Despite an unprecedented amount of new apartments opening on Capitol Hill and around Seattle, renters are still getting pinched. The Seattle rental housing market is increasingly full of newer, more expensive units in buildings with increasingly fewer vacancies, according to a recent report detailed by the Seattle Times.
Average monthly rent in Capitol Hill has soared 8.2% since April to $1,395 per unit. Vacancies in King County have decreased with 4.4% of units vacant, down from 4.8% a year ago. On Capitol Hill, vacancy is below 3%.
The numbers were outlined in a report from real estate analyst Tom Cain at Apartment Insights. Cain writes that apartment construction in King County is at a two-decade high, while rent prices have steadily increased and vacancy rates have remained low.
(Graphs courtesy The Seattle Times and used with permission)
Cain tells CHS the jump in Capitol Hill rent was in part due to two large properties – The Citizen and The Lyric – achieving “stabilized status.” In other words, they have entered a period of sustained, high occupancy.
Billy Pettit, vice president of Pillar Properties, the developer behind The Lyric, said the Broadway building was 94% leased in February, three months after opening. He attributed the quick turn-around and broader rent trends to the Hill’s proximity to Amazon and all the other great reasons to live here. The Lyric is a CHS advertiser.
In an email exchange with CHS, Pettit offered his thoughts on what the current rental market in Capitol Hill signals to developers and property owners:
Historically speaking, a market like this would likely scare off a number of developers. Continued periods of strong rent growth, low vacancies, and cap rate compression, are all attractive fundamentals in the eyes of developers, especially in a low interest rate environment. However, with the additional supply coming to market through the end of 2014, attempting to justify a new project can be looked at as rationalizing risk. That said, I do believe the underlying fundamentals in this market will continue to remain strong, even in the face of the new supply. Will we continue to develop new properties over the next few years? I would say, yes, albeit it at a slower pace than we have thus far in this cycle.
So while it’s mostly good news for the city’s economy, developers, and rental market at large, the trend suggests renters in Capitol Hill should continue to expect a cutthroat market. More renters are coming and they’re staying put, says Cain. “A concern that we have had about the possibility of a flood of renters leaving the market to buy homes has not materialized,” Cain said.
The report confirms what many frustrated apartment seekers on Capitol Hill are observing this summer: The buildings keep going up and so does the rent … everywhere. Add to that rental incentives (half month free, etc.) in the two counties are only offered in 23% of properties, and they have dropped by a third since last year to $14 per unit.
According to Cain, nearly 14,000 units are currently under construction in King and Snohomish Counties, up from 10,000 a year ago. That puts 2013 on track to have some 7,100 new units enter the market – a 20-year high. Conventional real estate economics would suggest that increasing inventory, especially in large buildings, should increase affordability.
But the calculation is not so simple, says Capitol Hill developer Maria Barrientos. “On the macro level that’s true, but on a micro level is not true, because newer buildings are very expensive,” Barrientos said.
Barrientos said that a more robust blend of older and newer buildings would help from a renter’s perspective. In the current Capitol Hill market there is increasing pressure on older buildings to meet a growing demand for affordability, she said.
The trend seems to suggest that panelists on last month’s Capitol Hill Housing forum were dead on. Seattle not only needs to continue building more apartments — it also needs to do more to regulate them.