Apartment Insights survey shows vacancies stabilizing while rents rise. After rebounding from a weak fourth quarter, the vacancy rate stabilized at 5.2% amidst an outburst of building activity, reports Tom Cain of Apartment Insights. The data are from his Seattle firm’s 1st quarter statistics and trends on 50+ unit properties in the King/Snohomish market.
VACANCY: 5.21%
The vacancy rate for conventional, stabilized 50u+ properties is 5.21%. Last quarter the vacancy rate had increased a half a percent to 5.25%. Snohomish County (5.11%) is slightly stronger than King (5.23%).
The overall vacancy rate, which includes properties in lease-up and out-of-service, improved from 5.86% to 5.69%.
In King County, the lowest vacancy rate is 3.46% in the Seattle North Central submarket, which includes the area north of the ship canal to 85th Street. This is followed by Seattle’s Capitol Hill and First Hill submarkets at 3.60% and 3.73% respectively.
The weakest submarkets continue to be in south King County. The highest vacancy rate is in Federal Way (7.00%) followed by SeaTac (6.88%) and Renton (6.71%).
RENTAL INCENTIVES: $36 (3.35%)
Rental Incentives peaked at nearly 10% two years ago, and had been in a downward trend until last quarter. This quarter was the same as the fourth quarter at $36 per unit, or 3.35%.
In King County 40% of the properties are offering them, and in Snohomish County it’s 50%.
RENTS: $1,094 per Unit
$1.30 per Square Foot
Rents had been increasing since 2Q2010 until last quarter when they dropped a dollar to $1076 per unit. In the last half of 2011 rents climbed a mere $4 per unit. This quarter’s $18 jump to $1,094 was a significant increase, but appeared to be inconsistent with the stabilizing rates for vacancies and rental incentives.
This quarter there was an unusually high number of units in properties that went from lease-up to stabilized status. We exclude properties in lease-up in our calculation of market rents and vacancies. When these 1,753 units became stabilized this quarter, they were included in our statistics for the first time. All things being equal, new properties rent for more than older properties, and some of the properties in this group were at the extreme upper end of the market. We ran our calculations again without these new properties so the inventory was exactly the same as the previous quarter. This resulted in a $9 rent bump and an average rent of $1,085, which is close to a 1% quarterly increase.
Two submarkets broke into the $1,500 rent range for the first time. Downtown Bellevue is averaging $1,520 and $1.76 per foot per month. Downtown Seattle averages $1,512 per month. Moreover, the downtown Seattle submarket is the first to surpass $2.00 per foot. Rents there are $2.03 per square foot.
NEW CONSTRUCTION
There are currently 8,155 units under construction, up from 6,457 units in the fourth quarter and 4,664 units in the third quarter. We expect 3,119 units to open in 2012.
There are 4,479 units currently under construction that are scheduled for completion in 2013. An additional 1,060 units are about to begin construction that are targeted to be ready to rent next year. This will bring the 2013 total to 5,539 units, which is three times that of 2011.
There are 9,428 units that have entered or satisfactorily completed the design review and permitting process. In addition, developers have applied for and have been granted a rezone for 9,953 units.
Of those units that are under construction, 83% are in Seattle. The balance is split evenly between Snohomish County and the Eastside, with the exception of a 52 unit that is being constructed in Renton. The geographical distribution of the units that are in the latter stages of the pipeline is nearly identical to those under construction.
The 253-unit Discovery Heights in the photo opened last year in the Issaquah Highlands.
Devco is the developer, and HNN Associates is the manager. Construction on the 107-unit phase II is expected to begin soon.
OBSERVATIONS
This quarter’s performance could be described as being better than holding its own, or stabilization plus. The rising vacancy rate and rental incentives that occurred in the fourth quarter leveled off. And rents experienced a nice upward boost. The rental market is in good shape.
The anticipated completion of 3,119 units entering the market this year is not cause for concern. But one can be justifiably apprehensive at the prospect of the 5,539 or so units that we expect will hit the market next year. This will likely cause the market to soften in late 2013.
Unfortunately for the apartment industry, the residential market is showing signs of bottoming out based on February statistics released by the Northwest Multiple Listing Service. There are fewer homes listed in King County than at any time since the beginning of the housing crisis, putting upward pressure on prices. Despite the reduced inventory, sales volume was up 23% for houses and 43% for condos in February compared to a year earlier.
Although overall prices have continued to decline, there are market segments that have improved. House prices in the City of Seattle actually increased 2.8% during the past year, although condo prices in the city declined by 35%. When the residential sales market tanked, it had a very positive impact on the apartment market. We continue to monitor the residential market due to the impact it can have on the apartment market.
Tom Cain of Apartment Insights is a member of the nonprofit Central Puget Sound Real Estate Research Committee in charge of providing apartment rent and vacancy data. Tom has been a member of the Committee for over 25 years, and has been researching apartment market trends in the Seattle area since 1978. His company surveys the five counties in Central and South Puget Sound.
This article highlights survey results that subscribers can access from an online database of all 50u+ properties. Apartment Insights also provides customized rent reports and market reports. www.apartmentinsightswa.com 206-632-2220
