Seattle sneaks up on the rest of the country. What's happening there flies under the radar before grabbing hold of the world in a big way. Kurt Cobain and Nirvana taught us how to rock again. Amazon.com transformed the way we shop. Starbucks made us caffeine addicts. Bill Gates and the Microsoft team changed … Well, what didn't they change?
Seattle's multifamily market, too, sometimes fails initially to attract the attention it deserves. But check it out, and you'll find a vibrant development environment with some of the most ambitious projects underway anywhere in the United States. Driving the boom is a solid foundation of strong, sound industries, and the imagination of innovative real estate developers. So don't be surprised when you look back in a few years and realize Seattle played a key role in shaping what the industry has become.
GOOD TIMES Seattle's rapidly expanding economy provided a strong impetus for the housing demand of the past few years, whether in the form of job growth, high occupancy, or solid rents.
The metro's employment base grew by 2.5 percent in 2007, when 37,000 jobs were added. Like the rest of the country, the Puget Sound region now faces a period of slower growth, but forecasters still anticipate a reasonably healthy job production rate near 1.1 percent in 2008.
Helping Seattle's economy stay afloat are the multi-year expansions of several headliner companies. Still scrambling to fulfill sizable orders for new planes from shipping firms UPS and FedEx, Boeing currently employs more than 70,000 people in metro Seattle, well below the number of workers needed. At Microsoft, the employee count for operations across Seattle's suburbs stands near 40,000 workers. Still, the software giant is adding more than 3 million square feet of space by 2009 to their Redmond headquarters, which will eventually accommodate an additional 12,000 people.
With recent multifamily construction in Seattle focused on condos, developers didn't deliver many apartments. Furthermore, conversions took a block of the former rental stock offline, leaving Seattle's late 2007 apartment inventory of 253,200 units down by almost 3,000 units since early 2004. Not surprisingly, occupancy has been tight. The market has been at least 95 percent full since the middle of 2005, and year-end 2007 occupancy registered at 96.3 percent.
The metro's recent rent growth stats are even more impressive. Rents jumped 8.2 percent in 2007, and that was on top of increases near 10 percent in 2006 and 6 percent in 2005. Average monthly rents crossed the $1,000 mark in 2007, reaching $1,030 by the end of the year. Typical average rents for newer projects are at $1,300 per month.
Still, while Seattle's apartment performance fundamentals look favorable, it's unlikely that the recent rent growth can be sustained. More new supply will be one factor slowing rent growth. Seattle entered 2008 with more than 6,200 apartments under construction. And near-term completions seem likely to prove greater, since some of the condos on the way are apt to end up as apartments by the time construction is finished. A handful of developments already have made the switch from for-sale product to rental orientation.
EXTREME MAKEOVER: BELLEVUE EDITION
Among the factors that will shape the Seattle multifamily industry are the expansion plans taking root in Bellevue, an upscale suburb about 10 miles east of downtown Seattle. Plans to transform Bellevue into a high-density commercial and residential center emerged during the dot-com boom of the late 1990s. The subsequent bust stalled progress briefly, but the general vision that took shape a decade ago is now well on its way to reality.
Microsoft is among the major employers headed to Bellevue. The firm has leased more than 1.3 million square feet in new towers downtown as well as another 600,000 square feet in an office park east of downtown. Microsoft should have 4,000 workers reporting for duty in Bellevue by the end of 2009. Joining the parade, online travel agency Expedia.com leased space for 1,700 workers who are slated to come online by the end of 2008. Bellevue, likewise, is the site of retailer Eddie Bauer's recently opened corporate headquarters, where the employee count sits at 600 people.
There certainly won't be a shortage of multifamily residences for new workers. Bellevue's ongoing apartment construction at the start of 2008 totaled 1,250 units, growing the area's existing inventory by roughly 8 percent. Meanwhile, several of the apartment developers now active in Bellevue are going tall—really tall. For example, Seattle-based Su Development is finishing a 23-story apartment project called Elements Too in fall 2008. This 262-unit building is the companion to a comparably sized first tower that was completed in late 2006. And The Hanover Co. of Houston has apartment buildings of 20 and 23 stories under construction just a couple of blocks to the west. The 129 units in Hanover's Ten20 project should be delivered in mid-2008, while The Ashton's 202 units are targeted to wrap up right at the end of 2008.
Mid-rise properties also are an important part of today's construction mix in Bellevue. Indeed, the biggest near-term addition to the market's total unit count will come from Avalon Meydenbauer, a 360-apartment mid-rise by AvalonBay Communities, an Alexandria, Va.-based REIT. Featuring a grocery store and other retail space, Avalon Meydenbauer should be finished in mid-2008. Another notable mid-rise on the way is Belcarra, a six-story development by San Francisco-based BRE Properties. BRE started construction on Belcarra in late 2007 and expects to finish the 296-unit project in late 2009.
Still, the residential development most notably reshaping the local skyline is the Bellevue Towers condo project, which includes two buildings at 43 stories and 42 stories. Gerding Edlen Development Co., out of Portland, Ore., is the firm behind Bellevue Towers, which is expected to be the largest project in the state to get LEED Gold certification. Entry-level pricing at the 480-unit property is around the $400,000 mark, while units on the upper floors go for more than $1 million. Typical price per square foot tops $600, about a third higher than the market norm. The north tower should be complete by the end of 2008, with wrap-up on the south tower to follow in 2009.
That's not all that's unfolding on the condo front. At The Bravern, a mixed-use complex being developed by Seattle-based Schnitzer West in the Bellevue market, 450 units are coming online. Covering an entire city block, the 1.6 million-square-foot property includes a 23-story office building that is part of the local space Microsoft has leased. The Bravern also will feature three floors of high-end retail space anchored by the Pacific Northwest's first Neiman Marcus department store.
DOWNTOWN HUSTLE Seattle's urban core, however, is still competing with Bellevue for the spotlight in the Puget Sound. Multifamily activity around downtown is contained in the Denny Triangle and South Lake Union areas, adjacent to Seattle's convention center, a big cluster of hotels, and upscale retail space.
The Denny Triangle features a notable group of high-rise residential and mixed-use properties that are strikingly modern in appearance. Among the standouts is Olive8, a 39-story tower clad in pale blue reflective glass being developed by Seattle-based R.C. Hedreen Co. When it's finished in early 2009, Olive8 will deliver 231 condos and 350 hotel rooms to the downtown. Just a block from Olive8 is another massive condo/hotel combo—the 38-story AVA includes 211 condos and 190 hotel rooms in a 38-story building. Still in the early stages of construction, AVA, which is being developed by Seattle's FANA Group and Executive Group of Vancouver, won't be completed until 2010.
The Hanover Co. will deliver the first apartment tower in the Denny Triangle. The Olivian, a 27-story building containing 216 apartments, is scheduled to finish in mid-2009. It is located in the same cluster of development alongside Olive8 and AVA. Aspira, a 37-story project in this same area currently under construction by Urban Partners of Los Angeles, will feature 326 residences. Originally intended to be a condo development, Aspira will now be operated as an apartment community.
Meanwhile, in South Lake Union, development is rising despite the area's origins in industrial space and single-family homes. On Westlake Avenue, the area's primary street, a new look is emerging. Mid-rise residential projects and mixed-use developments that feature office space over ground floor retail now line the street. Most of the office space is for medical or scientific use, since this is an emerging biotechnology hub. However, online retailing giant Amazon.com recently announced plans to move its headquarters to South Lake Union, which would add 1.6 million square feet of office space when it is completed in 2010.
Seattle developer Vulcan Real Estate is the most active residential builder in South Lake Union. The firm has three mid-rise condo projects totaling 442 units under construction—Enso, Rollin Street Flats, and Veer Lofts.
Indeed, Seattle's oft-overlooked multifamily market offers insight into where the rest of the country could be headed. There, suburbs are going vertical, downtown is moving toward a modern style, and mixed-use, green properties are becoming the norm. So ignore the afternoon rain and take a peek behind the pine trees. Seattle's ambition and innovation will likely lead the next generation of U.S. multifamily development.
Greg Willett is vice president of research and analysis at M/PF YieldStar.
MFE DOZEN:
Raleigh, N.C. (January) A not-so-sleepy Southern town
Houston (February) Lone Star success
Huntsville, Ala. (March) A military movement
Lexington/Louisville, Ky. (April) No blues in the Bluegrass State
Seattle (May) A city on the rise
Orlando (June) A heated market
Kansas City (July) Feeling Midwestern momentum
Colorado Springs, Colo. (August) Rocky Mountain growth
Philadelphia (September) Independent streak
Columbus, Ohio (October) The heart of it all
San Antonio (November) Big-time development
San Francisco (December) Bayside building sets sail
FAST FACTS Considering Seattle?
Here's what you need to know:
- Population: 2.55 million
- Occupancy: 96.3%
- Median Age: 35.4
- Median Household Income: $50,700
- Average Rent: $1,030
Unemployment: 3.7% NOTABLE: Pike's Place Market, which opened in 1907, is one of the country's oldest farmers markets in continuous operation. Adjacent to the market is the first Starbucks Coffee store, which opened in 1971. The city is also very eco-friendly. Close to 500 households live on houseboats in Seattle, more than in any other U.S. city. And depending on weather conditions, some 4,000 to 8,000 people in Seattle bike to work every day.
