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After a brief pause, Seattle-area rents headed back up

Posted by Tom Covello on Wednesday, July 31st, 2019 at 1:42pm.

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Last October, when Taylor and Ally Condrin went looking for an apartment in the Issaquah area, the rental market seemed almost friendly. The young couple found a 3-bedroom, 2-bath unit that was advertised for $2,200, but the property manager was so eager to sign a lease that they got a free month’s rent.

What a difference a year makes. Today, identical units in the complex are renting for around $2,800, says Taylor, a 27-year-old who owns his own digital-marketing agency.

Starting around last summer, much of the Seattle-King County market seemed to hit a pause in rent increases. So many new apartment buildings had come on line that supplies were finally catching up to demand. In dozens of neighborhoods, rents leveled off or actually began falling.

Between June 2017 and June 2018, according to Zillow, the median price across all rental properties — from apartments to rental homes — in King County fell by 0.5%, to $2,383. In Seattle, median rent fell by 1.5%, to $2,486, with the median 2-bedroom unit going for $2,100.

But that pause is now history. Aside from a few pockets of oversupply — found mostly in high-end neighborhoods such as Belltown and downtown Seattle — the regional rental market is swinging back in favor of landlords.

In Seattle as a whole, the median rental price across all properties in June was up 3.3% year over year, to $2,569, according to Zillow. In Bellevue, median rent climbed 3.9%, to $2,835, in the same period, while in King County, the median rent jumped 3.6% over last June, to $2,469.

The market “has digested that extra supply,” says Zillow economist Jeff Tucker, and nearly all the data indicates “that rents are starting a slow march back upward.”

What’s not clear yet is whether that slow march will continue, or whether the region will snap back to the torrid hikes of 2014-2016, when many neighborhoods in the region endured yearly rent increases of 10% and more.

Certainly, in some parts of the broader Puget Sound region, renters are already seeing substantial increases, and many didn’t even see much of a break in 2018. In Bremerton, median June rent was up 6.4% year over year, to $1,641, according Zillow. In Tacoma, it was up 6.7%. to $1,714, while Everett saw a 7.4% increase, to $1,935.

In tiny Sultan, on State Highway 2, June rents were up 7.7% over last year, to $1,887. “It’s ridiculous,” said Debbie Copple, executive director of the Sultan-based Sky Valley Chamber of Commerce. Rentals “are almost impossible to find — almost as soon as they come on the market, they’re snapped up,” she said, adding that the scarcity means landlords “can pretty much charge anything they want.”

Whether Seattle and close-by cities follow suit depends on several factors, experts say.

One is how quickly apartment builders can keep bringing new apartments onto the market.

According to RealPage, a housing market data firm, as of June, Seattle had 19,345 apartment units in the construction pipeline, the fifth most of any city in the United States. But that’s a 19% decline from June 2018, when 24,000 apartment units were under construction, according to RealPage.

The bigger unknown is demand. There’s increasing evidence that last year’s dip in rents wasn’t just about new supply: Demand also appears to have tapered. Data from RealPage shows that the number of newly occupied, or “absorbed,” rental units during the first half of 2018 was down 19% from the same period in 2017.

That echoes census data showing that in 2018, for the first time this decade, more people left King County than moved here from within in the U.S. Similarly, 2018 marked the second annual decline in the number of driver’s licenses issued to new King County residents from out of state, according to an analysis by The Seattle Times.

And, significantly, 2018 also saw a sharp drop-off in completions of office space, which is often an indicator of expected job growth (the average employee represents 150 square feet of office space) and, by extension, housing demand.

In 2018, Seattle got 1.3 million square feet of new office space, which is roughly half of what the city averaged for each of the three prior years, according to the Seattle office of CBRE, a commercial real estate services and investment firm.

But that lull in demand is over. CBRE estimates that Seattle will see 3.3 million square feet of new office space in 2019 and another 2.8 million square feet in 2020.

Apartment absorption rates have also recovered, rising by 42% in the first half of 2019 over the same period in 2018, according to RealPage.

As demand for rentals has recovered, vacancy rates have plummeted. Between December 2018 and June 2019, Seattle’s vacancy rate fell from 3.7% to 2.7%, according to a regional rental survey by O’Connor Consulting Group and Commercial Analytics.
In some neighborhoods, demand has pushed vacancies even lower. In Greenwood, vacancy dropped from 4.7% last June to 1.0% this June, according to the O’Connor/Commercial Analytics survey. In Northgate, year-over-year vacancy fell from 3.4% to 1.5%. In Kirkland, it dropped from 4% to 1.8%

The shifting market is translating into higher rents, and, for many renters, a case of sticker shock. Julie Cooke says she and her husband decided to move from their 2-bedroom Shoreline apartment after learning rent would go up from $1,655 to $1,890. “It’s just too expensive,” said Cooke of the 14% increase.

Even in South Lake Union, which has seen a veritable explosion of apartment building in recent years, vacancies have fallen from 3.4% to 2.7%–a tightening that is gradually returning bargaining power to landlords.

Eduardo Esparza, a 30-year-old tech employee who lives in South Lake Union, says prospective tenants who want to live near where they work are once again resigned to paying $2,000 and more for “350 square feet [of studio] with tiny window looking out at another huge building.”

RealPage chief economist Greg Willett believes Seattle-area rent growth will remain “relatively sluggish” at around 2% to 3% over the next two to three years, roughly in line with national trends. “There will be too much new supply moving through lease-up for rent growth to accelerate to the robust levels sustained in 2011 through 2016,” he predicts.

Zillow forecasts somewhat sharper increases. By June 2020, Zillow expects median rents to jump by 4.4% in Seattle, 4.9% in Bremerton, 5.2% in Tacoma, and a painful 9.6% in Everett.

But housing experts are also keeping an eye on several possible wild-card factors.

One is future employment growth. Although companies in King, Pierce, and Snohomish counties are still adding jobs at a rapid clip, new job postings in June were actually down 4.5% from last June and 6.2% from June 2017, according to the state Employment Security Department.

Likewise, office-space completions in Seattle are expected to drop somewhat in 2021, to 2.3 million square feet, according to CBRE. That drop is partly a reflection of the longer timeframe, as not all developers know what they’ll be building two or three years out, says Jon Hallgrimson, vice-chair at CRBE’s Seattle office.

But Hallgrimson says the predicted drop-off may also reflect a desire by many large Seattle employers, including Amazon, Facebook, and Google, to move some business operations to the Eastside.

~According to CBRE, the Eastside now has a stunning 11.8 million square feet of new office space in the construction pipeline — 6.2 million square feet in Bellevue alone. That’s a huge increase for a region that has averaged around half a million square feet a year for the last decade, says Hallgrimson.

Another unknown: How many renters will decide to keep renting, as opposed to taking the plunge into homeownership.

Brian O’Connor with O’Connor Consulting says that the percentage of Seattle-area residents looking to buy instead of rent has grown from almost nothing in the aftermath of the recession, when few people wanted to buy, to 50% today.

As this growing population of prospective homebuyers moves out of the rental market, their departures may be sufficient to help blunt rental demand and keep rents from soaring.

But outside Seattle and the Eastside, chances for a kinder, gentler rental market may not be as good. In many outlying communities, existing rental stock is now being snapped up by newcomers, many of them residents priced out of the big urban markets.

~Paul Roberts, Seattle Times

 



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