Apartment developers bypass suburbs, target Seattle
More new apartments will come on the market in King and Snohomish counties in 2013 than in any year since 1991, one researcher projects. This apartment boom, however, is different from those that preceded it. This time it's focused almost entirely on Seattle. Developers, for the most part, are bypassing the suburbs.
By Eric Pryne
Seattle Times business reporter
Three giant cranes — one red, two yellow — have taken up residence along a one-mile stretch of Seattle's Madison Street over the past six months.
Beneath each one a new apartment complex is taking shape. Together, they'll contain more than 470 units.
Apartment development is a cyclical business, and right now it's on a big upswing in the Seattle area.
More new apartments will come on the market in King and Snohomish counties in 2013 than in any year since 1991, one researcher projects.
This apartment boom, however, is different from those that preceded it.
This time it's focused almost entirely on Seattle. Developers, for the most part, are bypassing the suburbs.
The city accounts for 85 percent of all the apartments under construction — and 90 percent of all units in the pipeline — in King and Snohomish counties, says Tom Cain, president of research firm Apartment Insights Washington.
Most of those projects are in Seattle's close-in, highest-density neighborhoods. It's unprecedented, Cain says.
Another research firm, Dupre + Scott Apartment Advisors, measures a bit differently but reaches the same conclusion: It projects 85 percent of the unsubsidized units to be finished in the two counties between 2012 and 2015 will be built in Seattle.
In contrast, between 1996 and 2010, the city accounted for just 43 percent of the region's new apartments.
"It's a huge shift," says principal Mike Scott.
Sudden rebound
More than 3,000 apartment units are under construction in Seattle.
Developers began racing to get new apartments out of the ground here and elsewhere after the apartment industry suddenly rebounded a year ago.
Vacancy rates, which had been rising, started to fall. Rents, which had been slipping, began climbing again.
Observers attributed the turnaround to a host of influences: foreclosed homeowners re-entering the rental market; an economic recovery that was sufficiently strong to allow some young adults to finally move into their own places; and growing disillusionment with homeownership.
Thanks to the recession, however, there was little new supply on the horizon to meet this surge in demand: In King and Snohomish counties, 2011 is shaping up as the worst year for new-project completions since at least 2004.
Now apartment developers are rushing to fill that gap, inspired in part by projections that growing demand will continue to push rents up — perhaps another 25 percent by 2015, Scott projects.
In the Greater Seattle market, economic, demographic and political forces are combining to draw those developers to the city rather than outlying areas.
Since April, Vancouver, Wash.-based Holland Partner Group has broken ground on two projects — one on First Hill, the other in South Lake Union — with a total of more than 500 apartments. It hopes to start building another 102-unit South Lake Union complex before the end of the year.
"The big driver is jobs," says Tom Parsons, who heads Holland's Pacific Northwest development team, "and a lot of the new jobs are downtown" — Amazon.com, the Gates Foundation, tech and biotech companies.
With traffic still a headache, living close to work — perhaps without a car — should appeal to many, Parsons says.
Then there's the big "echo boom" generation, people in their 20s and early 30s just entering the housing market.
People that age have always mostly been renters, Scott of Dupre + Scott says — "It's just that there's more of them now... . It's the biggest surge of young people we've seen since the baby boom."
They're even more inclined than their predecessors to rent rather than buy, many observers say — in part because the real-estate bust has made them wary, in part because renting gives them more flexibility to go where the jobs are.
And when they choose an apartment, "they want to be in the city," Parsons says. "They want to be where the action is."
Many developers are building smaller, comparatively affordable units to accommodate them.
The echo boomers will accept less space if it's in the right neighborhood, builders say.
The local portfolio of AvalonBay Communities, one of the nation's biggest apartment developers, consists almost entirely of Eastside and Snohomish County complexes. Now, however, it's building a 204-unit project on Lower Queen Anne.
A 272-unit project by Avalon in Ballard is scheduled to break ground in the fall, followed by a 385-unit University District complex next year.
Policies paved way
Brian Fritz, who heads the company's local development office, says city policies, including recent zoning changes, have paved the way for such large projects and helped lure developers.
"They're not just embracing density," he says of city officials. "They're promoting it."
Proposed apartment projects also tend to pencil out better in Seattle, Fritz says, because rents are higher in the city.
The average apartment in King and Snohomish counties rented for $1,072 this spring, according to Apartment Insights Washington.
In downtown, Belltown and South Lake Union, in contrast, the average rent was $1,464. It topped $1,200 on First Hill, Capitol Hill, Queen Anne and the near North End.
Close-in Seattle neighborhoods also had the region's lowest vacancy rates — 3.5 percent on First Hill, for instance, compared with 4.7 percent regionwide.
All those numbers matter to investors and lenders when they're deciding where to put their development dollars, says Apartment Insights' Cain.
What's more, "there's always a perception of lower [financial] risk when you're close in," says Tracy Edgers, a Wells Fargo Bank senior vice president who heads its Seattle real-estate banking group.
Apartments are more numerous and better established in the city than many suburbs, he says: "I can assess the market a lot better."
Equity funds have raised billions to invest in real-estate development, says Seattle land-use economist Matthew Gardner, and for now apartments — especially in-city apartments with higher projected rents — offer the healthiest potential returns.
Office vacancy rates, while declining, remain relatively high. With many recently built condos still unsold, it will be years before another project is built, Gardner predicts.
"Apartments, in my opinion, are the only feasible development form for now," he says, "and the city of Seattle has a lot going for it."
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