In recent years, apartment construction peaked at 6,885 units in Seattle, where the Chroma, shown here, is located. According to Commercial Analytics, contractors in the first six months of 2021 began building only a handful of projects, totaling 523 units.
By Marc Stiles – Senior Reporter, Puget Sound Business Journal
The Downtown Seattle Association on Wednesday said over 6,400 new apartment units are expected to open in and around downtown Seattle by year's end, so it's shocking that during the first half of 2021 construction began on only 523 units citywide.
It was not just Seattle that saw a steep decline. Contractors across the four-county metro began building only nine for-rent multifamily projects totaling around 880 units, with zero starts in Kitsap County and only one eight-unit project in Snohomish County.
This is according to Seattle-based market tracking company Commercial Analytics, which said that in 2020, building in the region began on 71 projects totaling 10,964 homes. Roughly 63% of both the projects and the units were in the city of Seattle.
As with everything, the pandemic jumbled the multifamily market starting in the spring of 2020, but by then developers were mostly all-in on development, with their debt and equity financing lined up.
Now, "you can't get anything to work hardly at all," said Commercial Analytics co-founder Brian O'Connor. His other company, O'Connor Consulting Group, advises developers on the feasibility of projects.
Under Washington state's previous moratorium on evictions, landlords were not allowed to raise rents until the moratorium was lifted on July 1, but it was extended through Sept. 30. Meanwhile, the cost of operating and maintaining rental properties continues to rise.
In doing project feasibility studies, O'Connor said the projects would merely break even.
"There was no profit. Everybody had to put them on ice until the rents rebound," he said.
There will be some more starts before Dec. 31, but they won't reach 2020 levels and the result will be the lowest number of starts since 2015, when there were only three starts with a total of 557 units — all in King County.
Production rose in subsequent years, hitting 9,470 units in 91 projects in 2019. Last year, there were 71 projects totaling 10,964. More units in fewer projects was the result of the commencement of several high-rise projects in Seattle's University District.
The market is tight with the vacancy rate in Seattle at 3.2% in June, according to Commercial Analytics. Other markets are tighter, ranging from 2.6% in South King County down to 0.7% in Kitsap.
Another company, RentCafé, reports rents have declined 4% in Seattle over the last 12 months, but rose 2% in Tacoma and 4% in Bremerton. In Everett, rents increased 8%.
In most areas, rents haven't gone up enough to justify new construction, said O'Connor. who compares the situation to a bottle of carbonated pop.
"We've shaken the pop and when they pull that cap off ... boom, rents are really going to pop," he said.
O'Connor said landlords he has talked to said rental rates are behind 10% to 20%, but they're loath to institute big increases because "they don't want to be the bad guy in the paper."