Seattle Multi Family - 1/4th of all apartments are sitting empty

9 Replies

Wow! So, multi-family is where it's at, eh?


Seattle renters score big as landlords dangle freebies to fill empty apartments

Originally published June 25, 2018 at 6:00 am Updated June 25, 2018 at 9:48 am

"As new apartments open across the city in record numbers, vacancy rates have grown, rents have stopped rising and landlords are offering an increasing number of freebies to get tenants in the door.

For years, the Seattle rental market was so heated that renters would constantly monitor online listings and quickly show up to available apartments with checkbooks and references in hand. For many apartments, they’d have to fill out applications on the spot and cross their fingers.

Those days are over. A glut of new apartments washing over the city has quickly turned the tables as vacancy rates hit their highest levels since the recession, led by downtown Seattle, where one-fourth of all apartments are now sitting empty.

Landlords who are increasingly hard-pressed to fill their open apartments are offering deals like a free month’s rent, lucrative gift cards and even free electronics."

That sounds scary for investors in that area. Twenty five percent vacancy is significant. Although sounds like that number is largely due to buildings just finishing construction. 

Yes, it would be, except the post is misleading.  The key is 1/4 of apartments in DOWNTOWN Seattle, which is only a fraction of the market and where new construction has concentrated.  Overall the market continues to to have 94-95% occupancy, although that is down percentage point or so from last year.  

My non-expert opinion,  or perhaps just rationalizing to myself:

These are primarily the "luxury" amazon dormitories being built in downtown and south lake union areas that are having vacancy issues, and thats in large part just because of how many are coming online, and how many thousands more are still in the pipeline, coupled with modest slowdowns in tech hiring. These are apartments with asking market rates around $2000 for 1bds, and going waaay up from there. There is and will continue to be ripple effect throughout other new construction apartments around seattle, but if you are in a different market segment (older / more affordable apartments, non-core neighborhoods, or SFR's as are I suspect most investors on this forum) I'm guessing it won't make too much difference. We might just be looking at a "normal" market instead of a crazy hot market. Those new and expensive units will be the first ones people leave for something cheaper if they need to save money or for a bigger/better home and neighborhood, depending on the individuals needs. The large corps / institutional investors behind those buildings don't have flexibility on price due to their construction costs, while anybody who has held a building for even 5 years around here can if necessary reduce rents a bit to keep things occupied if necessary and stay in the black. Not everybody wants to live in highly urban environment where most of these units are, and a lot of people who are living in those units already are doing so because they moved to the area recently for a job, and/or could not find anything else close in. Many of those residents will trickle out to other neighborhoods over time. I know a couple people living in those newer buildings who did or are talking about doing just that.

I agree that this doesn't reflect the overall Seattle market. I've had no vacancy issues in the previous three years of owning property in Seattle and the surrounding area (though they are single family homes) and multiple applicants to showings. Just last month I rented our new place in Mountlake terrace and there were many applicants who were saying how hard it is to find a place... sure, expensive downtown apartments is a different market but if you own anything else you're not going to have a hard time finding renters. 

Similar discussion about Manhattan on npr yesterday.
Over construction of apartments
Larger vacancy and inventory for sale
5% price drop already in effect

I think we are starting to see the beginnings of at least a correction or an inflexion point in certain markets.

Nevermind that median price in Manhattan is still 2.1 M

As somebody pointed out, this is going to be happening in the very specific markets and is actually a side effect of the hot sfh real estate market. As property values have increased, people have bought rather than renting, making smaller pools of renters.
Also as rents sky rocketed in those posh areas such as downtown Seattle, people adjusted and probably rented further away.
Finally many projects are planned two to three years ahead, so when inventory comes online there can be a glut.

This will probably affect the larger commercial rental properties. The smaller multi family 2-5 units are probably also having harder times with rent and vacancy and could be negative cash flow in those markets like LA SF SEA BOS NYC but their property has appreciated so much they still feel good

2-5 units in seattle if they have been bought in the last couple years,   then yes it is likely a very high per unit price was paid.   A couple months ago I was looking at a triplex that came up for sale in a close suburb,   long story short despite suffering from long term poor management, needing substantial exterior repairs, and having damage and 2 vacant and gutted units left over from tenants-from-hell it ended up selling to somebody else for 30% over asking,  needing another 20% of the asking price (at least) in repairs.   The new buyers were either shifting lots cash from some place else and were not worried about returns vs. asking price,   or are expecting to get around $2K per unit in a seattle suburb.   If its the latter,   The building has great location and potential,  but they may be in trouble if things soften up.  

However anybody who has held a smaller building in seattle area for more than a few years is probably in a very good place. The biggest risk around it in Seattle right now is the city council and their push for more rental regulations, with several influential council member's stated ultimate goal being rent control. That said, council has been fairly quiet lately on rental issues, perhaps because they were all focused on the seattle head tax debacle, and also I think they are starting realize it wasn't just threats as they see a lot of smaller owners selling. In any case, one argument FOR holding onto smaller apartment properties in seattle is that townhouse redevelopment, which requires the same zoning as small multifamily causes a lot of SFR and smaller apartments to be lost to redevelopment, so this class of neighborhood scale and typically comparatively affordable housing is going to get harder to come by, and presumably in higher demand as a result.

Everything Seattle proper does wrong inures to all of our benefit here in the burbs, so Ms. Sawant, please keep it up!  Properties in Norkirk, Clyde Hill, Bothell, Woodinville they’re growing double digits!