When times were good in Seattle and job opportunities and the promise of stock options at booming tech companies such as Microsoft (MSFT), Amazon.com (AMZN) and Real Networks (RNWK) lured new residents, this rainy northwest city became one of the country's most desirable—and expensive—places to live. The high cost of living became difficult last year as thousands in the area were laid off and the jobless rate climbed to 9% in December. To the relief of those leasing apartments, the average monthly rent in the Seattle area dropped 13.8% in 2009, the steepest decline of all U.S. metros, according to new data from AXIOMetrics, an apartment market research firm in Dallas.
"It's a market hit by two things: a high job-loss and unemployment rate and increasing supply," says Ronald G. Johnsey, president of AXIOMetrics. Seattle landlords offered an average 6% concession to attract tenants, bringing the average monthly rent for apartments in Seattle to $1,023.
Demand slowed as competition grew
For the many residents who spent more than half their income on rent but lost their jobs, new housing arrangements became necessary. Property managers saw people move out of one-bedroom apartments into larger units to share rent with roommates or return home to their families. Others looked at relocating to less expensive neighborhoods if they could not negotiate lower rates with their landlords.
As a result, rent for one-bedroom floor plans across the country saw the greatest decline as more people moved into two- and three-bedroom units, and luxury apartments have slashed rates more than other classes, according to AXIOMetrics.
In other markets, such as the Bay Area, demand dropped as inward migration slowed, according to Lawrence A. Souza, an economist, broker, and investment adviser for the Johnson Souza Group in San Francisco.
At the same time, hundreds, and in some cases thousands, of new units were being added in many rental markets. Apartment owners had to compete with new constructions, condo rentals, and home rentals.
In Seattle, the Rollin Street Flats, an 11-story luxury complex in the South Lake Union section with 208 apartments, started leasing to renters last spring. The property was originally developed as a condominium but, like others in the area, was converted to rental units. It is currently 92% leased.
Signs of an uptick
By the fourth quarter of 2009, the rate of decline slowed in most areas, suggesting that the market is stabilizing. In AXIOMetrics' January survey of 88 markets, 55 had increased rents, the first positive monthly growth since July 2008. This was partly due to landlords scaling back concessions. Occupancy rates were mostly flat. Johnsey says while he is optimistic that rent levels will start to recover this year, this will depend mostly on job creation.
In Seattle, an uptick may be delayed compared with other markets. Dupre + Scott Apartment Advisors, an apartment investment research and consulting firm in Seattle, expects vacancies in the area to climb more as rents fall this year. The firm expects net income after 2011 to grow significantly, as few new units will be added, tightening supply.
Tom Daniels, executive vice-president of Riverstone Residential Group, says rents in Seattle may decline 2% to 5% this year, depending on how much the rate was adjusted in 2009, but the apartment supply is tightening. "We think we've felt the bottom," he says. "Last year we didn't know where the bottom was, but we are more confident today."
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