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Sit down & hold on
Published April 11, 2014
We were very disappointed by the Academy of Country Music Awards show last Sunday. What a whipsaw year so far. First we were thrilled when four of the nine movies nominated for best picture at the Oscars were specifically about apartment trends in the Puget Sound region. But it was a huge letdown when we saw that none of the country music nominations had anything to do with apartments. Even worse, Toby Keith wasn’t even nominated for his brilliant discussion about Seattle development trends in his song.
We try to keep these videos short, but they still take a few minutes. Amazingly, Toby explained Seattle’s apartment development activity in just nine small words: Get in, sit down, shut up, and hold on. You don’t have to shut up, but I suggest you sit down and hold on when you look at these next set of charts.
Apartment units added each year
The ten year period from 2009 through 2018 will see an all time record level of apartment production in Seattle. There were 47,000 units in 20-unit and larger market-rate apartments in the city at the end of 2008. By 2018 there will be 84,000 units. That is if everything developers are working on right now gets built. Some projects will get shelved and some will get delayed. But right now it seems like developers pick up new sites almost weekly, so we expect any shortfall will get back-filled.
Why is this surge of development happening in Seattle? There are a lot of reasons for it, but a few stand out. First, there's demographics; the surge of millennials into the workforce and housing and the doubling of the Geezer effe3ct. We have talked about both of those trends a lot in the past, so we won't dwell on them here.
Another factor is the shift we've seen from home ownership to rental. This trend won;t go on forever. But while it continues, it has a significant impact on rental demand.
Seattle versus the region
Another reason why development in Seattle has skyrocketed is a consumer shift from suburban to urban locations. This is happening for a lot of reasons and is certainly being fueled by preferences from millennials. The point is that it is happening.
Urban development dominated regional apartment activity until the end of the 1950s. Then suburban development ruled, beginning in the mid-1960s. But, for the most part, development activity shifted away from suburbia in the past year or two, focusing on urban locations. That's particularly true in seattle, but it is also true elsewhere in the region.
It's not that suburban development is not taking place. It is. And based on our spring rent and vacancy survey results, a lot of consumers want that product. There's just a lot less of it compared to activity in seattle.
We divide Seattle into 14 neighborhoods. Development activity is significant in 12 of them. Only Beacon Hill and the Madison Park/Leschi neighborhoods are experiencing little or no development. And, as these two charts show, the number of units being added, relative to the existing stock is significant, both in total numbers of units as well as percentage increase in the rental stock in each neighborhood
Parking and unit sizes
Not only is there more development than we've ever seen, the product is changing. We have talked about parking ratios shrinking and unit sizes getting smaller, so we'll just show the trends in the following charts rather than dwell on these topics again.
But here are a couple of other trends worth noting. Part of the reason unit sizes are getting smaller is because developers are putting fewer bedrooms into new projects. There are fewer 1, 2, and 3 bedroom units as a percentage of the total units being built compared to historical trends. That means there are more studios. On top of that, developers are figuring out how to use space more efficiently, so they can trim the size of each unit type. So not only are there fewer 1 bedroom apartments, the new 1 bedroom apartments are smaller.
New construction costs more to build almost every year and rents are higher. no shocking revelation there. This chart shows the distribution of rents in the older, existing stock of apartment compared to new construction. Most of the older units rent for less than $1,300 a month while new construction essentially starts at $1,300.
The slide show below contains the charts from this week's video.
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More video articles
Be sure to check back next week for a new video and discussion of current apartment trends for the Puget Sound region. Here are some other recent articles you may find interesting:
Editor's note: This is the complete article.
Today's subscriber comment
October 22, 2014
Alan Dooley: "Dupre + Scott principals are very thoughtful and diligent researchers. As investors throughout the country, it is rare to find a service as comprehensive as that of Dupre + Scott. It is also very reassuring when spending tens of millions of dollars to have the benefit of their research which covers decades worth of trends. There are very few markets in the U.S. that are as well covered as Seattle from an apartment researchers perspective." (Alan is Senior Vice President of Heitman in Chicago.)