Still Good Times For Seattle Multifamily, But Challenges Loom
Seattle multifamily is evolving into two markets: the upper end and everything else. The dynamics of the two are quite different, the speakers at our Seattle Multifamily event said. At the upper end, there's a risk of too much product and the challenges of an amenities arms race. For everything else, there's the challenge of simply getting enough product out of the ground in an expensive, regulation-happy market like Seattle.
Our rental market experts included Hunt Mortgage Group VP Jeffrey Ballaine, Thrive Communities president Gary Blakeslee, Bumgardner principal Mark Simpson, and Wallace Properties president and COO Kevin Wallace. Colliers International VP Dylan Simon moderated.
In some ways, the Seattle apartment market is a victim of its own success. These are good times for high-end apartment owners and developers, since the Seattle economy is supporting high-end job growth. That probably won't change. Lower-end properties are another matter. It's much more expensive to develop apartments in Seattle than it used to be, even 10 years ago, so the outlook for less expensive apartments is that there simply won't be enough of them to meet demand.
One challenge at the higher end is an amenities arms race, our speakers said. High-end apartment dwellers want (and demand) more amenities than ever before, putting pressure on developers, and then owners, to come up with the next big thing or risk losing tenants.
Another rental trend: Seattle's slowly becoming a high-rise town. Slowly, because some places are resisting it, but the transition is happening in some submarkets as developers plan the buildings and renters are accepting the trend. One reason is that there's an influx of renters into Seattle from other parts of the country and the world—places where high-rise living is accepted as the norm. Expect higher residential properties in Seattle in the future, our speakers said.
Our condo market speakers included Ankrom Moisan Architects president Dave Heater, Lowe Enterprises Real Estate Group SVP Suzi Morris, UW Runstad Center for Real Estate Studies director Peter Orser and Polaris Pacific partner Paul Zeger. Paragon Real Estate Advisors founder David Meissner moderated.
The basic question now about the condo market is, why are there so few condos being developed in Seattle? That's generally true on the West Coast, and our speakers cited a number of reasons. The specter of litigation, for one thing. The law as it stands now encourages litigation, which has increased the risk of simply putting your name on a building.
Not all of the speakers thought that was the most important factor in sluggish condo development. The current mindset of debt and equity investors still favors rental apartment development, which is a legacy of the post-recession years when apartments simply made a lot more sense, especially for banks that needed to make real estate loans.
Related to that is risk. Why risk that a downturn could come along and make it impossible to sell your condos? Certainly that happened during the last recession. An apartment at least provides some cash flow even in down times.
Both condo and rental speakers emphasized the importance of amenities to the success of multifamily properties. Not just amenities in the traditional sense, but the broader picture of the life of the neighborhood near the building. Seattle is fortunate in having a number of lively, interesting neighborhoods for renters and condo owners to call home.
One thing that's still uncertain is whether Millennials have traded the goal of suburban living for permanent urban life, even as they begin parenthood.
One line of thinking is that they too will want the yard and the neighborhood school as their children get older, and that will impact urban core apartment properties. The other line of thinking is that more new parents than ever will decide that urban living is for them, and stay in the city. Urban dwellers in many parts of the world make it work, why not here?