With improving employment figures, steady rental demand, and ever-increasing investor interest, the Seattle market is percolating its way to a very strong brew.
Job growth in Washington state's Puget Sound region is perking up after several years of sluggish performance. Employers are on track to add approximately 46,000 jobs by year's end, a 2.9 percent increase, which should produce positive gains for Seattle's multifamily housing market. Analysts project strong net in-migration, and companies such as Microsoft and Amazon.com continue to invest in product development and marketing, all of which holds promise for improving fundamentals and healthier bottom lines for local apartment owners.
In addition, more limited single-family housing affordability, rising interest rates, and an influx of young professionals will expand the market-wide renter pool in the Seattle metropolitan area considerably. Investors continue to flock to the area and will find multifamily investment stability in submarkets in central Seattle, such as Ballard/Greenlake, Queen Anne/Magnolia, and Downtown/Hills, where high-quality units, urban-living amenities, and proximity to employment centers support tenant retention.
City With a Plan
With new residential space considered key to the renewal of Seattle's downtown and the surrounding neighborhoods, a number of initiatives are underway to attract developers and residents to the area. In 2004, the city introduced its Center City Seattle strategy for growth, which focuses on overhauling the downtown zoning code and improving transportation systems. These zoning changes, which are already in progress, would increase the height and square-footage allowances for residential and office projects within the city's core and provide greater subsidies for affordable housing.
Two new transportation systems, the Monorail Green Line and Sound Transit's light rail, also will soon connect Seattle's downtown with surrounding neighborhoods. Despite some delays, both systems are slated to come online in 2009. Although Seattle falls behind its West Coast counterparts in terms of urban renewal, the success seen in neighboring cities, such as Portland, Ore., bodes well for Seattle's downtown.
Apartment construction will remain modest in 2005, with just 2,000 units slated for delivery by year's end. Although this is a 25 percent increase from 2004, development activity is still well below historical highs. Completions reached 6,100 units as recently as the year 2000 and averaged nearly 4,300 units between 2000 and 2003. Investors are watching closely, however, as falling vacancy rates attract more developers and ease the restraint exercised over the past two years. In fact, multifamily permitting is on the rise, with permits for nearly 6,000 units issued in 2004–a 57 percent increase from one year earlier.
Although it remains to be seen how many of these units will actually be delivered, developers are definitely taking notice of the region's improving market fundamentals, and a significant increase in apartment construction may be forthcoming.
Seattle-based developer Harbor Properties recently announced plans to build moderately priced, mid-rise apartments near downtown Seattle, and other developers may soon follow suit. Just like in many other cities, an increasing number of workers are looking to live in an urban setting closer to their workplace, and Seattle officials are aggressively promoting more residential development in and near downtown. Recent changes in parking requirements, additional flexibility on open space requirements for multifamily projects, and a multifamily tax credit program are helping to entice developers.