Apartment vacancies up

Published 4:41 pm Friday, April 24, 2009

A weak job market and declining home sales are punishing the apartment rental market in Snohomish County and across the Puget Sound region, according to a newly released report.

Snohomish County vacancy rates jumped to 6.8 percent last month, up from 5.8 in September, according to the new report by Dupree + Scott, a Seattle firm that tracks the market for rental properties around Puget Sound.

That vacancy rate will climb as the year goes on and could spike up over 8.5 percent by fall, the firm warned. That would mean we’re looking at the worst rental market of the past decade.

“Vacancies are climbing due to job losses reducing apartment demand at the same time supply is increasing,” the firm reported. “We’re looking at thousands of condominium units that either opened in the past year or are scheduled to open by the end of next year. The way things are right now, it’s a good bet they won’t all be filled by homeowners.”

Competition to fill vacant apartments will push rental prices down in the months ahead, according to the report, which tracks conditions in apartment buildings with more than 20 units

The strength of the market varies widely by neighborhood. The report found vacancy rates are highest the unincorporated areas of south Snohomish County: apartment managers in the area around Paine Field reported 7.7 percent of their units are empty in March, while Silver Lake had a vacancy rate of 7.5 percent. Mill Creek wasn’t in much better shape — 7 percent of apartments there had no renters.

The situation is better for landlords in Marysville, where the vacancy rate is a lower 4.2 percent, or in Edmonds, where 4.9 percent of apartments are empty.

Average rents are slipping countywide, the report found, down to $949 a month in March. That’s off about 1.7 from September’s average of $965.

However, that average rate is deceiving, Dupree + Scott said, because apartment managers are being forced to grant ever-greater move-in incentives to fill their empty units.

Across Puget Sound, “almost 50 percent of the properties we surveyed offer incentives,” the report said. “The average incentive is bigger than we’ve seen since we began tracking them, averaging $733. That’s the same as a 6 percent drop in rents.”

A complex in Lynnwood, for example — Renaissance Apartment Homes off 148th Street — is offering six weeks’ free rent. That would be a savings of $1,200 to $1,500, depending on the size of the apartment, according to the complex’s price list at apartmentguide.com.

Likewise, Several apartment owners in Edmonds are offering a $99 move-in special on two-bedroom apartments; two-bedroom apartments in Edmonds typically lease for between $864 and $938 a month, according to the new Dupree + Scott report, making that about a 90 percent discount off the first month’s rent.

Across Puget Sound, 6.6 percent of the apartments for rent are vacant, according to the report. That’s up from a 4.8 percent rate reported back in September. The average rent across the region is $988, which is down less than a percentage point since the fall.

There are also early signs that landlords are simply cutting rents on apartments. “Our spring survey found a significant drop in rents on turnover,” the report said. “It’s early in the year, so it will take time for these lower rents to filter into the market.”

All this, of course, is good news for potential renters. It should get even better, which means trouble for landlords, Dupree + Scott warned apartment owners.

Many large-scale multifamily house projects that got started before the market tanked are just now coming to completion all across Puget Sound, the report notes. “Developers opened 2,500 new units last year. We expect them to open another 6,000 units this year.”

And if that weren’t competition enough, the report also notes that large numbers of apartments taken off the rental market in recent years by developers eager to convert their buildings to condos have gone unsold. They’re now coming back as rentals. So are an increasing number of houses that were either foreclosed upon or have gone unsold.

The recent declines mark the end of some pretty healthy gains for landlords in recent years.

The average rent for a Snohomish County apartment had climbed steadily since the fall of 2004, which marked the tail end of the local recession brought on by Boeing Co. layoffs following the Sept. 11, 2001, terror attacks. Average rents bottomed out then at $744 a month; over the next four years, they shot up nearly 30 percent, to hit $965 a month in September.

Vacancy rates are also approaching levels landlords haven’t seen since then end of that recession. The March average of 6.8 percent is the highest landlords have seen since September 2004, when vacancy rates stood at 7.7 percent.