Seattle is the commercial, financial, and cultural center of the Pacific Northwest. The region has acquired a reputation as a desirable place to live and a good place to do business. It is considered a global city due to its ties to Asia and world trade and has a tradition of innovation, stewardship, and reinvention. With a large pool of young, talented, educated workers, it has become a major center of forward-looking industries.
Seattle’s economic recovery picked up significant steam in 2012 and is characterized by positive job growth, with a 2.8 percent gain in employment year over year compared with 2011. As a result, unemployment is on the decline, falling 0.9 percent over the past 12 months to below 6 percent (February 2013) for the first time in more than four years.
Seattle’s recovery is being driven by its strong economic base of technology, manufacturing, health care, and service industries. The high-tech industry, in particular, has seen a 12 percent rise in employment in the past year, besting that of Silicon Valley and rising to No. 1 in the nation. Companies like Amazon, Microsoft, Google, and Facebook have been the primary drivers of employment increases, with forecasts of continued growth in the next few years.
Pricing at a Premium
In 2012, Seattle returned to the global investment stage with a vengeance, capturing significant attention and hitting new pricing levels in almost all commercial real estate product categories. The Seattle area has been a perennial top 10 favorite in PwC’s Emerging Trends in Real Estate, and 2013 is no different.
Multifamily sales volume and pricing have been on the rise for three years as Seattle continues to gain popularity among investors.
Annual sales volume in 2012 totaled $2.68 billion, more than twice the 2000–10 annual average of $1.3 billion. Sales last year even surpassed the housing boom of 2005 to 2007, which sported an annual average of $2.5 billion.
The high watermark for 2012 was TIAA-CREF’s purchase of the 325-unit Aspira building from developer Urban Partners for $166 million. This transaction, along with several other major deals this year that have sold for more than $300,000 per unit—plus a low–4 percent capitalization rate—signifies that pricing among premium assets in Seattle is back to (and, in many cases, is surpassing) peak levels.
With all the positive news surrounding Seattle’s economy, it should come as no surprise that the city’s multifamily fundamentals have also experienced a speedy recovery. Vacancy has dropped to 3.8 percent, the lowest rate since 2007. Meanwhile, rents have increased 6.8 percent, despite 7,000 new units opening in the past 12 months.
Who’s going to fill these new apartments? Aside from having the largest population concentration north of San Francisco and west of Chicago, another contributor to Seattle’s multifamily strength is the age demographic among its 620,778 core population. Nearly 23 percent of the population falls within the prime renter age range of 24 to 35, nearly 600 basis points higher than the national average. This trend is expected to continue as nearly 50,000 20- to 34-year-olds are expected to enter the Seattle market in the next three years.
Another emerging trend is the dramatic increase of baby boomers reaching retirement age. Over the past 20 years, an average of 18,000 people per year working in the region have turned 65, and that number is projected to nearly double, to 34,000 a year, over the next five years.
In addition, Conway Pedersen Economics estimates that the net migration to the region will total 60,000 people over the next five years. What makes this group of people so appealing is that they’re migrating from cities with much higher rent-to-income ratios. The national average rent-to-income ratio sits at 37.1 percent; in Seattle, the rent-to-income ratio is only 27.1 percent. Comparatively, San Francisco’s rent-to-income ratio is 54.1 percent, Los Angeles’ is 47.6 percent, and New York tops the list, with 68.5 percent.
Over the next 10 years, Seattle’s demographic trends will continue to push demand for apartments and heighten its already high appeal to investors.