The Seattle-area apartment market is about to cannibalize itself

By Marc Stiles  – Staff Writer, Puget Sound Business Journal

Apartment rents in the Seattle region could drop by 10 percent, but even so, not many people will be able to move with COVID-19-putting the economy at a standstill.

There have been mass layoffs and unemployment benefits and other government aid still to come, leaving a lot of people unable pay the rent.

Seventy-six percent of tenants are seeking some form of relief, according to a survey of property managers who oversee about 34,000 units at 216 properties across the four-county metro. Seattle-based Commercial Analytics conducted the survey March 23 to April 3.

As this unprecedented situation continues to evolve, one thing is certain: There will be a big impact on the rental market where a statewide ban on evictions is in place.

It's hard to predict what will happen, said Commercial Analytics co-founder Brian O'Connor, because of the magnitude and uncertainty of the crisis.

"This is craziness," he said. "It's a major disruption to the whole system."

O'Connor said the survey data indicate most renters are "hunkering down." He still thinks vacancies will rise, though not to 15 to 20 percent.

He sees less rent being paid. He expects this will work itself through the system as unemployment and other benefits reach tenants and benevolent landlords hang on until their renters get their jobs back.

O'Connor thinks people who are just opening new apartment buildings are most exposed. They'll be forced to lower rents and cause managers of existing buildings to follow suit.

"(Properties) are going to cannibalize each other for a little while," he said.

O'Connor anticipates rents will drop by at least 10 percent in the short term as what happened after 9/11. He said landlords will act to staunch the rise in vacancies before they get too out of hand.

"Managers usually don't let the vacancy rate rise too high. They'll let it go to 5 to 7 percent and then drop rents to keep it in that realm," said O'Connor, an appraiser who advises developers and investors.

He told one client to write this year off because there will be less demand. The question is what happens next year.

​"The thinking right now for me and other folks I'm talking to is we're going to get back to somewhat of a normal (market) probably by next spring, next March. That's the thinking right now but to be perfectly honest, nobody really knows," O'Connor said.