices has attracted many developers to the Seattle MD seen in the mass amounts of construction taking place within the area. On the following page we will see the amount of apartment developments under construction at the end of 2016. Many similarities will be present between the two maps because of the population density and the job opportunities in the location.
Map of Apartment Projects Under Construction in December 2016 The following map is of the Seattle-Bellevue- Everett MD that consists of every apartment project currently under construction as of December 2016. By having visual locations of each project we can see the geographic distribution of the incoming supply. As seen in the lease-up map the construction sites are in very similar locations, predominantly in the Seattle Core area and the Seattle submarket. The Seattle submarket is an extremely sought after location at this point in time, all developers want to capitalize on this rapidly expanding market. Prices are at record highs and continue to increase along with the number of people. There are currently over 160 apartment projects under construction as of the December 2016. The Seattle submarket is responsible for the vast majority of them, similar to the lease-up map. Although the area is booming right now, the overall number of under construction apartments has declined approximately 25 units since June 2016. This could be due to units finishing construction and being absorbed into the market or since employment and migration are estimated to slightly drop, overall production has slowed. Development is still expected in Seattle and the surrounding regions even though the market may slow down. As more jobs attract more people the Seattle apartment market will continue to grow and prices will follow. Seattle will remain a city that encompasses more cranes than most for years to come. This will result in constant apartment construction and a prospective place for new businesses.
For more information on services offered by the O Connor Consulting Group, LLC please contact Brian O Connor, MAI, CRE at (206) 622-5100 or visit our website at: www.ocgp.com