Neighborhoods on the Edge

By Patty Dupre & Mike Scott or Dupre + Scott Apartment Advisors

Hello, I’m Oprah Winfrey. Some apartment investors are making serious and shocking accusations about the behavior of a number of neighborhoods in the Puget Sound region. So today I am interviewing representatives from two of these neighborhoods. Turning to our guests on the couch, please welcome Downtown’s Viktoria and Pillar Ballard.
Thank you for coming. So, are these truly shocking accusations true? Are you both on steroids?
According to our Apartment Development Report, developers will add 5,600 units in the Belltown/Downtown/South Lake Union market in the next three years. That’s a 70% increase in the number of 20-unit and larger market rate apartments. When you look at long term development trends, this growth rate looks shocking.
And Ballard will more than double its size in the next three years. Developers expect to open 2,000 units. In the past 16 years they only opened fewer than 600 units there. These are just two of many examples of neighborhoods that appear to be on steroids.
Suburban to urban A fundamental shift taking place. More consumers want to live in urban areas. In the last big building boom in the late 1980s almost 90% of the development was in the suburbs. Suburban development makes up only 44% of the activity now. That’s why these urban development trends look frightening. We haven’t seen this before, at least not in these neighborhoods. But we have seen it elsewhere.
What can history tell us?
Juanita grew by 160% in the three years from 1985 to 1987. Vacancies climbed steadily as property managers dealt with all the new supply. But then the market adjusted and vacancies fell again, and fell quickly. Let’s look at another neighborhood. The number of apartments in Redmond almost doubled in just three years. And the stock almost tripled in six years.
That’s a dramatic increase. As a result, vacancies shot up quickly. But then then they fell, almost as quickly. The bottom line: Supply trends are important. And they can look scary sometimes, especially when viewed in isolation. But supply is just one factor. You need to look at other factors that will determine the health of a neighborhood, like the shift from suburban to urban we just talked about.
Important considerations We also need to look at everything that impacts demand, including the impact of jobs, GenY consumers, and the exploding Geezer population. Plus, at least right now, apartment development is providing the lion’s share of all housing development in this market. That’s unusual, but condominium development is virtually nonexistent and single family development is well below its normal level.
And some of our previous articles over the past couple of years looked at other trends that have a huge impact on apartment demand. One major trend includes the shift from a McMansion mentality to an iHome mentality. Another important trend is the evolution of consumer goals. We discussed it in a tongue-incheek way by showing how housing consumer goals have shifted away from the suburban home with a white picket fence, seen in shows in the 1950s and 60s like Leave it to Beaver, towards an active urban lifestyle in an apartment like television portrays in shows like Seinfeld, Friends, the Big Bang Theory, and others.
Dupre + Scott Apartment Advisors, Seattle WA ( · The company provides research on apartment market and investment trends in the Puget Sound region. © 2013 by Dupre + Scott. All rights reserved.