The Pacific Northwest’s investment property market has attracted increasing attention in recent years as the region continues to develop and as new residents are drawn there by economic opportunities and the local lifestyle. The region and its markets are far from homogenous, however, and investment conditions vary widely. For multifamily property investors, the Northwest presents challenges, but compelling opportunities await those who are alert and agile. Seattle remains a top choice to buy investment property in the region.
Looking for the Best Place to Buy Investment Property
Seattle and Portland are the 18th and 25th largest cities in the country and the largest cities in the Northwest, respectively. The next largest city in the region, Boise, is ranked 98th nationwide. The Boise metropolitan area population is growing fast, having experienced 3.08 percent population growth in 2017 and 2.34 percent growth in 2018. With a population of 226,570, however, that respectable growth rate only represents 5,302 people. Even when surrounding areas are figured in, the Boise market is dwarfed by Portland and Seattle.
Tertiary and rural markets present a number of conditions not seen in larger cities. Primarily, they do not follow the same market trends, which means that properties in tertiary markets can provide portfolio diversification. But those markets are also less stable and harder to enter. Small local economies are often dependent on a single industry or a very small number of industries, making them highly sensitive to market cycles. Smaller markets mean fewer investment opportunities to go around, so they are simply harder to find. In practical terms, many of the best opportunities for multifamily real estate investment lie in the region between Portland and Seattle.
Seattle Is Arguably the Best Multifamily Property Market in the Northwest
While both Portland and Seattle have vibrant economies and growing populations, Seattle shows clear advantages in its economic conditions and the multifamily housing market. A recent ranking of the economies of the 40 largest U.S. cities placed both Portland and Seattle in the top 15, with Seattle in 4th place and Portland placing 13th. Seattle had the second highest population growth rate in 2017 (2.5 percent) and shows no signs of slowing in 2018. It was also recently named one of the 10 best cities for job seekers.
Against this rosy background, rents are falling and multifamily housing development is slowing in both Portland and Seattle. Portland does lead in this category with a 2.2 percent decline in rents year-on-year, compared to 0.9 percent decline in Seattle. In keeping with national tendencies, the Seattle decline is recent and comes on the heels of a previously buoyant market. Median rental rates in the Portland housing market dropped 2.2 percent year over year.
With 12,000 new units delivered in Seattle in 2017 and another 12,000 expected this year, investors there could be witnessing the passing of the market peak. Some analysts, but not all, are concerned about creating a potential glut in the city. Thus, it would be hard to justify beginning new development in downtown Seattle at the moment. The city’s suburbs are still experiencing growing demand, however.
The Seattle acquisitions market remains active (again, more so than Portland), indicating that there is still good value in that market. While falling rents drive down multifamily property prices, a good value-add opportunity could be a sound investment. Falling prices can be used as a bargaining chip in negotiations. Since Seattle’s economic outlook and population growth rate remain positive, chances are good that the multifamily property market there will recover quickly in its new cycle.
In this environment, a buyer’s investment horizon and appetite for risk are particularly important to consider. A well-informed and well-timed acquisition could bring exceptional results, but expert advice is strongly recommended before making a final decision.
CWS Capital Partners co-owns with investors and manages three properties in Seattle.
At CWS Capital Partners, we are a fully-integrated multifamily real estate investment management firm that offers everything from due diligence and risk management to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We own and manage luxury multifamily investment communities in major markets around the country, and we employ a team of experts who can help you hone your investment strategy.
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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.
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