Market Experts and Brokers Discuss Urbanization Trends and the Condominium Conundrum
Things are looking up, Seattle! That’s the clear consensus of market pundits tracking the extraordinary growth of jobs, population and development into 2020 and beyond. Nowhere is this growth more evident than in downtown Seattle. These were just a few of many findings during the October 23rd meeting of the FutureCast Forum held at the NEXUS Sales Center – a new, 41-story condominium tower that is rising in the northeast corner of city. Members of the FutureCast Forum include industry leaders in design and development, real estate appraisals and economics, wealth management and investment, mortgage lending, retail and lifestyle trends. Each contributor offers a unique perspective on how our city is growing into the next decade and rapid urbanization is the common thread.
“Meteoric economic expansion and the resulting demand for housing is putting unprecedented pressure on the region to grow but there’s only so much land and very limited high-density zoning,” said Dean Jones, President and CEO of Realogics Sotheby’s International Realty (RSIR) and a Founding Member of the FutureCast Forum. “We must grow up and not out – this is the Manhattanization of Seattle. While regional transportation solutions like Sound Transit 3 will help, it’s at least another decade away from having a material impact.”
To be sure, Seattle is already the fastest-growing large city in the US. It also tops other lists nationally including the highest median home price increases (now 12 months in a row), the most tech jobs and the top prospect for real estate investment in 2018 as ranked by the Urban Land Institute’s much-anticipated Emerging Trends report. Given demand for nearly every real estate segment, it’s of little surprise that The Emerald City is also home to more tower cranes than anywhere in America. And as if the domestic demand wasn’t enough, Seattle is also the top city being searched by Chinese nationals in 2017, according to Juwai.com – a popular real estate search portal overseas.
“We have tracked the market cycles and composition of single-family and multi-family development over the past 50 years,” said O’Connor. “This current economic cycle is the longest on record but it’s also very much dominated by multifamily development. What’s also different this round is that so much of the activity is taking place in the urban core and there’s an overwhelming preference to build apartments for rent instead of condominiums for sale.”
Graphs presented by O’Connor Consulting Group indicate a dramatic drop in single-family development in the region and a focus on building urban apartments, despite falling interest rates.
There was much discussion about Amazon’s search for a second headquarters curtailing regional growth but presenters noted the online retailer has publicly committed to more than 13 million square feet of office space and commercial brokers suggest this could easily surpass 15 million square feet in the near future. Other tech titans include Facebook, Apple, Tableau, Expedia, F5 and Alibaba to name a few – all of which agree urban campuses in downtown Seattle are the best way to recruit and retain talent. That amounts to a “tech ecosystem” as coined by Dylan Simon, a commercial broker with Colliers International and a FutureCast Forum member.
All those jobs create demand for additional housing but Jones warned that 94-percent of the 27,000+ housing units expected to deliver in downtown Seattle in the current decade will be rental apartments and not for sale. Furthermore, two-thirds of what’s under construction as condominiums before 2020 have already been presold.
“We’re experiencing a condo crunch – in fact for 2017, there will be zero deliveries of new for sale housing downtown,” adds Jones. “The resale market is having to digest the rising demand and as such, prices are rising quickly. This market pressure is emanating out from the urban centers where most of the job openings are located.”
According to the Northwest Multiple Listing Service, there are just 48 resale properties listed for sale in downtown Seattle, an urban center of more than 70,000 residents. Only nine of these homes are priced below $700,000. In fact, the median asking price of resale condominium is now $1,474,000 because two-thirds of the homes offered are priced above $1,000,000.
“Affordability is becoming a real challenge and many new residents are forced to rent,” said O’Connor. “Others simply drive until they can find attainable housing, which also contributes to Seattle joining the top ten worst commuter markets in the US.”
Graphs presented by RSIR demonstrate the fast-rising resale market for in-city condominiums in light of zero new homes being delivered in downtown Seattle for 2017 – median home prices skyrocketed 35-percent to $675,000 in September compared with the prior year.
Last year, more people moved into King County from out of state than ever before, according to Washington Department of Driver’s Licenses. One in five came from California, perhaps because the Silicon Forest is a relative bargain compared to the Silicon Valley. A new report by Zillow states median home values nationally are $202,700 or 6.9-percent higher than a year ago. Meanwhile in San Jose, CA they rose to $1,052,500 for an increase of 10.3-percent year-over-year. In the Seattle metro area this growth was greatest with a 12.4-percent increase but median home prices were just $455,800. While home values are rising faster in Seattle they are still less than half the price of peer markets in California. The trends are similar with rents. According to Zillow, Seattle has the second fastest rent growth in the nation, up 5.5-percent annually on a median of $2,189 per month and second only to Riverside, CA, which posted slightly higher rent growth at 6-percent but maintains a lower median rent at $1,833 per month.
Relative affordability is just one reason so many Bay Area tech companies have descended upon downtown Seattle. Not only is office space and housing in Seattle approximately half the price compared to the Silicon Valley but the overall cost of living for new recruits is lower. Washington also doesn’t have a state income tax while California has one of the highest combined tax rates in the US.
“Many of these new residents will want to rent for a few years but we’re starting to see a pivot in our demand models for increased ownership,” suggests O’Connor.
O’Connor points to ripening demographics incubating in downtown Seattle. He says many new residents that may have been renting for years will desire to lock in their housing costs, enjoy the tax benefits of ownership and cash in on the real estate gold rush. This pressure will only rise as interest rates and median home prices increase.
“The fact is, we’re not building enough product for sale,” adds O’Connor. “Prices are going to climb because of a supply and demand imbalance but also because of higher land and construction costs. It costs more to build new inventory so waiting to buy will cost more.”
The venue for this FutureCast Forum event was particularly appropriate. NEXUS continues to experience brisk sales and remains the only high-rise condominium currently offered for presales in downtown Seattle. Since its public debut in March 2017, more than 82-percent of the 389 homes have been presold.
Prospective buyers interested in exploring this opportunity are encouraged to register online at www.NEXUSseattle.com