Seattle’s Rental Bubble Meets its Inflection Point

Construction boom, flood of new high-end apartments, not enough demand, rising vacancy rates, and the biggest concessions since the Great Recession.

The Seattle metro has enjoyed strong job growth in recent years and soaring housing costs. Developers have responded with a multiyear construction boom that started in about 2014. As high-rise condo and apartment towers have been sprouting like mushrooms, “crane counting” has become a thing. Now there is the prospect that the new supply is outgrowing demand, and that this supply is mostly high-end, further crimping demand for those units.

In the five years from 2014 through 2018 so far, over 46,000 apartment units in buildings with over 50 apartments – not counting condo projects, apartments in smaller buildings, or single-family homes – have been constructed, according to data by multifamily property data provider Apartment Insights. This is an increase of 110% from the prior five-year period (2009-2013) and nearly four times the number of units built in 2004-2008:

In terms of annual totals, in 2018 as of Q3, 8,731 apartment units have been constructed, below the recent records in 2015 and 2016 of close to 10,000 units. The all-time record occurred during the last building boom in 1989 with 10,056 units:

Over the past five years, the new supply of apartments in buildings of 50+ units averaged 9,236 apartments per year.

And demand? Over the current 12-month period, occupancy in the segment of those buildings increased by 6,816 units. So vacancy rates are rising. And there are a lot more units coming.

Just counting apartment buildings with over 50 units – and not counting condo towers though some of those units may end up on the rental market – in the third quarter, there were about 63,000 units in the pipeline, according to the Q3 report by Apartment Insights:

  • Nearly 24,000 units were either under construction or scheduled for construction
  • Almost 7,500 units achieved “Final Plan Approval.”
  • Over 32,000 units are further up in the pipeline, with the vast majority in the review stage.

“With Absorption remaining rather steady, however, as we are headed for the seasonally challenging 4th quarter soon, we are anticipating a potential hike in vacancy,” Apartment Insights writes in its Q3 report.

Among these big apartment projects there are two types of vacancy rates:

  • “Stabilized”: the vacancy rate that includes only buildings where developers have largely succeeded in renting out most of the units. This vacancy rate does not include projects that have just come on the market and that are still largely empty.
  • And the vacancy rate of all big projects that have been completed, whether stabilized or not. This is a significantly higher number.

The vacancy rate of “stabilized” properties in the Seattle metro rose to 5.2%, the highest 3rd quarter rate since 2010.

Concessions kept this vacancy rate from going even higher – such as one-month free rent, gift cards, move-in allowance, or whatever. In Q3, these concessions amounted to the largest average for a 3rd quarter since 2010. And they’re having an impact on “rents net of concessions.” Apartment Insights:

Generally a leading or contributing leading indicator of the market, Rents Net of Concessions (NR), collapsed this quarter by 128 basis points. Interestingly, this is the second time in just one year that this metric has fallen by over 125 bps from quarter to quarter.

It is hard to imagine that this is the new normal for NR, as this level of volatility has not been seen in this fundamental measure before.  Perhaps we have entered a new plane for volatility levels of NR that have likely been introduced by rent pricing programs, and the stress on demand exerted by elevated levels of new supply.

And the next two quarters might get a little tougher for landlords, according to Apartment Insights:

Thus, we may anticipate a slowing in Absorption in the near term, and using historic norms we would experience an increase in occupied units of only 2,895 for the coming 4th and 1st quarter of 2019.  Given that we predict estimated dates for when projects under construction will open, we can, therefore, estimate the Vacancy Rate for All Properties as of the 1st quarter of 2019.

The report projects that, “if all of the units are completed and the projects brought to market as anticipated, we could see a vacancy rate of 9.2%.”

This would be the worst-case scenario for Q1 2019. The best-case scenario, as Apartment Insights sees it, given the estimated demand, is a vacancy rate of 7.8%, with a mid-point of 8.4%.

This growing vacancy rate is occurring despite Seattle’s hopping economy and employment growth. No one at the moment is figuring into the scenarios that there might ever be an economic slowdown, despite rising interest rates designed to produce one, and that this employment boom might ever subside, or reverse.

Millennials are settling in urban centers. In many ZIP codes, they’re already the majority. And they spend their money on rent. Read…  How Millennials Are Shifting the Housing Market

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  41 comments for “Seattle’s Rental Bubble Meets its Inflection Point

  1. Kasadour says:

    Yes these newly constructed apartments are high-end because of the high cost of building materials. They don’t build apartments for the median wage earner or the middle class.

    Also, I rented a 2br apartment in the Multnomah Village neighborhood of Portland Or for $735 a month back in 2010. The same apartment now goes for $1800 and it’s not new. New ones in that neighborhood rent for $2500-$3000 a month.

    How can student-loan-debt-strapped millennials afford $3000 a month for a 2br apartment in Seattle unless they pile in with a bunch of roommates? That means putting off marriage and family which will further exacerbate the problem.

    • GSH says:

      High rent and home prices are not an unintended consequence. Asset inflation was the explicit Fed goal during QE and ZIRP. Would liquidation of bad debts have been better in 2008/9? I wonder sometimes.

      • Bobber says:

        I don’t have to wonder whether taxpayers should pick up the tab for a greedy lender that made a bad loan to a greedy borrower. In my mind, the only real question is whether they should be given some scraps at the food shelter.

      • Kasadour says:

        It would have been better.

      • Maximus Minimus says:

        Asset inflation has the same effect on the economy as shovel-ready jobs. However, they don’t benefit the same people.

    • MCH says:

      Yikes, that’s not quite, but closing in on SF prices. Basically this almost require a two income family. This obviously can’t last. Wonder how much the down side will look like and what’ll happen to these places when the vacancy rates finally get unacceptable.

    • Rcohn says:

      Yes, you are correct
      It also means that many will be attracted to lower cost areas and others who may have taken first jobs in Seattle will no longer go there.

    • Otis says:

      Most of the so called high end apartments in Portland I have seen have a lonely mitsubishi hi-wall ductless ac in the living room and cheap cadet wall heaters in the bedrooms. Hard cold floors and excruciatingly slow elevators. Bi weekly fire alarms and evacuation. Echoes of bum fights late at night.

      These LEED certified bla bla etc buildings in Portland are crap. Don’t beleive the hype. Cheap construction everywhere.

      Granite granite countertops are common though. So there’s that.

    • Seattleman says:

      The apartment that was $735 and is now $1800 might be the same unit number, but it probably is not the same apartment. After $50,000 to $75,000 for renovations, it is not the same unit.

      Here is a good comparison. I have an apartment that I did a beautiful renovation to around 2008. Because of the change in the economy, I reduced the rent by $100 to $1145 in 2010. Comparing the increase in rent from 2009 to 2018 is $1245 to $1850. 49%
      The increase in real estate taxes on this building from 2010 to 2018: 85%
      There was one large capital improvement project done on the exterior of this 1909 building that significantly improved the street appeal of the building and helped generate increased rents

  2. Neal Woods says:

    These vacancy (not yet rented) stats are interesting.

    Does anybody maintain a measure of how many of these units are straight-up empty, owned but not used or available?

  3. van_down_by_river says:

    How could such tiny concessions, like one free month, attract potential tenants. If an apartment rents for $3000/month and you get one free month that only lowers the monthly rent to $2750/month. I don’t see how someone willing to throw these huge sums of money around on rent would care about such a small difference – after all they’re obviously swimming in more money then they know how to spend so why should they care about $250/month in savings?

    Also, Jeff Bezos likes to keep his employees pushed to the wall and terrified (he recently said he wants everyone of his employees to wake up terrified everyday) so it’s not hard to imagine they do a lot of firing over there at Amazon to keep the rest of the herd terrified. What happens to the poor slobs, who move up here for their big Amazon gig, only to get fired after a few months and they’re unemployed and stuck with a rent payment of $36,000/year – hopping over to Starbucks won’t cover that nut (and neither will a Microsoft gig).

    Myself, I’ve become quite accustomed to living in a van, I may sound miserable but I’m not, so greedy developers can go to hell. Don’t be homeless instead plan and organize your life without a fixed roof and live home-free. With proper planning you can keep from falling apart, no one would guess you don’t have an apartment and your life can not only be free but also enjoyable when you no longer work for your greedy landlord.

    • Matt P says:

      One month free can lower the price below similar units in an area. I took a similar concession last year. But you must do so knowing you may have to move the next year because they will base your next lease on the per month price without concessions. I actually had my rent increased on top of my monthly rent and told them go take a hike. A week before move out, they came out and said I could stay for $50 less than what I was paying, but still an increase of my average rate with the concession. I had already signed a new lease and left.

      They plan on most people not leaving and most won’t want to year after year.

    • Kerber says:

      Van life is hip now. Seriously, I’ve considered the lifestyle. It’s something to be admired with millennials.

      • GSH says:

        I read “Nomadland”, surviving America in the 21st century. It opened my eyes. And it is not just young people doing it.

    • bungee says:

      Here in San Francisco, an option (if you are lucky enough to get one) is an SRO or single room occupancy. These are ‘hotels’ with tiny, dorm style rooms and communal kitchens and bathrooms. They may be the future for many people. Right now an SRO can rent for $1300/mo. and more. These are often old buildings but maybe new ones will be built as people just give up on requiring personal space.

      • alex in san jose AKA digital Detroit says:

        Sadly, almost all of the SRO’s were torn down, under the principle that “you will live like a yuppie or you will live in the street” that’s prevailed since the 1980s.

        SRO’s are often fondly referred to as “piss in sink” hotels, since while there’s a communal kitchen and bathroom with showers, there’s a little sink with a mirror in the room. You can figure out the rest.

        They’re perfectly fine for single people and in the past, these and “flop houses” kept all but the most dysfunctional off of the streets.

  4. MF says:

    I believe this will affect home values as well.

    There are a ton of mom-and-pop landlords in Seattle who purchased homes specifically to rent them out. They’ll be the first to sell if (when) monthly cash flow goes negative.

    It’s not like the resident home owner who has to think about where they’d live if they cashed out equity. A landlord will sell the minute they think the top is in.

  5. breamrod says:

    as one gets older it seems less is more.

    • Paulo says:

      Amen. That’s certainly true. Plus, one floor is a must if one has joint problems, etc. I have a small rental I designed solely for a friend of mine who is 78. He has worn out hips and knees from a hard working life. He should be good for awhile.

      Vancouver refugees/seniors are buying homes on the Island with 2 and 3 stories. How dumb is that?

  6. Justme says:

    Good to see some REAL rental supply and vacancy projections from Seattle.

    A remark about vacancy rates in Seattle: The Seattle bubble-mongering crowd just loves to quote Washington OFM (Office of Financial Management) population numbers that indicate (falsely as we shall see) that the population is growing by leaps and bounds. There is a methodology problem, and it is a big whopper of a problem:

    The population in non-census years is estimated by assuming that all existing housing units, including all those newly constructed ones, are filled at the same occupancy rate as was found (by actual counting) in the last (that is, 2010) census.

    So there is a circular circle-jerk of numbers that say that there is a high occupancy rate (and low vacancy rate), because the population grew, because (you guessed it) all those new units are ASSUMED to be occupied already, and at the same rate and household size as was the case in the 2010 census.

    I have called this the FIB methodology, which stands for “Filled-If-Built”. It is both an acronym and a pun. Another acronym I have used is BIFF (Built-Is-Filled-by-Fiat).

    It should be noted that OFM is well aware of the limitations of the FIB methodology, they state it quite clearly in their methodology documents. The methodology is described and discussed in

    But known and very significant limitations do not stop the bubble-mongering propagandists from abusing the numbers for their own profit, claiming large populations gains, shortages of housing, etc.

  7. raxadian says:

    2018 – 2014 : 4

    Someone failed basic math.

  8. Chemdude says:

    I live in an apt in Uptown Seattle (landlords have opportunistically called it Lower Queen Anne). An email (below) just hit my inbox tonight regarding the switch to short term rentals for a unit in an adjacent building, which from my naive, out the back window, observation, appears to have had a lot of trouble renting out units.

    Asking rents for the 2+2 units referenced below with 12 month lease have been >$3,000 per month (~1,000 sq ft).
    Redacted e-mail below:

    “Exciting news, folks!
    Our sister property just down the street … has just opened a short-term rental apartment AND WE HAVE ACCESS TO IT!! WHAT?!?! YES!! … residents can book this fully furnished 2 bedroom, 2 bath apartment for $225/night. They’re offering a special for a limited time too: $200/night! AND, they’ve invited us to the open house.”

    • Gold says:

      aaand, if you’re an idiot, please sign here and never worry about money again, this is your last chance!

  9. Wisil says:

    This is all part of the building cycle. When Housing is in shirt supply, developers start new projects and rents come down, and the projects slow down. Changes in demand are met by a delayed change in supply,, but you cannot extrapolate that rents will go to the sky when demand is tight, and no, rents will not go to $100 in the current downturn.

    Seattle is in a down cycle on rents, but five years from now, they are likely to see a reverse of the cycle, and “rents will head for the sky”.


  10. Landlord says:

    What is the annual population growth of Seattle Metro?

  11. Jon says:

    Looks like MSM has ppl picked up on this housing slow down news

    This is gonna hit the psyche of the prospective buyers and this would make them wait
    It’d be a cycle which would feed on itself and itd take time a couple of years or so

    Even in san Diego I can see slow down
    Multiple price reductions
    Homes sitting in waiting
    Rising inventory

  12. Fabio says:

    Years ago, rent control was a major issue in NYC. Many rents were fixed at a reasonable rate.

    Why is it that in today’s world, no one complains about the absence of affordable rents? Have people changed or the politicians?

    Most rents have doubled in the last ten years (even in backwaters!).

    • Pelican says:

      > Most rents have doubled in the last ten years (even in backwaters!).

      You mean the wonderful people at the fed who think inflation is not to be seen anywhere may just be a little out of touch!? ;)

  13. Bobber says:

    When stock prices drop Seattle will be hit very hard. A high percentage of salary is paid in stock. The good RE and rental market has been driven by rising stock prices over the past four years.

    Take Amazon, for example. How will Amazon pay its employees if its stock price levels off or drops? At a $1T market cap, I think Amazon’s stock has little upside from here. Yet, they’ve been working their employees pretty hard at the headquarters. The culture is unsustainable. Employees put up with it for reason – the rising stock price.

    Amazon has been the biggest employer in Seattle by far. What happens when they channel new hiring to the 2nd headquarters? The growth in Seattle will take a big hit.

  14. Wolf’s got this covered from 10,000′; here’s an update from the ground:

  15. William says:

    Apartment owner would rather have over 10% vacancy rates than accept steeply lower rates. They view new renter incentives (free month or two) as marketing costs and not drops in overall rental rates.

    • Lando says:

      “Apartment owner would rather have over 10% vacancy rates than accept steeply lower rates. ”

      Good point. It is ‘ideal’ from a wear-and tear perspective to have as few units occupied as possible. I think this may the new model for rentals as many apartment complexes aspire to be ‘condo-conversions’. Condo conversions were very common in So. Cal, years ago, although I’m not sure if it’s still a thing.

      Many former 1-bdr/1 bath 600 sq ft apartment complexes in San Diego are now on sale for about $325,000- $350,000 per unit. Like most So. Cal apts they have paper thin walls and ceilings.

      Uhh, and that’s not a typo on the sq-ft or the sale price.

  16. Kevin says:

    The thing that interests me in all of this is that the infrastructure in cities like Seattle is not geared to absorbing another 10,000 residents yearly. I have lived in every major metro area on the West Coast and seen traffic and every other service get worse as the years go by. It simply takes too long to get a project approved, too much to finance them once approved, and way too long to actually build them.

    There’s a limit to the space available, and limits too how that space can be used. I5 through Seattle is essentially a one lane road, and has been for over 30 years. There’s no way to improve that without tearing the whole thing down and starting over; and that’s not going to happen.

    Tacoma has a really beautiful new development called Point Ruston aimed at those millennials. There are around 300 new apartments with plans to double that as well as a couple new developments within a mile. The developers don’t tell the buyers this was a Superfund cleanup site 30-40 years ago. (We all know how well cleaning toxic materials from groundwater works.) The kicker is that there are only two roads into the area, both limited to one lane in each direction and with no way to widen them. Prices start at $1500/mo for a Studio.

    Another popular undertaking around here is the purchase of an older home on a larger lot (1/3 to over an acre) and stuffing as many multistory homes on it as possible. The small town I live in (which has no place to expand) has seen an increase in residential units of over 25% in the past 20 years, most of that in just the past 10. There has been no increase in road construction, drainage, sewer, or power generation. These are hidden costs that fall back on the taxpayers after the developers have gone home.

  17. Jon says:

    What’s missing in this discussion is the exceptionally high turnover rates at Amazon, Google, and the other tech giants driving the new economy in Seattle.

    We just hired a former Google employee who said that the average term of employment at Google appeared to be about 1.5 years, at Amazon it’s barely 2 years. So, much of the new hiring is an effort to stem the bleeding of talent that’s fleeing once they have checked the Google/Amazon tick box on their resume.

    Many of those leaving are moving out of Seattle, siting horrible dreary winters, apocalyptic traffic, sky high rents, overly expensive everything (from the shockingly mediocre food scene to drinks often 50-100% more expensive than Manhattan), not to mention a public transit system that is a national embarrassment and a delusional city council that has gone to war against cars.

    This will not end well for Seattle. City Hall has for too long relied on the deluge of cash from fees and construction to fatten it’s budget. Soon many of these new towers will see their tenants wooed by new developments desperate for cash flow to service debt.

    Developers do not want to risk converting to condos, as the laws in Seattle that hold developers liable for construction defects makes that a particularly bad option till a building can be sold after some years (

    This all adds up to a bad scenario for many of these debt saddled companies who own towers in a city that could soon see 30-40+% vacancy rates in the downtown core. Rents will plummet as some on the brink get desperate, the knock on will directly impact housing prices, and the County Assessor will be faced with having to down-value properties throughout the region. City and county income will collapse, and with crumbling infrastructure an increasing problem.. you can see where this goes.

    By 2022/3 I expect to be able to swoop up property in Seattle for bargain prices, if I even want to continue living here (and after 40+ years, there’s a real question about that). If I do, it will likely set me up for an early retirement in about 12 years once people’s short term memory fades and the whole ridiculous cycle repeats itself again.

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