Tight spaces

You know Boeing has had several years of layoffs. You've heard some local dot.coms are dot.gones. You also may have gotten the word that the economy is slowing, that fewer new jobs are being created and thus fewer people are moving to Puget Sound.

But here's one you probably didn't expect:

Contrary to logic, none of this has made apartments more available- despite the addition of thousands of new rental units regionwide.

In fact, regional apartment vacancies are now at their lowest point in three years, according to the fall rent rate/vacancy report from Dupre+Scott Apartment Advisors.

The firm, headed by Mike Scott and Patty Dupre, semiannually canvases managers of buildings with 20 or more apartments; their just-released report reflects what's happening at 170,000 units throughout King, Pierce, Snohomish, Kitsap, Thurston, Skagit and Whatcom counties.

Vacancies in the region have dropped steadily over the last year, standing now at 3.8 percent overall. Six months ago it was 4.1 percent; a year ago, 4.6 percent.

What's more, the regional vacancy rate hasn't been above 5 percent - considered the neutral point, where the market favors landlords and tenants equally - since early 1996.

"We continue to be surprised by low vacancy rates," says Dupre. "We would have thought rates to be higher because job growth has slowed so much. Generally job growth is what causes a lot of in-migration to the area, and in-migration in turn creates greater need for housing."

Dupre and Scott also found that apartments are vacant just shy of two weeks between tenants. "It's only the third time we've reported such fast turnover in the past decade," Scott notes. "On top of that, the rate of turnover remains at near-record low levels, particularly for the time of year."

Shawn Hoban, whose firm, Coast Management, oversees 5,000 Puget Sound apartments, says he, too, is surprised by apartment demand. However, he theorizes vacancies haven't increased because "even though the economy is slowing, people are still employed" and those that have seen their jobs end have found other work.

"They've not had to move out of the area," Hoban says. "I believe there's still a pretty strong demand for housing due to that."

Dupre+Scott's latest report also reveals another contrary trend: Despite the fact that vacancies have shrunk, the rate of rent increases has slowed.

This time last year, the region was showing an annual rent change of just under 6 percent. This fall, the annually computed regional change is hovering at 5 percent.

In dollar terms, however, overall rents are significant. Of King County's 36 neighborhoods, 17 have average rents of $800 or more - and this is combining all size units, from studios to three bedrooms. Some 14 of them have seen an average rent increase of $50 or more in the last year.

Moreover, only four neighborhoods have average rents under $650 and just one - Burien - reported no increase in average rents.

Dupre+Scott have also figured annual compounded rent increases over the last five years by neighborhood, thus allowing renters to see which areas are bargains and which are not.

(However, true comparisons can be tricky because some neighborhoods, like Belltown, have seen considerable new construction, which results in higher average rents.)

Among the surprises: Two of Seattle's desirable areas - Ballard and Madison/Leschi - actually stack up as "bargain areas," at least in terms of annual compounded rent increases. Both have had annual compounded increases of 4.2 percent.

Conversely, Mercer Island, which has experienced scant new construction, posts the county's highest annual increase - 11.4 percent. But Dupre says Mercer Island has so few apartments that the multimillion dollar renovation of that city's one large complex, and the rising rents that accompanied it, have driven up the numbers.

The Allied Group's Greg Anderson views apartment-rent increases as simply a microcosm of what's happening to housing costs in general.

"Ten years ago, you were seeing, on a per-unit basis, $1,500 in expenses annually," says Anderson, whose firm manages 6,000 Puget Sound area apartments. "Nowadays, expenses are well over $3,000 a unit, and I don't know that rents have doubled."

He chalks the increase up to "fixed expenses which we don't control: taxes, utilities and insurance. I had trash rates go up 61 percent one year in Auburn. Then there are salaries, repairs, maintenance and advertising. Those (costs) mirror the economy."

Like Anderson, rental manager Sherry Zane, of Phillips Real Estate, is concerned that increased costs will continue to put pressure on rents. Phillips manages 3,500 units around the region.

"I'm expecting utility rates to go up so much I don't know that it's going to be palatable to tenants to raise rents that much," Zane says. She thinks renters may find it more agreeable to be given lesser rent increases and, in return, pay their own water and sewer bills. In other words, what many larger landlords are already doing.

Within a few years, Anderson thinks renters will also be paying their own garbage bills, too.

Also on the horizon, predicts Hoban, will be even greater apartment demand.

"There's still a significant number of new units coming online over the next 12 months, but the pipeline is drying up after that," he says. "If jobs continue to grow or stay neutral - and it appears Boeing may come back strong in terms of employment - we could see a significant increase in rental demand."