Apartment Rents Are Rising, While Vacancy Rates Head Down
After rising at less than the rate of inflation for the past few years, regional apartment rents have topped it slightly, rising an average of 3 percent in the last year in general and jumping a significant 4.5 percent on the Eastside.
At the same time, vacancy rates in King, Snohomish and Pierce county apartments are down to 5.4 percent from last year's 6 percent - the lowest vacancy level since late 1993, according to Mike Scott, president of Dupre+Scott Apartment Advisors Inc.
And the situation is likely to continue.
"I'd anticipate we'll see vacancies continue to slide between now and fall and therefore rents to be higher by fall," says Scott, who recently released his firm's semi-annual apartment vacancy and rent report. It compiles information reported by companies managing buildings with 20 or more units. Data is broken down by geographic location.
Overall, King County's average rent is $619, up from $600 six months ago.
The county's highest average rents (factoring in all sizes of apartments) are on the Eastside: $895 in Kirkland and $849 in West Bellevue. However, the highest actual rent is in downtown Seattle, where the average monthly tab for a three-bedroom, two-bath unit is $2,092.
Still relative bargains are the Rainier Valley, with an average of $473, and the Sea-Tac Airport area at $489.
Rising rents and falling vacancies are a result of several factors. One is the number of renter households.
"In the past six months we've added nearly 3,000 new renter households to King, Pierce and Snohomish counties, which is phenomenal," says Scott. By comparison, he estimates new renter households grew by less than 1,000 annually from 1992 until recently.
Scott credits public confidence in the economy and job growth for this increase, noting that when the economy is shaky people tend to double up on housing and adult children stay at home.
Another ingredient is the low volume of new construction. A little fewer than 3,000 new rental units have been added annually since 1992 - vs. 10,000-15,000 annually in the late 1980s. "Part of the construction shift has been to condos," Scott notes.
Ward McLain, president of the Northwest region for Pinnacle Realty Management, says that in the Seattle and Eastside core markets he doesn't see any immediate relief for tight vacancies.
While a couple of new rentals are opening in downtown Seattle, McLain says those gains will be wiped out by apartments converting to condominiums.
On the Eastside, "a lot of the new construction is for-sale product, and there's also what we in the development community call constraints to development," McLain observes. "Projects take almost three years from concept to opening. People saw this market strength a year ago, but it's probably going to be another year before we see much new come on the market."
Certainly rents are rising because of demand. But they're also "going up quite aggressively right now," says property owner Paul McTaggart of DARCO Inc., because the last several years, between property taxes, utilities and expenses all going up, "we've been getting squeezed."
According to Scott, apartment operating expenses have increased an average of 3.5 percent annually since 1992, while rents have gone up an average of 2.2 percent annually. In the last year, consumer prices have increased 2.7 percent.
The rent increases "aren't even profit for a lot of these people (landlords)," adds Walt Smith, vice president of HSC Real Estate, a property-management firm. "It's digging out of debt. A lot of them, if they're able to see a rent increase, will provide better service."
When Scott surveyed apartment managers, he found 72 percent in King County are expecting their rents to increase in the next six months, with the average being 2.4 percent. In Snohomish County 53 percent are predicting increases (up 1.4 percent), as are 37 percent in Pierce (up 1.4 percent), 49 percent in Thurston (up 1.5 percent) and 30 percent in Kitsap County (up 0.7 percent).
Within King County, projected increases are very geographic. In Madison/Leschi, Magnolia and Mercer Island, 100 percent of managers expect to raise rents, as do 90 percent in Issaquah and 82 percent in Ballard.
On the other hand, Factoria managers say their rents might actually decrease overall, a possibility in Federal Way and Kent as well.
Scott also found fewer apartment managers offering new renters concessions such as half off the first month's rent. But this, again, is highly geographic.
"From a renter's standpoint, it's definitely more of a landlord's market," says McLain. "You're not going to see concessions and incentives; those have all but evaporated Eastside and downtown."
However Smith, of HSC, notes there are "pockets of softness" where vacancy rates are above the 5 percent mark that landlords consider ideal. They exist in parts of Snohomish County, plus South King County. "There still are concessions in both those markets," Smith says.
But other areas, like Queen Anne, Green Lake, Madison Park and parts of Bellevue, have more than enough potential renters.
The demand on Queen Anne "is particularly high," notes Heidi Turner, a property manager for DARCO. She credits improved retail there with "really upgrading the area" and generating waiting lists, particularly for one-bedrooms.
As a result of rising rents and shrinking vacancies, many tenants are staying put, McTaggart adds. "What happens is, people go look for apartments and see rents, and say, `Oh, I've got a good deal where I am.' That tends to keep people where they are."
Apartment managers also predict the recent jump in mortgage interest rates will keep some renters in apartments, adding pressure to already low vacancy rates in high-demand areas.
"My advice to the renter is to get in and lock rental rates now, because there's a strong likelihood that both the Eastside and downtown markets will see a minimum of 4 percent growth (in rents)," McLain predicts.
----------------------------------------- SPRING APARTMENT VACANCY/RENT RATE REPORT -----------------------------------------
Here's a look at selected vacancy rates and average rents by neighborhoods, based on a recent survey of apartment managers by Dupre+Scott Apartment Advisors Inc. More than 165,000 rental units are represented in this survey.
Area Vacancy (%) 1 bedroom 2 bedroom/1 bath --------------------------------------------------------------------- North King County Ballard 1.2 517 634 . Green Lake/Wallingford 0.9 584 706 . North King County 4.1 537 640 . North Seattle 2.8 526 623 . University 2.0 557 700 .
Central King County Capitol Hill/Eastlake 2.1 599 750 . Central 3.8 582 767 . Downtown Seattle 3.9 756 900 . First Hill 2.5 585 757 . Madison Park/Leschi 0.9 693 1,027 . Magnolia 2.8 635 824 . Queen Anne 1.9 666 836 .
East King County Bellevue-East 3.0 571 655 . Bellevue-West 2.1 727 799 . Bothell 4.7 542 649 . Factoria 3.3 639 751 . Issaquah 3.9 641 703 . Juanita 2.7 593 682 . Kirkland 3.9 673 760 . Mercer Island 1.0 639 774 . Redmond 3.8 655 722 . Woodinville/Totem Lake 4.3 591 671 .
South King County Sea-Tac Airport area 8.1 429 535 . Beacon Hill 4.0 493 711 . Burien 5.1 467 517 . Rainier Valley 10.4 425 485 . Riverton/Tukwila 4.1 471 584 . West Seattle 1.8 550 625 . White Center 4.5 478 591 .
Southeast King County Auburn 8.5 442 544 . Des Moines 7.0 452 539 . Enumclaw 5.6 459 537 . Federal Way 6.5 481 553 . Kent 7.0 494 552 . Renton 5.0 488 566 .
Pierce County Lakewood 9.3 409 495 . North Tacoma 7.2 431 533 . Puyallup/Sumner 6.2 459 540 .
Snohomish County Central Everett 6.6 427 510 . Edmonds 3.9 482 603 . Lynnwood 4.4 494 561 . Mill Creek 5.2 560 622 . Mountlake Terrace 3.9 526 611 . Payne Field 8.0 493 559 .
Kitsap County Bremerton 7.2 456 514 . Port Orchard 9.1 476 523 . Poulsbo 6.2 459 562 .
Source: Dupre+Scott Apartment Advisors Inc.