Managers of apartment buildings like this one in the Fremont area of Seattle started offering self-guided tours in the spring of 2020, when Covid-19 was spreading.
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
To most lay people, starting construction of apartment buildings last year seemed foolish. With some parts of the economy grinding to a halt and sending the unemployment rate soaring, who would move into the buildings and when?
The rental market in King and Snohomish counties ended 2020 with nearly 7,100 fewer occupied apartments than at the start.
But demand started to boom earlier this year and then accelerated, with renters filling nearly 18,000 existing units plus another 3,000 new ones, according to Commercial Analytics, a Seattle company that surveys landlords to track market trends.
Seattle saw net demand drop by more than 7,800 units in 2020 but then rebound to fill around 11,275 units from January through June.
Commercial Analytics co-founder Brian O'Connor hasn't seen anything like it in his 40 years of data collection. He said it was like capturing two years of traditional demand in six months.
Logging the sooner-than-expected rebound, Commercial Analytics asked landlords what was going on. The answer: Young renters wanted to take advantage of the good deals, such as two months of free rent, that landlords were offering to fill up their buildings.
"Concessions have fallen off," he said. "There are only a few buildings with concessions and those are (new) ones that are in lease-up, so it's not an indication of market weakness. They're just trying to lease up faster by offering normal concessions."
O'Connor expected the market to bounce back eventually as the economy recovered from Covid-19, but didn't think he'd see these kinds of numbers so soon.
In King County, Seattle's vacancy rate declined the most – down 440 basis points from December to 3.2% in June. That was followed by the Eastside's 380-basis-point drop to 1.9%. Lower-cost South King remained in demand during the pandemic and saw the vacancy rate fall just 110 points to 2.6%.
Snohomish County's vacancy rate fell from 4% to 2.3%.
This is not occurring just in and around Seattle and Everett. Pierce County saw vacancies fall from 2.8% in December to 1.3% in June, and Kitsap logged a decline from 2.8% to 0.7%.
"The market is tight, like under 3% from the Canadian border down to Olympia," O'Connor said. "We did a study of Skagit County where we surveyed around 950 units in 12 buildings. We could not find a vacant unit," O'Connor said.
In March, average one-bedroom rents in the four-county metro area ranged from $1,330 in Pierce County to $1,848 in King, according to Commercial Analytics.
O'Connor expects rents this year could rise 6% to 7%, though he said government restrictions on rent hikes in cities like Seattle could limit that to 2% or 3%.
"Next year, though, rents will rise probably 10%, and that's when we'll have the undersupply problem because of Covid in '20 holding back starts," he said. "The money was puckered up. Rents were bad and very few deals got on the ground," O'Connor said.
Job growth is the driver of all real estate markets, and the Puget Sound region is still down 97,000 jobs from its pre-Covid level, with Puget Sound Economic Forecaster’s June 2021 report projecting 2.5% employment growth through the end of this year and a robust 5.8% next.