The subject property of this week's blog, 4354 S Henderson Street, is located within the City of Seattle. Following is a brief overview of the regional economy and real estate markets.
The Puget Sound Region (sometimes referred to as the Greater Seattle Area) is comprised of four counties: King County (whose major cities include Seattle, Bellevue, Federal Way, Kent, Shoreline, Renton, Redmond and Kirkland ); Kitsap County (Bremerton and Bainbridge Island); Pierce County (Tacoma, Lakewood, and Puyallup); and Snohomish County (Everett, Edmonds, and Lynwood).
Compared with the volatility of the national economy, the region has seen steady, if modest improvement over the past few years. This has been driven in no small part by robust hiring at a few companies, including Amazon, Microsoft, and Boeing.
Much of the rest of the job growth has been in the lower wage categories.
The region’s economy is still regarded as structurally sound and has outperformed the national level.
In terms of commercial real estate, apartments are in the ascendant phase of the cycle, but this expansion is primarily focused on the best, close-in locations. Investment in commercial real estate has improved in the Class A Core category of most product types, and there have been a few more motivated sales at fifty cents on the dollar, but the middle of the market is stagnant and almost un-financeable. The region is one of the top ten markets on the institutional buyers’ lists; there is just not much product available for sale at this time.
The current economic situation aside, the region continues to rank in the top ten national investment markets in several asset classes. Commercial real estate buyers’ longer-term view of the dynamics of the market is generally positive. Institutional investors returned to the market starting in early 2010 with numerous large Class A core property sales closing through the year. As with the national focus, apartments and stabilized Class A office projects are at the top of the list, followed by industrial and anchored retail. Interest falls off moving down in the markets by asset quality until reaching the distressed level, which has also seen an increase in sales activity for office properties.
Apartments became feasible in this vacuum as the end to sub-prime lending resulted in fewer potential buyers and concern about price durability kept more out of the buying market. Rental rates for apartments jumped up by 30-40% between 2004 and 2008. However, the combination of new inventory, 10,000 new units in 2009 and 2010, a burgeoning shadow market of condominiums and houses for rent and lax demand combined to increase vacancy and push rent discounts through most of 2009. Institutional investors returned to the market with a vengeance in 2010 with over a dozen major sales and capitalization rates back to the 5.0% range for close-in newer vintage properties.
Vacancy in the apartment market fell much faster than anticipated and the regional rate is already below the 5% mark and moving lower. One of the largest rent increases in the Seattle metro area in 2013 occurred in South Seattle (7%).
The demand has been attributed to both reduced access to home mortgages and also longer-term lack of confidence in home buying in general.
Fundamentally, most product types are still attractive long-term investments in the Puget Sound region, and local buyers have remained fairly active for small or owner/user properties.
Happy Investing!
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