Real Estate Indicators from HFF Director Christopher Ross.
The downtown Seattle apartment market, comprising Belltown, Capitol Hill, Eastlake, Central, First Hill, Madison, Magnolia, Queen Anne and South Lake Union, continues to surge as the current vacancy rate sits at a low 3.9 percent, according to Dupre & Scott, despite nearly 3,200 new apartment units being delivered in 2015 and an additional 4,000 new units being delivered in 2016.
The real challenge will come in 2017 and 2018 when a total of nearly 15,000 new units are expected to be delivered in the heart of downtown Seattle. New construction deliveries beyond 2018 are expected to be significantly reduced as a result of increasing construction costs and a recent pull back from construction lenders. These factors have forced developers to rethink the financial feasibility of projects either under contract or recently closed and in the process of entitlement.
Currently, demand is keeping pace with supply as major local employment drivers such as Amazon, Google, Facebook, The Bill and Melinda Gates Foundation and Microsoft continue to compete for talent and hire at a robust pace. Amazon alone currently employs approximately 25,000 in downtown Seattle and could grow to as many as 70,000 once their 10 million-plus-square-foot campus in South Lake Union is completed in the coming years.
New construction in close-in submarkets such as South Lake Union, Belltown and Capitol Hill are achieving gross rents of approximately $3.25 per square foot for mid-rise construction and nearly $4 per square foot for high-rise properties. Both of these rent levels are historical highs for their respective construction types, partly due to the quality of interior finishes, common areas and unit amenities now competing with new condominium projects.
For the next couple of years, rent growth in downtown Seattle is expected to slow from the near double-digit increases in recent years to more normalized levels as a result of new supply. However, job growth in the high paying technology sector, along with being one of the nation’s most attractive gateway cities, will continue to propel Seattle for years to come.
Article originally published in Western Real Estate Business Magazine.
Christopher Ross specializes in multi-housing investment sales in the Seattle market. Mr. Ross, who has more than 11 years of commercial real estate experience, joined HFF in 2016. Before HFF, he was a Director at Moran & Company, where he was involved in the closing of more than $2.2 billion in multi-housing sales in Washington and Oregon. Prior to that, he worked as a portfolio analyst within the asset management group at Deutsche Bank Mortgage Services.
Mr. Ross holds a bachelor’s degree in financial economics from Western Washington University. Additionally, he received a certificate in commercial real estate from the University of Washington.