Industry Thought Leaders Array Impressive Trajectory for Downtown Seattle’s Comeback Amidst Rising Demand and Limited Supply for In-City Housing
On March 30th, more than 300 real estate brokers and members of the housing market convened at The Seattle Design Center for the 2022 FutureCast Forum to review the current state of the residential marketplace with a view toward downtown Seattle.
John Scholes, President & CEO of Downtown Seattle Association, started the forum by reminding attendees that DSA is comprised over 600+ members that are committed to the renaissance of downtown Seattle.
Scholes pointed out that 2021 marked an inflection point in downtown’s housing market with 1.5 times the number of people returning to live downtown compared to those who left in 2020 during the pandemic. In fact, the city center will soon top 100,000 residents.
However, supply and demand in downtown will become increasingly unbalanced, especially for homeowners over the next few years. Dean Jones, President & CEO of Realogics Sotheby’s International Realty, highlighted that in 2021 there was a 90% drop in condominium and rental groundbreakings due to high construction costs and the pandemic. This drought in new for-sale inventory will become stark by 2023 and 2024, when only one high-rise project, Graystone Condominiums, will deliver new homes. No new condominiums are expected to deliver in 2025.
Even if new groundbreakings do occur, according to Jones, fewer than 1,500 new condominiums are anticipated to enter the market in the coming years. With a steep rise in construction costs (estimated to be 30% higher than before the pandemic), the average selling price during presales would need to support $1,400-1,500 per sq. ft. to pencil, which is 25-30% higher than new construction values today. Hence, prices must rise, or new projects will be deferred until they do, furthering the supply and demand imbalance, and creating a self-fulfilling prophecy.
This drought is at a pivotal time when millennials are beginning to purchase their first home. “Think of the Amazon effect alone,” commented Jonathan Sposato, Co-Founder of Geekwire and CEO/Owner of Seattle Magazine and Seattle Business Magazine.
Sposato remarked that there are about 50,000 Amazon employees in the region, and they own about 160 million Restricted Stock Units (RSU’s) worth half a trillion dollars. He said Seattle boasts incredible wealth held by a huge number of millennials who have yet to purchase a home. As a former Microsoft and technology leader, he speaks from experience as a techy renter turned homeowner.
Christine Madrid, Loan Consultant / NW Builder Sales Manager of Caliber Home Loans, concurred noting that “condominiums are making a comeback because they are more affordable options compared to townhomes or single-family homes. “As interest rates rise 1%, the loss of purchase power contracts by about 10%, so other property types may soon prove to be out of reach for many.”
Matthew Gardner, Chief Economist of Windermere Real Estate, is watching Fed policies to curb inflation but notes consumer’s pent-up desire to travel and spend post-pandemic is fueling economic growth. He said there could be “some potential for a slight recession in 2023 or 2024”, but then again, the panel concurred a Fed reaction would be to ease back on interest rates if that occurs and makes the prospect of purchasing during presale at a condominium logical to lock in today’s price, and potentially, enjoy lower interest rates upon closing. Presale buyers may also have a home to sell in a year or so, and they’ll likely enjoy appreciation on that asset in a rising market, before moving to their new condominium.
With projects like Graystone scheduled to delivery on homes in just over a year away – there are also opportunities to lock in the interest rates before 2023.
The panel also discussed downsizing empty-nesters who have the potential to take advantage of capital gains tax deferral strategies like Delaware Statutory Trusts (DST’s) and Qualified Opportunity Zones.
Amy Mutal Principal / Financial Advisor of Prevail Wealth Management, LLC suggested that thousands of candidates in the region will make this move in the years. She believes upward pressure on capital gains tax rates, and the potential for new policies extending QOZ’s will encourage more to seek the council of wealth managers and advisors like real estate brokers. Coined the “silver tsunami” would-be sellers of large single-family homes will seek out the flexibility and convenience of in-city, condominium living while also exploring second homeownership in a resort destination market.
“My clients are planning for their future and right-sizing their home and their investment profiles is part of the program,” said Mutal. “Living in an amenity-rich condominium certainly fits the bill.”
Luis Borrero, Development Manager for Daniels Real Estate, highlighted that residents at Graystone, through its concierge program with Columbia Hospitality, will have preferred access to more than 70 hotels, golf courses, spas, restaurants, and singular special perks at The Lodge at St. Edward State Park, a Daniels Real Estate property.
“From a design perspective, we engineered the amenities and services at Graystone to deliver on a life better lived,” said Borrero. “Residents are not just living in their individual residence, but within a vertical village of common spaces, as well as special access to luxury resorts and lifestyle attractions.”
The collective opinion was “don’t bet against Seattle” – the metro area boasts phenomenal market fundamentals with regional housing prices rising at upwards of 2% per month, significant job growth, steep population growth and a “boomerang effect” of consumers and business returning the urban center.
“Seattle is well-positioned,” said Gardner. He noted the lack of a state income tax and prospects for economic expansion bodes well for the region, especially as more and more residents enjoy the relative values, runway for future appreciation and preferred tax profile when compared with more expensive markets like California.
“Our DSA members are very engaged in the recovery of downtown Seattle,” added Scholes. He’s witness to scores of businesses reopening, apartment buildings filling up quickly, condos selling well and offices are repopulating. Major projects like the Washington State Convention Center expansion and the $1 billion+ waterfront park are well underway.
“I’m bullish on Seattle,” said Sposato, as he drew parallels to his experience growing up in New York City, and he witnessed how Manhattan was transformed under leadership of Mayor Rudy Giuliani in the 1990’s to become, once again, one of the great cities in the world. According to Nikki Field, a top-producing broker with Sotheby’s International Realty is New York City is “beyond back”, post pandemic, and it provides a harbinger for Seattle’s return.
Jones validated that market cycles are clearly defined, especially with high-rise development because “demand can rise much quicker than supply”. Even after the extraordinary and temporary impacts to urban markets caused by the pandemic, he notes the “lows are always higher and the highs are always higher”, and Seattle is proving to follow this trajectory with its recovery.