On The Rise

Job growth combined with a rise in retail, transportation and construction have all been factors in a booming multifamily market in the Pacific Northwest as rental demand throughout the area has been outpacing supply in all markets. Seattle, Portland, Ore., and Tacoma, Wash. are the big three cities, but just about everywhere is strong.

“Portland and Seattle are on fire,” Doug Ressler, department of operations, manager, Pierce-Eislen Inc., says. “Tacoma has always been a blue-collar market, but it’s not doing as well as Portland and Seattle because they are right now the top markets in the whole Northwest.”

While the lifestyle markets of Seattle and Portland have always lent themselves to the big employment of a Boeing or Nike, there has been a recent groundswell of small entrepreneurial businesses, especially in software, which is adding to the job growth.

A strong Seattle

Mike Voorhees, vice president of residential for Holland Partner Group, Vancouver, Wash., says the hottest area for new development is the Seattle core with all submarkets doing well.

“What that’s doing is pushing rents downtown and having positive effects on rents everywhere,” he says. “Seattle’s employment-to-rent ratio is one of the lowest in the country, at about 25 percent, whereas in other significant markets such as San Francisco and New York, it’s over 50 percent, so it’s a real attractive market for folks looking for high paying jobs and lower rent expectations.”

Over 50 percent of the Seattle workforce is in upper-tier jobs. Ressler says this is just one of the factors that make Seattle one of the top national multifamily markets today, and why 4,481 units are being added to the market in 2014.

“Seattle is seeing metro primary city population growth, outpacing suburban growth in the area. You see the lifestyle rental growths up 8 percent in 2013, and up 7 percent year-to-date, phenomenal numbers,” he says. “Renters by necessity were up 7 percent in 2013 and 5 percent already in 2014.”

It’s not just one particular area, and it’s not just one particular lifestyle. In terms of rent growth, all submarkets in Seattle are showing increases, according to Ressler. Belltown is up 10 percent, Capitol Hill/Eastlake is up 15 percent, and West Seattle is up 9 percent. In lifestyle markets, Paine Field is up 16 percent, University is up 16 percent and Central Everett, in Snohomish County, is
up 17 percent.

“Amazon has been the main employment driver pushing development,” Voorhees says. “Coupled with other tech industries coming in, it’s a real combination of healthy employment growth and steady immigration of people coming to Seattle looking for jobs.”

A view of Portland

With spin off services for both Nike and Intel growing, and an emergence of software startups in downtown Portland, the multifamily market has been steadily increasing over the last few years. Reis even named Portland multifamily’s “hottest” secondary market. Portland is expected to see 3,510 units added in 2014, up 8 percent year-over-year.

Gail Neuburg, a partner based in ARA’s Portland market, says suburban late-’90s and early-2000 garden-style properties in A locations have some of the best income growth in the market.

“For example, one suburban property in Tigard has year-over-year income growth of 13 percent, another close by showed 12 percent growth,” she says. “Many of our suburban markets have little or no new development and very low vacancies. Turnover and renewals are outpacing the typical 3 percent growth we have had for the past 10 years.”

Hillsboro is the hotbed of suburban development driven by the demand from the Intel and Nike expansions, shortage of new home construction, and the difficult lending environment for first-time homebuyers. “Because Intel’s Hillsboro location is a global center of semiconductor research, many engineers come from overseas for two-year assignments. This group will always rent,” Neuburg says. “Many of them are from Asia and India and come with young families. They care about the schools, access to services and their own community.”

A majority of the new construction is occurring in urban Portland, both in neighborhoods and in the core. Many small infill properties have been built in neighborhoods that typically have not seen new construction, though unit sizes are quite small and parking is scarce.

Ressler says Portland’s lifestyle rental growth was up 6 percent in 2013 and 5 percent so far this year, while its renters-by-necessity figures were also 6 percent in 2013 and 5 percent year to date.

According to MPF Research, Portland was the No. 4 rent growth leader in the U.S. at 7.9 percent for the year ending Q1 2014. Market vacancy is 3 percent for the Portland MSA. Rents in the urban core are topping out at $2.80 per square foot and in the suburbs at $1.80 per square foot.

Ressler says overall rent growth in Kerns/Buckman has been 24 percent, Oregon City, Ore. is at 16 percent and Downtown Vancouver, Wash. comes in at 15 percent.

Tacoma time

While not as strong as Seattle or Portland, Tacoma still is showing increases with rent growth of 9 percent in North Tacoma and 9 percent in Mid Tacoma. Bainbridge Island, in Kitsap County, is showing rent growth of 12 percent. “With new units, you’re seeing small numbers, with less than 500 units being added,” Ressler says. “That means the rent growth will continue.” Industries such as education and information services have led to a job growth of .77 percent year over year.

Return from the recession

In Portland, most of the buildings that went from condo to apartment in the downturn are remaining apartments except for Waterfront Pearl, two 10-story towers on the Willamette waterfront.

The first new condo tower to be constructed since 2008 has also recently been announced as Hoyt Street Properties prepares to build a 28-story condominium building in Portland’s Pearl District.

“Housing prices are on the rise, and existing home and condo inventory is low,” Neuburg says. “This may drive some of the properties that became apartments to undertake condo sales in the not-too-distant future. We may even see some conversions if the lending environment will allow it.”

Among notable new construction in Seattle are Stadium Place, a mixed-use project near Century Link Field; Soma Towers in Bellview West; and Oregon 42 in West Seattle.

In Portland, significant new projects include The 206 in Tanasbourne; Active Adults at the Grove in Wilsonville; Block 43 in Southwest Hills; and Burnside 26 in Kerris/Buckman area.

On the investment side

The multifamily sales side in Portland has been robust with some key suburban properties made available as value-add opportunities.

“The buyer pool for this property class has grown significantly in the past three years. The volume of tours and offers reflects this growth,” Neuburg says. “Portland has a reputation for being more affordable than Seattle and San Francisco. We are also not a gateway city. We see family office groups, funds and advisors as the most aggressive buyers for suburban value add.”

Voorhees notes Seattle is very attractive to investors right now with very brisk business in that arena. “It seems like all of the major players are looking to be in this market, be it on the development side or the investment side,” he says. “All signs look positive.”

Looking ahead

The urban core of Seattle and Portland should continue to be major hubs and a major draw for multifamily, continuing with the economic robustness, Ressler says.

Neuburg feels Seattle has become too expensive for some, driving many renters to outlying areas such as Tacoma, Federal Way and Everett where rents are more affordable. She expects these markets to see increased demand, rising rents and low vacancies.