Seattle Commercial Real Estate professionals have devoted a lot of time to the study of the office market in Seattle. The prognosis is one of pessimism but just as important is the potential collateral effect on multifamily, retail, and industrial real estate. Let us take a quick look at multifamily first. Our first look is at political impacts. These are restrictions and obligations imposed on landlords for leasing as well as for removal of tenants in default in their rent obligation. The economic impact of these factors has one client of Seattle Commercial Real Estate unable to sell his properties as he still can’t get rid of existing tenants, renovate, and release at the current market.
Vacancies Drop & Rents Rise
Vacancies are not that great of an issue as new construction is tapering off. Rents are rising with supply constricted in multifamily, yet two projects in Tacoma went into bankruptcy representing 272 units. Last year we added about 10,000 units statewide and another 31,637 are in the pipeline, but wait…with the current cost of money and Seattle real estate being amongst the highest areas of construction cost, how many of those coming down that pipeline will be built? Seattle Commercial Real Estate watches the listings of approved projects being marketed and the indicator is almost straight up.
Multifamily Projects Not Meeting Replacement Demand
On the other hand, projects that are up and running today that are for sale in the multifamily marketplace are at cap rates that make economic sense, even with the high cost of money, but at numbers that are below replacement cost. Seattle Commercial Real Estate firmly believes that this restriction on supply will only lead to another wave of inflation in multifamily real estate, but the question is how far in the future and at even greater costs for rent.
