We may be misguided giving the urbanite label to Millennials driving the current apartment boom in Seattle.
Certainly, they’re the ones picking up the high-income tech jobs behind all the cranes that dot Seattle’s skyline. But reliable studies show many Millennial apartment renters may actually be warming up to the idea of living and renting in the suburbs.
And that could mean a real opportunity for investors.
A study by MPF Market Research found suburban rental rates have risen 19 perecent while urban rental rates rose 14 percent across the nation since 2013, giving the edge to the suburbs in the rent-increase game. Of course, suburban rents already start out significantly below the newer multi-story steel and glass towers being erected in Seattle’s core. But the marginal increase in rents is important as that is really what investors are chasing.
This isn’t just a moment in time either. A separate report found that over five-, 10- and 15-year timespans, high-end suburbs have produced higher risk-adjusted returns for investors than urban core assets. The data in our local Puget Sound market validates the same pattern.
The best performers seem to be suburban locations that offer mini-town centers and locations along commute corridors. Where we find both, apartment investors are earning steady returns relative to risk.
In Snohomish County, Mill Creek Town Center and Bothell Landing both fit this narrative. So do lesser-known locations around Stanwood-Camano Village, Smokey Point, Arlington and other areas of north Snohomish County accessible to jobs centers and Quil Ceda Village, with its entertainment and shopping amenities.
Forecasting supply and demand with these new assumptions about Millennial rent demand patterns gets interesting. As the urban center of Seattle begins to over-supply, will landlords there drop rents? If they do, will that impact demand in the suburbs?
One school of thought is that these markets operate in parallel universes, with high-rise, secured-entry urban product in Seattle serving a much higher income earner than the garden-style two- to three-story product most prominent in suburban markets. The cost jump for renters from the most of the suburbs to the city, goes the theory, is just too high even if landlords in Seattle drop rents by some modest amount in order to attract renters.
One thing is for sure, Millennial wants and needs rule the apartment market now. They’re a bigger group than their Baby Boomer parents and make up the largest segment of the rental pool in American history, with a convenience and lifestyle orientation unique to them and fitting for an apartment product as a housing solution deeper into their adult lives.
Tom Hoban is CEO of The Coast Group of Companies. Contact him at 425-339-3638, or tomhoban@coastmgt.com or visit www.coastmgt.com. Twitter: @Tom_P_Hoban.
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