Seattle’s apartment market held up even as thousands of new units arrived last year. Can that continue with 13,000 more on the way this year? Citing data from Moody's Analytics CRE, Victor Calanog, Ph.D., Commercial Real Estate Economist, shares his take.
Performance metrics for Seattle apartments remain decidedly mixed. On the one hand, the market has shown a tremendous resilience for absorbing new space, Calanog says.
Even as close to 8,000 units came online in 2022, vacancies inched upward only 40 basis points and rent growth came in at a record-breaking 17.6%.
However, Q1 2023 marked a turning point: Rent growth turned negative, with asking and effective rents declining 0.7% and 0.9%, respectively.
New construction, potential recession a risky combo for investors
Furthermore, Seattle construction forecasts are among the most worrisome across all of Moody’s apartment markets. The metro area is expected to welcome close to 13,000 new units this year. And then Moody’s expects another 18,000 or so units to come online in 2024.
It’s unlikely, historically speaking, that the market is prepared to absorb that much new supply without hiccups, Calanog says. Combine that with the very high likelihood of demand pulling back if the U.S. tips over into a recession, and the result is a high-risk combination of a large supply glut hitting when households might be pulling back on spending.
Watch neighborhood construction trends closely
At a time of high uncertainty, it is even more important to examine what might happen to specific neighborhoods, Calanog says. The Downtown/Capitol Hill/Queen Anne submarket is expected to have the highest supply growth figure for 2023 and 2024, with 32% of the metro’s new units.
Investors would be wise to examine both absolute and relative numbers: Take a look at not just the raw total of new projects coming online, but the percentage growth of inventory relative to its existing base.
The prospects for multifamily — in Seattle and elsewhere — remain bright in the medium and long terms. But it’s a good idea to prepare for some downsides in the near term.
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