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Dec 18
2009
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Like quite a few other metros across the country, Seattle saw a little demand for apartments return during recent months. About 2,800 apartments were absorbed during the prime leasing months of 2nd and 3rd quarter. However, with the metro adding new apartments - including quite a few developments that began construction as condos - at levels way above the historical norm this year, occupancy continues to falter. And rent cuts are some of the deepest seen anywhere across the country.
Seattle's apartment occupancy rate registered at 92.3 percent as of September, down only a modest 0.2 points on a quarterly basis but below fall 2008's rate by a notable 2.6 points. Since peaking in early 2007, Seattle occupancy has dropped almost 5 percentage points.
Seattle's biggest blow to apartment revenues hasn't come from the loss in occupancy, however. The stunning drain on rental incomes has been the deterioration of pricing power. Average monthly rents in the metro were down to $989 as of 3rd quarter. Measuring change on a same-store basis, effective rents that incorporate the impact of widespread and deep giveaways fell another 1.6 percent between June and September. Those losses took Seattle's annual rent plunge to an even 10 percent, with the metro joining San Jose and Fort Myers on the list of markets whacking away at rents at annual paces reaching double digits as of 3rd quarter.
While no neighborhood in Seattle has escaped the sharp downturn occurring in the metro's apartment market fundamentals, the pain is particularly pronounced in the West Bellevue/Mercer Island area. This locale, found just across Lake Washington from downtown Seattle, was in the midst of one of the nation's most dramatic makeovers when the local economy tanked. So now there's a wave of brand new, ultra-luxury apartment and condo units in mid-rise and high-rise configuration that are struggling to find residents.
Occupancy in West Bellevue/Mercer Island stood at just 88.7 percent as of September, after dropping more than 7 points on an annual basis. While that low occupancy mainly just reflects the new completions that still are in initial lease-up, stabilized properties are being forced to slash rents to hold onto residents. Same-store rents declined 3.2 percent specifically during 3rd quarter, and annual rent change as of September was -15.6 percent.
West Bellevue/Mercer Island's struggle will continue during the near term, since the neighborhood still has quite a bit of additional new supply on the way. Going into 4th quarter, almost 1,600 units still were under construction, with the submarket's last blast of new product for the cycle not arriving until a 400-unit, 23-story tower is finished at the beginning of 2011. Since the submarket's existing product base still is fairly small, those 1,600 or so new units will grow inventory by an amazing 22 percent.
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