3 KEY TAKEAWAYS FROM PUGET SOUND BUSINESS JOURNALS COMMERCIAL REAL ESTATE LEADERS BREAKFAST
I attended the Commercial Real Estate Leaders breakfast, here are my three takeaways, from a residential real estate broker...
Last week I had the pleasure of joining several industry leaders at the SOLD OUT Commercial Real Estate Leaders Breakfast, hosted by the Puget Sound Business Journal. The event was held at the renowned Seattle Sanctuary and featured a “fireside chat” type event with members of Puget Sound Business Journals news team asking questions about the current and future state of the Seattle commercial real estate market.
The line up included Matthew Gardner, Chief Economist for Windermere Real Estate, Kevin Daniels of Daniels Real Estate (developed the Starbucks building, Gridiron condos, and other well-known developments in Seattle), Ada Healy, the Vice President of Real Estate at Vulcan, Steve McConnell managing partner at NBBJ, and Gina Phillips, the General Manager of WeWork Northwest.
Personally, I geek out over the economic development of Seattle, it’s changing landscape, what the future holds for our booming city, and how it affects our real estate market. Plus, to hear from the industry leaders first hand was an opportunity I wouldn’t miss. So, I wanted to give you my 3 biggest takeaways from this event from a residential real estate broker:
Rental Rates will slow down
Let me start by quoting Matthew Gardner: “We’re not overbuilt, just under construction.” If you can believe this, 94% of the 27,000+ housing units expected to deliver in downtown Seattle in the current decade will be rental apartments. Crazy. Ada Healy, vice president of Real Estate for Vulcan also agreed that the rental rates will slowly creep down as these apartments start to deliver. She quoted “6-7% growth is just not sustainable.” Rents in Seattle have grown approximately 50% since 2010. As the job growth has risen, so has the demand for places to live. While we’re anticipated for a lump sum of delivery in the near future, we don’t necessarily see a “halt” in the rental market, just a slow down as the supply catches up with the demand.
I also think the desire buying is starting to linger for the “renters” who have been tenants for a couple years and are finally ready to settle down. They’ve established themselves in their career and feel secure enough to plant roots.
Condos are still iffy?
I was hoping to hear something better come out of Ada Healy, who is at the forefront of the Seattle Real Estate market, when she gave her firm “NO” to condos. She stated that every condo project they’ve done has lost them money and left them in lawsuits. So why would Vulcan and others want to go through this? Matthew Gardner notes, “there aren’t a lot of condo developers in Seattle and in order for it to pencil, they’d need to average ~$1,000/foot.” Which is pushing it for Seattle.
Well, after looking at stats in April, median prices in Seattle rose by 20% to $690,000 from last year and the average price per sq. ft. increased by 23% to $851/foot. Mind you, these are RESALE condominiums that have been lived in. Insignia located in the Denny Triangle was completed in 2015/16 and is consistently experiencing prices exceeding $1,000/foot. The demand is real. Really real.
Now, moving to what's to come, there are only 57 new construction units available to purchase until AT LEAST 2020. The projects that ARE slated to deliver in the coming years are essentially gone through pre-sale and reservations. Reservation events and pre-sale opportunities not only help “justify the buy” for these developers, but prove the demand. NEXUS Condominiums which delivers in Fall of 2019 had hundreds line up to RESERVE condos and only 31 of 391 remain. It’s the same story with KODA Condominiums on 5th and South Main Street which is now 98% reserved and they haven’t even broken ground yet.
Another factor driving demand is the lack of affordable housing in the Seattle area. With 68% of Seattle being zoned residential (versus multi family, aka condos/apartments), this is causing prices to skyrocket for would-be home buyers that are jumping on the condos at “affordable price points.” To give you context to our 68% residential zoning, Seattle times compared this to Manhattans 1% zoning residential, Chicago’s 37%, and Miami 51%. As of right now, there are only 100 condominiums for sale in Downtown Seattle (area 701) and only TWO are listed for less than $500,000. Even if I expand the search to Ballard/Greenlake/QueenAnne (Areas 700, 701, and 705), there are still only 25 condos for sale under $500,000. In a city of over 700,000, this just isn't right.
Matthew Gardner said it himself “I don’t think there's’ a flood of condos coming, but I know there’s a demand.”
Seattle will continue to have a bright future
Surprise! There’s no real end in sight. At least for now. Seattle is “in the 8th inning” according to Matthew Gardner, who states that our market is extremely attractive to bay area residents and employers because our dollar stretches significantly farther. Our office space essentially costs half to lease (attractive to employers), residential real estate (rents/home prices) are cheaper, and there's no state income tax, making it a no-brainer for these bay area residents. Gina Phillips of WeWork also believes in our city. They’re responding boldly. Since 2013, WeWork’s added a total of six locations, with ambitions to lease up to 2 million square feet (150% growth). She stated they’re going to explore the prospect of the WeLive concept in Seattle (work/live building), where renters can live, work, have access to a pre school, and more.
So what’s driving people up here and keeping them up here? Gardner states “Our technology has driven the amount of people up here as well. We’re hopeful because the diversity of business we have.” We are driven by Boeing, Amazon, Microsoft, Google’s ever growing presence, Facebook's growing presence, Apple, and ALL of the startups that are continuing to grow and flock here. There’s opportunity and people around the US and world are taking note. Since 2000, King Counties population has grown more than 25% and we’ve added over 85,000 new residents between April 2015-2016.
Ada Healy states “Job growth drives up demand,” and until the job growth slows down, our housing demand won’t. Amazon employs 40,000 in our area (with ambitions of 60,000), has more than 5,500 jobs listed, and our unemployment rate is LESS THAN 4%. And don’t worry about Amazon’s “HQ2,” Gardner states “They’re not leaving Seattle, they’re just expanding” and notes his top 3 locations for HQ2 include Austin Texas, Washington D.C., and Atlanta.
In conclusion, there was a lot that was covered. Seattle’s growth is still rising, apartments are going to be a “doozy” to watch and condos are still “iffy.” It will be interesting to see how the next couple of years pan out.
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