Strong Seattle apartment market signals higher rents

Moving up from 15th place last year, Seattle ranks as the nation's seventh-most-attractive market for apartment investors — a distinction almost guaranteed to cause rents to rise.

"All the stars are lined up for [apartment] values to continue to go up from an investment standpoint, so in most cases rents have got to go up, too," said Gregory Wendelken, Seattle regional manager of Marcus & Millichap, the nation's largest commercial real-estate brokerage.

Its annual apartment report analyzes investor interest, based on apartment demand, in 42 major markets. Only one other city, San Francisco, moved up as many places as Seattle did.

"Eight is significant movement," Wendelken said. "That's due to our economy being diverse and bullish. We're creating more jobs, and that means more people, more apartment demand."

Seattle-area employers are expected to add 30,600 jobs this year, on top of even stronger job growth last year, the report noted.

Usually, developers respond by building more apartments. Instead, they're building condominiums and converting apartments to condos.

Areawide, some 6,000 apartments were converted recently, Wendelken said.

He anticipates both trends to continue this year.

"We'll continue to see conversions," he said, "and the availability of land, coupled with the cost of construction, is going to make apartment construction a challenge," he said.

Currently in-city Seattle's apartment vacancy rate is 2 to 3 percent, and the Eastside is similarly tight. A 5 percent vacancy rate is considered balanced, favoring neither renters nor landlords.

Rents for tenants moving in are expected to climb 5.4 percent this year to an average $980 a month.

Rent increases for tenants already in place are forecast to grow 5.7 percent to an average $930 a month.

"Seattle is in the top 10 places to invest nationwide, and that doesn't necessarily bode well for renters," Wendelken said.

Others in the top 10 are: New York; Orange County, Calif.; Oakland, Calif.; Las Vegas; San Diego; Fort Lauderdale, Fla.; San Francisco; Los Angeles; and Phoenix.

A number of cities -- including Philadelphia, and West Palm Beach and Tampa in Florida -- showed significant declines in their rental markets, and thus in their attractiveness to investors.

Overbuilding and below-average job growth were among the factors cited.

Elizabeth Rhodes: erhodes@seattletimes.com