Surging demand boosts plans for more apartments
During the first three months of 2008, plans were made for 11,383 new units in King and Snohomish counties, a 37 percent increase over the fourth quarter of 2007.
Seattle Times business reporter
With apartment demand remaining strong throughout much of King and Snohomish counties, developers are rushing to build more units, particularly in Seattle.
"We're seeing a surge in planned units this quarter," says Tom Cain of Cain Inc., which recently released its Apartment Insights Washington report.
During the first three months of 2008, plans were made for 11,383 new units, a 37 percent increase over the fourth quarter of 2007.
"There is also a shift in the pattern of planned developments compared to what's currently being constructed," Cain says.
Seattle will see more units; South King County, fewer; and the Eastside, about the same. Snohomish County and North King County will see an increase.
Not all the apartments will be built. Still, the 5,753 under construction now are almost double the number being built a year ago.
Financing also could impact the plans, says Cain.
"The credit markets have changed dramatically after plans for some of these developments were made," he says. "Today's lenders are requiring developers to put more of their own money into these deals. Also, there are fewer sources of capital for development."
In surveying apartment complexes with 50 or more units, Cain found the two-county vacancy rate, 4.75 percent, is steady from a year ago but up slightly from the fall.
Rents continue to climb, rising 2.1 percent over the previous quarter and almost 9 percent over the first quarter of 2007. The average annual increase for all size units was $84 a month.
The areas with the fewest vacancies are Seattle's First Hill and Capitol Hill neighborhoods, Edmonds, central Everett and the eastern and northern quadrants of Snohomish County.
Vacancies in all those areas were under 3.5 percent.
Demand for rental units also is up in Kirkland, which has the areas's highest average rent: $1,464. Seattle's average rent is $1,078.
During the past year, Kirkland's vacancy rate has dropped from almost 10 percent to about 6 percent.
"One cause for this improvement is that managers on the whole didn't raise rents this quarter," Cain said. "The absence of any newly completed properties in the past half-year also contributed to this turnaround."
The least expensive rental areas are central Everett and Southeast King County.
The highest vacancy rates were in North King County, from North 85th Street to the Snohomish County line. Encompassing Shoreline and other areas, it had a 7.4 percent vacancy rate.
South Everett also reported a high vacancy rate, 6.5 percent, as did Mukilteo at 6.1 percent.
In the last few years, thousands of apartments in King and Snohomish counties were converted to condominiums, but that trend is reversing, Cain says. "There was such a large number of properties removed from the apartment-rental market that it caused the rental market to tighten, so vacancies went down and rents went up," he says.
But with home sales weakening and the rental market strengthening, developers are realizing there's more money to be made in apartments.
The first quarter of 2008 tells the story.
While 80 apartment units in King and Snohomish counties were lost to condo conversions, "259 were added back due to unsuccessful sales efforts," Cain says. "This would have the effect of creating a little higher vacancy rate this quarter."
Developers building multifamily housing can switch from condos to apartments fairly easily because one building permit covers both. Cain thinks those shifts will continue.
In the near future this will give renters more new units to choose from, while new condo buyers will have fewer choices.
"I think there are properties being built now as condos that will be rentals; then when the condo market becomes strong again they'll be sold as condos," Cain says.
He predicts apartment demand will stay robust.
"Renters are pretty content to stay in the rental pool rather than risk the prospect of buying a home and losing equity in a declining market," he says. "Besides, many can no longer qualify for loans under current lending standards. This will keep pressure on the rental market."
Elizabeth Rhodes: email@example.com
Copyright © 2008 The Seattle Times Company
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