Lack of Affordable For-Sale Housing Boosts Seattle Area Rental Market
The Seattle rental market has been red hot for several years. The region attracts both foreign and domestic entities, and the economy has outperformed the national average over the past few years with job growth in the tech and life sciences sectors. People continue to move to Seattle, which has contributed to outsized demand. Amazon plans to add enough space for more than 10,000 new workers in the region by 2022, while Facebook and Google may add a similar number of workers combined. While the high-tech sector continues to expand, not every Seattle resident works for tech firms like Amazon or Microsoft. Although this sector has spurred activity for high-end rental units downtown, demand has also accelerated for lower-end units in the Seattle rental market.
Vacancy Rate in Seattle Remains Slightly Elevated
The development of high-end units has reached unprecedented levels, especially in urban core areas like the downtown Seattle and Lake Union, as well as suburban Eastside cities such as Bellevue and Redmond. As a result, vacancy remains slightly elevated in these submarkets, and currently stands at 5.4% overall. A preference for urban living and the lack of affordability keep residents in apartments or single-family rental () homes. With such high home price appreciation over the past few years, homeownership has become increasingly out of reach. Even high-paid tech workers struggle to find desirable homes in King County: The median home price is approximately $620,000, making the Seattle rental market appear more appealing.
Submarkets Outside of Seattle Offer Strong Rental Investment Opportunities
Homeownership is more attainable in peripheral areas like Pierce and Snohomish counties, where Mynd Property Management Regional Director Enrique Jevons says demand for homes is also high in these submarkets due to their more suburban location. While rental demand for high-end units is strong, not everyone works for Amazon or Microsoft. Affordability is a major concern in Seattle, thus demand for Class C units has skyrocketed. To address the affordability issue, Seattle City Council passed legislation to build more affordable units in 2017 and 2019. More than 40,000 households in Seattle pay more than 50% of their income on rent, and the rate continues to grow. Nonetheless, developers are required to include affordable units in new apartment projects, or pay into a fund to help that helps develop units elsewhere. New developments will have to include between 5% and 11% of units as affordable, or contribute anywhere from $5 a square foot to $32.75 a square foot to the fund, depending on the neighborhood.
Rent Hikes Soar Throughout Greater Seattle
A dynamic regional economy, and a preference for urban living among all age groups in the metro, translates into strong demand. Some of the largest cumulative rent hikes in the country took place in the Seattle metro since 2012. However, the onslaught of new construction continues metrowide, which has resulted in rent-growth deceleration. In the face of a glut of new supply, overall rent growth has slowed significantly, and a swollen pipeline should contribute to further deceleration. This trend prevails in the urban core, where most deliveries are concentrated. Not surprisingly, concessions are highest in downtown submarkets with a large concentration of these properties.
Source: CoStarIn the urban core, residents can expect up to two months of free rent on a 16-month lease. West Edge, one of downtown's newest high-rises, was offering six weeks of free rent during lease-up. Peripheral suburban submarkets, like Federal Way, Auburn and Kent have reaped the benefits of renters being priced out of the core. Everett, Puyallup and Tacoma have also exhibited strong rent growth recently due to tight vacancies and low comparable rents. While the commute is much longer to downtown Seattle, the increased value is enticing, especially for families.For more information about the Seattle rental market, including trends shaping the economy and new developments, download the entire State of Mynd Seattle Q2 report today.
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