No matter what source you consult, it’s impossible to deny that the Seattle real estate market is undergoing a massive transformation. The greater Seattle area is seeing a great deal of real estate development—both in multifamily and single family residences—which has been fueled in part by substantial population growth. People from around the country, and indeed all over the globe, are flocking to Seattle. Seattle’s bustling economy presents many opportunities for prudent investors.
This is particularly true in the short-term: Whether the multifamily rental market in Seattle remains strong beyond 2020 is unclear, but there is widespread agreement that this market should stay healthy at least until then. Overall, the available research provides convincing evidence that Seattle’s suburban multifamily market is a solid choice for investors. This is due to factors such as demographic trends, cultural trends, job market trends, and population growth.
Present and Future Demand in the Seattle Suburban Multifamily Market Is Healthy
According to the fall 2016 survey, the overall vacancy rate for the greater Seattle area (defined as the five counties surrounding the city of Seattle) was just 3.5 percent. This current rate is well below the 20-year average rate for the greater Seattle area, which is 4.9 percent. Not surprisingly, the highest vacancy rates were seen following the recession—vacancy rates peaked at 7.2 percent in the fall of 2009.
As an investor, you should be aware of the vacancy rates in the geographic area you are considering for investment because these rates will affect your ROI. Lower vacancy rates generally indicate a vibrant surrounding economy, a growing population, and a local culture in which renting is preferred.
The suburban rental market—i.e. the markets outside of the central King County area—shows the same indexes of health that characterize the Seattle urban rental market. Hot suburban towns on the eastside, such as Redmond, Kirkland, and Woodinville, have large multifamily construction projects underway, and average rental prices in these areas are comparable to average prices in urban areas ($1,843 average rent in central King County vs. $1,809 average rent in east King County). The suburban multifamily market on the east side will likely remain very healthy in the next several years primarily because the east side hosts several major employers, including Microsoft and Amazon.
Multifamily construction in the greater Seattle area is projected to slow down significantly by 2020. Though demand will also likely level off at that time, multifamily rental communities will continue to be attractive options for greater Seattle residents for the foreseeable future.
Multifamily Rental Market Is Being Driven by Overseas Investors and Demographics
One of the more significant—and least discussed—forces shaping demand in the greater Seattle housing market is overseas buyers and investors. In recent years, foreign real estate buyers (in particular Chinese buyers) have stepped into the Seattle market and added a new source of pressure for domestic home seekers. The effect has been that home prices have gone up and this price increase has made purchasing a home a more difficult and elusive proposition for natives in the market.
Overseas buyers were previously crowding the real estate market in Vancouver, Canada, but the city of Vancouver decided to correct this market imbalance by imposing a sizeable foreign buyer tax. This tax has created an incentive for overseas buyers to focus their attention on the Seattle real estate market. The city government of Seattle has discussed implementing a tax similar to the one recently passed in Vancouver but, so far, this has yet to be achieved. The City Council of Seattle did unanimously approved a new tax ordinance in July that will place a 2% income tax on high-income households that may take effect starting next year. Home purchases by foreign buyers have undoubtedly played a part in the increased demand for multifamily rental communities.
Demographic factors also play a role in shaping demand in the Seattle housing market. A large percentage of those in the market are millennials (i.e. Americans aged 18-34) who have a well-known preference for renting. Millennials are widely known for their relatively transient lifestyles, and renting enables them to pack up and move whenever a newer and better opportunity knocks at the door. The high concentration of millennials in the greater Seattle housing market should help support rentals for at least the next few years.
All of these factors—population growth, the tech sector, overseas buyers, and demographics—point to a Seattle suburban multifamily real estate market that is likely to be quite healthy in the coming years. Though we may see demand taper off in the next few years, multifamily complexes will still yield healthy returns for smart investors well into the foreseeable future.
CWS Capital Partners has experience with the Seattle multifamily rental market and would be glad to assist you as you attempt to navigate this market. Contact us today and we can get started with discussing your investment plans.
The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.
Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.
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