Holly Gardner, President

A few weeks ago I was able to attend Apartment.com’s virtual “State of the U.S. Multifamily Market” presentation, and for those that did not get to listen in, I pulled out some interesting and juicy tidbits of data I thought I’d pass along and breakdown for you.

As a nation overall, we’re only experiencing a 3-4% decrease in rents from where we expected to be at this time. This statistic is a national average and it should be noted that certain local economies are being affected more than others. On a local level, Seattle rents are only down approximately 2% from original projections. As we saw during the Great Recession, Seattle has some additional protections due to our strong tech industry, so we are not experiencing the economic pinch as much as other areas of the country. However, there could be some false bubbles in these numbers since they were taken only three months into the economic downturn. The economic stimulus checks and increased unemployment benefits are likely helping to stave off any massive inabilities to pay rent for many people. In addition, many people have savings to help them through difficult times, but the longer the economic shutdown continues, the higher the likelihood that people will begin to run out of savings. When we see the increased unemployment benefits cut-off, I expect another big hit to the economy as the unemployed struggle to find jobs and make ends meet. But for now, the multifamily industry is fairing okay.

Apartments.com has the unique benefit of tracking and analyzing both the type and the volume of apartment searches occurring. Since the pandemic began and quarantine was initiated, they have actually seen an increase in searches as people begin to look for different amenities from their home, such as a separate work space, high efficiency HVAC within the homes, private rooms, etc. As people spend more times in their homes, they are realizing they have different needs than they once had.

While all of this seems promising, we are also seeing signs that absorption is slowing in the form of increased concessions and increased vacancy. Over 40% of multifamily properties are now advertising concessions, which is double the number from earlier in Q1 2020. In the CBD, concession offerings are even higher, at 52%. On average, concessions are now totaling 4.5% of rent.

So what does all of this mean? How do we make sense of it? Well, let’s break it down. The economic shutdown did not cause immediate and massive changes in the multifamily industry as once feared. Economic stimulus packages are a large part of this delayed impact. Consumers are still interested in moving and finding the right home, but in a tightening economy, they expect it at a better deal. Some of this traffic is also deciding to pursue home ownership. However, it is undeniable that traffic has slowed and buildings are beginning to feel the effects, and perhaps panic just a little bit. 50% of properties in the CBD are reporting increased vacancy numbers, and that coupled with slower absorption, is resulting in a massive increase in concessions in an effort to drive traffic to their properties. For Seattle, we have over 20,000 units under construction currently, which will make 2020/2021 record delivery years for multifamily. With this many units coming online in a contracting economy, we’re sure to see rents continue to fall as we shift to a renter’s market.

The silver lining to all of this is that the expected demand in Seattle for housing is still quite high as a result of our strong tech economy, so with time and patience these units will absorb, but we should all expect it to take longer and be making more conservative assumptions in our underwriting for rent, annual escalations and vacancy. Seattle will ride out this forced depression, just as we did the Great Recession, but we should all be preparing for the long haul. I fear we are past the point of a quick economic recovery.