The April issue of Dupre + Scott‘s Apartment Advisor is out–and it’s got some very interesting numbers in it this time around. We know apartment construction has been strong lately; with numbers on everything from vacancy rates to concessions, the Apartment Advisor is the perfect source to check in with on how all of this construction is affecting the local market. Today, we’ll be checking in on five main factors that reflect the state of the rental market. To find out more, head over to DupreScott.com for the full report.
1. Market vacancy in the Puget Sound region is down to 3.8%.
3.8%–that’s the lowest it’s been since 2007, and it’s only been this low three times in the past 30 years. Now as you’ll recall, market vacancy excludes properties in lease-up and those undergoing renovation. When we include those units, we get the gross vacancy, which is currently at 5.2%.
The’s the Puget Sound region as a whole–so where does Seattle fit into all of this? Lots of construction within the city itself means there is a much larger divide between the market and gross vacancies–market vacancy is currently at just 2.9%, while gross vacancy is at 8.0%.
2. Rents have shot up 5.5% in the past year.
When we talk about rent amounts in Seattle today, it’s important to note the difference between rents for existing units, versus rents for units that have just been built–there’s a real and measurable difference between them. While rents have gone up 5.5% over the past twelve months, when we look just at the rent amounts in existing units, this increase is a bit less, at 3.7%.
This difference is particularly noteworthy in certain Seattle neighborhoods where more new units have been going up–take Queen Anne, for instance. Rents have risen 17.1% in that neighborhood; but if you factor out new units, the increase is 8.2%.
Finally, let’s talk about the rents of the future: Over the next six months, local apartment managers plan to increase rents by 2.8%–increasing rent at a rate they haven’t matched since 2008. Looking at per-capita income over the next five years (as per-capita income has been strongly tied to rent growth since 1980), the potential exists for rents to continue to rise strongly.
3. 34,000 units are planned to open over the next five years.
Here’s the part where we talk construction numbers–and these numbers are big. Dupre + Scott put the number of units under construction or just completed in the region at 15,000, with work to start on 5,000 more before July 1. If things go as planned, 2015 should keep pace with 2014. Out of all of this construction over the next five years, 89% of it is expected to be within King County alone.
Some investors worry that the gap between rent amounts for new and existing units, as referenced above, will lead to problems leasing all of this new construction once it’s complete. After all, twelve years ago, rent on new units was 1/3 higher than rent on existing units–now, it’s a whole 50% higher. But with low vacancy in existing units and the amenities, novelty and appeal available with new units, renters are still flocking to these new buildings.
4. Only 20% of surveyed properties are currently offering concessions–but this number will rise.
Speaking of filling new units, we should talk concessions. The number of landlords and property managers offering concessions dropped quickly during the rental renaissance of the past few years. Currently, concessions are offered in just 20% of the units surveyed by Dupre + Scott. But concessions help to fill units, and in buildings completed in 2012 and 2013, we’re seeing concessions offered with 2/3 of the units. As newly-completed units continue to open, we are likely to see an increase in concessions.
5. The percentage of tenants paying for water, sewer, garbage and parking is continuing to increase.
Finally, there are utilities (water, sewer, garbage) and parking to talk about. Taken together, water/sewer/garbage costs in Seattle average $55 to $90 per month; currently, around 2/3 of Seattle landlords are passing water and sewer costs along to tenants, with 50% also charging them for garbage. There has been a real sea change over the past few years with respect to these utilities–between 2008 and 2012, utilities paid by the renter rose 50%.
Then there’s parking. Last year, 60% of surveyed landlords included parking in the rent amount; this year, that number has dropped to 50%. Meanwhile, the number of parking spaces per unit is decreasing in new construction. Between 2000 and 2011, there were an average of 1.3 parking spaces per unit; but with units planned and in construction between 2013 and 2016, this drops to just 0.8 spaces per unit. Perhaps it’s time for a Smart car to go with that micro-unit?