1. Dave Schumacher
Sr. Vice President
206 382 8555
dave.schumacher@colliers.com
David W. Mortensen
Sr. Associate
206 382 8554
david.mortensen@colliers.com
Dylan P. Simon
Associate
206 624 7413
dylan.simon@colliers.com
FOURTH QUARTER 2012
Research &
Knowledge Report
Seattle Multifamily
Colliers International
601 Union St., Ste 5300 | Seattle, WA 98101 www.colliers.com
2. Q4 2012 | MultiFamily
Colliers International | Seattle
research & forecast Report
Strong Demand Means Rent Growth and New Development
Average vacancy is below 5% throughout the Puget Sound. King County is down to 4.2% and Seattle
CBD vacancy is a surprisingly low 2.3%. This exceptionally strong demand has naturally led to robust
rent growth, with the strongest starting at the urban centers and spreading out to the suburbs. Devel-
opers have responded to this demand with a very full pipeline. New development and employment, the
key indicators of supply and demand, are the questions on everyone’s mind at the moment and we
explore them in depth in this report.
Key Indicators Supply and Demand
market indicators • Gross sales volume ($) in Puget Sound is • A total of 5,628 units were added in 2012
up 126% over the last year. • We project 24,000 more units will be
2012 2013 • Cap rates have fallen to a 5.6% average in added 2013-2016.
2012, coming off a 6.2% peak in 2010, yet • Over 46,000 jobs were added to Seattle-
VACANCY nearly 100 bp off a record low of 4.8% in Bellevue-Everett in 2012.
2007. • The Seattle-Tacoma-Bellevue unemploy-
Cap Rates • Record setting pricing with Aspira ment rate is 6.9% while the national unem-
obtaining >$500k/door, with average ployment rate is 7.9%.
construction
price per door at $152k in King County, up • Economicforecaster.com projects a steady
rents
16% year-over-year. decline in the Puget Sound unemployment
• Tri-county vacancy remained flat year- rate from 7.4% in 2013 to 7.0% in 2014,
over-year at 4.7%, yet the King County 6.6% in 2015 and 6.4% by the end of 2016
vacancy rate dropped to 4.2%. with nearly 210,000 jobs added in that
• 32% of properties are offering conces- time.
sions, down from the 2010 peak of 61.1%.
Number of Sales Sales Volume ($)
180 180 $2,500,000,000
$2,500,000,000
160 160 Sales
140 140 $2,000,000,000
$2,000,000,000
120 120 volume
$1,500,000,000
$1,500,000,000
100 100
80 80
$1,000,000,000
$1,000,000,000
60 60
40 40 $500,000,000
$500,000,000
20 20
0 0 $0 $0
KingKingSnohomish
SnohomishPierce
Pierce KingKingSnohomish
SnohomishPierce
Pierce
King King
Snohomish Snohomish
Pierce Pierce
www.colliers.com/seattle
3. research & forecast report | Q4 2012 | MultiFamily
A Shift in Demand puget sound market vacancy vs. unemployment rate
Puget Sound Market Vacancy Vs. Unemployment Rate
Nationally, the vacancy rate is 4.6% as of Q3 2012, an extremely 10.0%
healthy rate considering peak vacancy of 8.0% in June 2009. 9.0%
The national vacancy rate has only dropped below 5% three 8.0%
times in the last 30 years, according to REIS. Average vacancy 7.0%
in the Puget Sound area is 4.7%, but the Seattle area rental
6.0%
5.0%
market is even tighter. King County vacancy has compressed 4.0%
to 4.2% and Seattle CDB vacancy is at a surprisingly low 2.3%. 3.0%
In the past, the vacancy rate tracked almost exactly with the
2.0%
1.0%
unemployment rate in this area, illustrating the strong correla- 0.0%
tion between employment and apartment demand. However,
1996.1
2001.1
2010.1
1993.1
2007.1
1987.1
1990.1
2005.1
2008.1
2004.1
1989.1
1991.1
1992.1
1994.1
1997.1
1986.1
1988.1
1995.1
2009.1
2000.1
2002.1
2012.1
1998.1
1999.1
2003.1
2006.1
2011.1
it appears that a fundamental shift is taking place in the rental Market Vacancy Unemployment Rate
market at the moment. With unemployment now at 6.9%, one
would expect vacancy to be between 6.4% and 7.4% since the Vacancy and Unemployment were nearly in lockstep until 2009. Since 2009, the spread has
increased from an average ½ point to 3 percentage points
two metrics have typically been within half a point of one
percentage of renters in the seattle MSA another in the past. Instead, vacancy is below 5% in the Puget Sound and
the spread between unemployment and vacancy has averaged 3 basis
42%
points since 2009. That is a huge shift in renter behavior. As indicated
40% by the chart above, vacancy is surprisingly low right now compared to
where it would normally be given the current unemployment. That indi-
38% cates extraordinarily high demand by historical standards. The chart
below is another sign post indicating a shift in renter behavior. In 1999,
36%
33.1% of households in the Seattle Bellevue Everett MSA were renters.
34%
Today, that figure is 40.5%. These figures are further bolstered by
O’Conner Consulting research concluding that measureable apartment
32% demand implies 60% of new Seattle residents are renters compared to a
50/50 historical norm.
30%
Demographic shifts certainly account for some of this shift. Baby
boomers’ lifestyles are changing, and many thousands of “Generation Y”
are coming of renter age in this market. It is still more difficult than it was
The percentage of renters in the Seattle MSA has increased to 40.5%, the highest level
ever recorded. to buy a home, and many former home owners are opting to be renters or
have been forced to rent after foreclosures. It remains to be seen how
permanent this shift in renter demand will prove to be.
Colliers International | p. 3
4. research & forecast report | Q4 2012 | MultiFamily
Employment Puget Sound Unemployment and Population Forecasts forecasts
puget sound unemployment and population
In the development community there is no better medi- 10.0 2,150,000
cine for concerns with inventory than job creation. In 9.0 2,050,000
this region, the rule of thumb is 8 new jobs adds 8.0 1,950,000
demand for one new apartment unit. For example, 7.0 1,850,000
52,722 jobs were added to the tri-county area in 2012 6.0
1,750,000
which translates to demand for 6,590 units. Conway & 5.0
1,650,000
Pedersen (economicforecaster.com) predicts 46,000 4.0
1,550,000
jobs have been added to the Seattle-Everett-Bellevue 3.0
MSA in 2012; compared with 30,000 new jobs in 2011. 2.0 1,450,000
In the next five years, Conway Pedersen predicts nearly 1.0 1,350,000
210,000 new jobs added in the region. 0.0 1,250,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Our local employment market is on a tear and may well
exceed those projections. Amazon hired 22,500 Unemployment Rate Population
people worldwide last year and has an estimated 2,300
local positions available. Boeing hired about 8,000 source: economicforecaster.com
Around 49,000 new jobs are forecast for 2013 in this region; quite a lot by historical
workers last year in the Seattle area and apparel
standards. At the same time, population is expected to increase by 54,000; 22% more
retailer Nordstrom added 7,500 people nationally in than the 20-year average population growth.
2011.
Projected Deliveries in King and Snohomish Counties Predicting Supply
Over the past 20 years, developers have added an
12,000
average 3,200 market rate apartments per year in the
King, Snohomish and Pierce Counties – the “tri-
10,000
county” region. 2012 is ending with 5,628 new units,
according to Dupre+Scott (duprescott.com). As many
8,000
as 8,220 new units are under construction or planned
6,000 for 2013, 10,887 units in 2014, 8,069 units in 2015 and
3,093 units in 2016 for a total potential of 30,269 new
8,898 units in the next four years; 137% higher than the his-
4,000 8,033
5,628
torical average for that period. For our supply projec-
5,075
2,000 tions, we assume that 100% of units “Under Construc-
2,010 tion” will be completed. Projects that have not yet
- broken ground and have not locked financing are much
less certain, so we handicap projects in Planning. We
2012 2013 2014 2015 2016
assert that 75% of those projects in planning for 2013
Completed Under Construction Planned Projected and 2014 will be built, and 65% of those in Planning
for 2015 and 2016 will be built. Our adjusted total new
In the tri-county area, 5,628 units were completed in 2012 and 30,269 units supply for 2013-2016 is 24,016.
are under construction or planned for 2013-2016 according to Dupre+Scott We
speculate that 24,016 of those will actually be completed in that time.
Colliers International | p. 4
5. 250,000 14,000
12,000
200,000 10,000
research & forecast report | Q4 2012 |
150,000
MultiFamily 8,000
100,000 6,000
4,000
50,000 2,000
0 0
Examining Supply: Where, When & Who
Looking at the raw numbers in the previous section, there is certainly reason for some oversupply concern in the near term. However, we contend that the
West Seattle
analysis is much more complex. The impact of oversupply must be based in the questions of where, when & who. Ballard
5,000 4,000
Where
4,500 3,500
4,000
3,000
When
3,500 you break it down, it appears that most of the new supply seems to be focused in urban locations. Some of these areas had only small rental markets
2,500
3,000
before this cycle and are really creating brand new urban villages, such as Ballard, South Lake Union and Downtown Bellevue. This suggests that an
2,500 2,000
analysis of oversupply must be conducted at the submarket or even micro-market level.
2,000 1,500
1,500
1,000
1,000
500 500
0 0
projected new supply over 20 years
Bellevue West
bellevue west
Bellevue West Bellevue East
bellevue east
18,000 9,000
9,000
16,000 8,000
8,000
14,000 7,000
7,000
12,000
6,000
6,000
10,000
5,000 5,000
8,000
4,000 4,000
6,000
3,000 3,000
4,000
2,000 2,000
2,000
1,000 1,000
0 0 0
245% increase over 20 years. 20 years ago, no one lived in downtown Bellevue. 1% increase over 20 years. With the condo conversions that took place in the last
That is changing this cycle and dramatically. Urban living in Bellevue is all new and cycle and the lack of developable land, rental supply in Bellevue east of 405 has been
welcome. essentially flat.
Puget Sound
Puget Sound
PUGET SOUND Belltown, downtown, south Lk. Union
belltown, Downtown, S. lake union
Belltown, Downtown, S. Lk. Union
300,000
300,000 16,000
16,000
250,000 14,000
14,000
250,000
12,000
12,000
200,000
200,000 10,000
10,000
150,000
150,000 Puget Sound
Puget Sound 8,000
8,000 Belltown, Downtown, S. S. Lk. Union
Belltown, Downtown, Lk. Union
300,000
300,000
100,000 6,000
6,000
16,000
16,000
100,000
4,000
4,000
14,000
14,000
250,000
250,000
50,000
50,000 2,000
2,000
12,000
12,000
200,000 0
200,000
0 10,000 0
0
10,000
150,000
150,000 8,0008,000
100,000
100,000 6,0006,000
32% increase over 20 years (avg 1.5%/yr). The region will take this cycle’s new sup- 4,000 increase over 20 years. Downtown highrises and rentals
280% in South Lake Union
50,000 stride.
ply50,000
in
West Seattle
West Seattle 4,000 Ballard
Ballard
are 2,000 phenomena resulting in two essentially new markets.
new
2,000
5,000
5,000 0 0 4,000
4,000 0 0
4,500
4,500 3,500
3,500
4,000
4,000 3,000
3,000
3,500
3,500
3,000
3,000 2,500
2,500
2,500
2,500 West Seattle
West Seattle
west seattle 2,000
2,000 Ballard
Ballard
ballard
2,000
2,000 5,000 1,500
1,500 4,000
5,000 4,000
1,500
1,500 4,500
4,500 1,000
1,000 3,500
3,500
1,000
1,000 4,000
4,000 500
500 3,000
500
500 3,500 3,000
3,500
0
0 3,000 2,500 0
0 2,500
3,000
2,500 2,500 2,000 2,000
2,000 2,000 1,500 1,500
1,500 1,500
1,000 1,000 Bellevue West
Bellevue West 1,000 1,000 Bellevue East
Bellevue East
500 500 500 500
18,000
18,000 9,000
9,000
0 0 0 0
16,000
16,000 8,000
8,000
14,000
14,000 7,000
7,000
12,000
12,000 6,000
6,000
10,000 increase
87% over 20 years. Rental housing development has hit its stride in this 5,000 increase over 20 years. With only 1,000 rental units in Ballard just a few years
243%
10,000
8,000 but it is
cycle, Bellevue West
Bellevue West
not especially outsized in West Seattle.
5,000 Bellevue East
Bellevue East
4,000 Ballard is clearly creating a brand new urban village.
back,
8,000 4,000
18,00018,000
6,000
6,000 3,000 9,000
9,000
3,000
16,00016,000
4,000
4,000 2,000 8,000
8,000
2,000
14,00014,000
2,000
2,000 1,000 7,000
7,000
1,000
12,000 0
012,000 6,000 0
0 6,000
10,00010,000 5,000 5,000 Colliers International | p. 5
8,0008,000 4,000 4,000
6. research & forecast report | Q4 2012 | MultiFamily
When
With demand as high as it is, when might oversupply become a concern? Regionally, we are quite comfortable with 4.7% vacancy at the tri-county level, 4.2%
in King County and 3.3% in Seattle. As far as predictions, we agree with Dupre+Scott. We expect to see an upward trend in vacancy starting around Q2 2014,
peaking from Q4 2014 through Q1 2015 and then trending down again.
Interestingly, Dupre+Scott forecasts no rent decreases in this period, with rent growth merely slowing for the period between Q4 2014 to Q1 2015. Conces-
sions are predicted to peak just below 2.5% in Q1 2015, steadily declining thereafter as owners work through lease-up to stabilization.
Who
The shift in demand we spoke of before is being affected by “Generation Y”, born 1982 to the early 2000’s. A lot of the new supply is designed to attract
this demographic, and the tremendous growth of this market will have impact the degree of oversupply. In the Puget Sound region alone, 60,000 to 100,000
Gen Y’ers will enter the region’s housing market between 2012 and 2016.
Gen y (number of people 20-34 years old; tri-county)
900,000
850,000
Population 20-34 years old
800,000
750,000
700,000
650,000
600,000
1984
1988
1992
1996
2000
2004
2008
2012
2016
Source: Dupre+Scott
Gen Y’s desire for an urban lifestyle translates to apartments; at least until “condo” is no longer a dirty word (we will discuss that in our next report). Baby
Boomers are also flocking to the cities in increasing numbers. Then comes the question of affordability. Dupre+Scott reports that in the current environ-
ment, it could be up to 40% cheaper to own a median-price condo versus rent the average two-bedroom, two-bath apartment in King County. Conway
Pedersen cites that housing affordability is now at a five-year high. A contrary report by Interest.com concludes that Seattle is the 17th least affordable
market in US even though the Seattle area has the fifth highest median household income in the nation at $64,025.
Colliers International | p. 6
7. EVERETT
Snohmish County Top Employers
> The Boeing Company > Zumiez
> Naval Station Everett > Aviation Technical Services SNOHOMISH
> Providence Regional Medical Center > Rinker Materials NW
> Premera Blue Cross > Fluke Corp
> Tulalip Tribes > Intermec
MILL CREEK
> Philips Medical Systems
MONROE
LYNNWOOD
Snohomish County
EDMONDS
Greater Seattle Top Employers
> University of Washington > Starbucks Corp
> Amazon.com > Perkins Coie
BOTHELL WOODINVILLE
> King County Government > Expeditors International
> Group Health Cooperative > Real Networks Inc
> Nordstrom Inc > Bill & Melinda Gates Foundation
> Swedish Medical Center > Russell Investments Eastside
Greater Seattle REDMOND
Eastside Top Employers
> Microsoft > Symetra Financial
> Nintendo > Data I/O Corp
SEATTLE BELLEVUE > Costco Wholesale > Concur Technologies
> Expedia Inc > Clearwire Corp
> Esterline Technologies > Google
ISSAQUAH
RENTON
BURIEN TUKWILA
SEATAC
Southend
KENT
GIG HARBOR
Southend Top Employers
FEDERAL WAY > The Boeing Company > Paccar Inc / Kenworth
AUBURN
> Port of Seattle > Alaska Air Group
> Providence Health > IKEA
> Valley Medical Center > REI
> Weyerhaeuser > Mikron Industries
TACOMA
Pierce County
PUYALLUP
8. research & forecast report | Q4 2012 | MultiFamily
Vacancy Cap Rates Construction Rents
2012
Greater Seattle 2013
• Averagerents in the Greater Seattle submarket are up 6.5% year Greater Seattle Average Rent
greater seattle average rent
over year to $1,248. Greater Seattle has the lowest average $1,300 $1,450
vacancy in the region at 3.16%. Average rents have remained $1,250 $1,400
below 4% since Q3 2010. $1,200 $1,350
• Seattle
ranked 7th in the nation for private-sector job growth in $1,150 $1,300
2012. The city has added 49,100 private-sector jobs between $1,100 $1,250
October 2011 to October 2012. (Puget Sound Business Journal, $1,050 $1,200
12/14/12) $1,000 $1,150
• Seattle’srecovery is outpacing much of the U.S., according to $950 $1,100
Matthew Gardner with Gardner Economics, Seattle is second only $900 $1,050
Q3 07
Q1 08
Q3 08
Q1 09
Q3 09
Q1 10
Q3 10
Q1 11
Q3 11
Q1 12
Q3 12
to Silicon Valley as the strongest market on the West Coast.
(Seattle Daily Journal of Commerce, 12/13/12)
• Ina recent report conducted by PayScale Inc., Seattle ranked No. 1
Snohomish County Avg Rent
for Generation Y workers (ages 18 to 29), because of its strong
wage growth and abundance of tech firms. (Puget Sound Business
$1,050 Gr Seattle Market Vacancy
greater seattle market vacancy
$1,000
Journal, 8/21/12) 8.00%
$1,000 8.0%
$950
Snoho Southend
• According to a recent study by the Bay Area Council Economic 7.00% 7.0%
1200 1000
Institute, Washington has the highest concentration of technology $950
6.00% $900
6.0%
jobs in the U.S., more than double the national average at 11.4%.
1000
800 5.00% 5.0%
$900 $850
Each high-tech job has a multiplier of four more jobs. (Geekwire. 4.00% 4.0%
800
com 12/7/12) 600 3.00%
$850 3.0%
$800
600
• Technology’s
impact in Seattle continues to manifest itself in the 2.00% 2.0%
400 $800 $750
South Lake Union submarket where Amazon’s growth has
400
1.00% 1.0%
Q3 07
Q1 08
Q3 08
Q3 04 Q1 09
Q3 05 Q3 09
Q3 06 Q1 10
Q3 10
Q1 11
Q3 11
Q1 12
Q3 12 Q3 12
spawned activity in office, retail and residential. 0.00% 0.0%
200
Q3 00
Q3 01
Q3 02
Q3 03
Q3 07
Q3 08
Q3 09
Q3 10
Q3 11
200
0 0
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
Snohomish Co Market Vacancy
Completed Under Construction Planned Completed Under Construction Planned
10.00% 9.0%
Eastside 9.00% greater
Seattle seattle market development 8.0%
2,500 9,000 8.00% 7.0%
8,000 7.00% 6.0%
2,000 6.00%
7,000 5.0%
5.00%
6,000 4.0%
4.00%
1,500 3.0%
5,000 3.00%
4,000 2.00% 2.0%
1,000 1.0%
3,000 1.00%
0.00% 0.0%
500 2,000
Q3 02
Q3 00
Q3 01
Q3 03
Q3 04
Q3 05
Q3 06
Q3 07
Q3 08
Q3 09
Q3 10
Q3 11
Q3 12
1,000
0 0
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
Completed Under Construction Planned Completed Under Construction Planned
Colliers International | p. 8