When a 664-unit apartment property near Microsoft’s headquarters campus in Redmond, Washington, sold in the past month for $286 million, it stood out for more than just its large size.
After six months on the market, Parkside Esterra Park was the biggest sale of that property type in greater Seattle since February 2022. And it broke a price record set just four months earlier, by the sale in Seattle of the iconic zigzag-shaped Skyglass apartment tower.
Greater Seattle's apartment market, ranked among the nation's most expensive for renters and investors, is showing signs of recovery after years of turmoil caused partly by the COVID-19 pandemic.
While multifamily investment sales still remain well below the region's annual average, weighed down by historically high borrowing costs and falling property values, investors from around the country have stepped cautiously back into the market, finishing some of the highest-dollar sales of the past three years as heightened leasing demand and slowing construction have fueled rent growth.
"Seattle is gaining momentum and continues to bounce back from recent market fluctuations and the harsh impacts of the pandemic,” Dylan Simon, executive vice president and multifamily investment broker at Seattle-based Kidder Mathews, said in an email. "We've seen signs of vibrancy, marked by increases in rental rates, growing liquidity and [more] clarity in pricing."
Apartment sales in the Puget Sound area, home to other nationally known names, including online retailer Amazon and web-based travel agent Expedia, rose to roughly $2.3 billion in the first three quarters of this year. That's higher than the $1.7 billion for the same nine months last year — with some of the sales in recent months ranking among the region's highest-priced multifamily deals in years, according to CoStar data.
Local deals reflect a similar rebound in national apartment demand and an uptick in sales across the United States this year, driven by slowing inflation, higher consumer confidence and diminishing concerns of a recession, according to CoStar's Multifamily National Report.
But the greater Seattle market still has drawbacks. Total transaction volume remains a fraction of annual levels that peaked at nearly $10 billion a few years ago, and some multifamily properties have sold for well less than their prior acquisition prices since last year.
Coming to balance
Even so, a strengthening in apartment occupancy and rent growth is helping to lure investors back into the market. The Seattle region's apartment vacancy rate has held steady at just under 7%, well below the national vacancy rate of 8%, even as local developers have finished a record 14,000 apartments over the past year.
After a period of declines in 2023, rental rates have increased nearly 2% over the past year to an average of $2,040 per month in the Puget Sound region, one of North America’s most expensive areas for renters, CoStar data indicates.
Renters leased a net total of 9,800 units in the Puget Sound region in the first nine months of 2024 — nearly double the same period last year — as developers opened a record number of new apartments and the pace of new projects slowed this year.
The recovery in rent growth has caught the attention of executives at Essex Property Trust, one of the nation's largest apartment owners with 62,000 units in Seattle and other major West Coast cities.
Essex's greater Seattle portfolio — accounting for almost 18% of the company's revenue in the third quarter — logged almost 4% year-over-year rent growth on new and renewed leases signed in the quarter, Essex CEO Angela Kleiman told investors during a recent earnings call.
"Seattle has been our top performer this year," Kleiman said. She expects the region's strong job growth to keep driving apartment demand as new renters gradually fill a record number of newly built units.
Elliott Krivenko, CoStar’s director of market analytics in Seattle, adds that "renter demand is ticking up just as construction has started to slow. Balance is emerging."
That’s a significant shift from the past three years, when the effects of the pandemic followed by job cuts by Microsoft, Amazon, and Expedia helped cool renter demand, just as a wave of new apartments hit the market.
Seattle’s vacancy rate had risen steadily from a low of 4.8% in 2021, but may peaked this year at about 7%, despite the onslaught of apartment grand openings, Krivenko said.
“While this is still the highest vacancy rate we’ve seen since 2009, construction is slowing down and demand is picking back up," he added.
Investment return
Some of the latest apartment deals provide signs that institutional-grade multifamily investors are returning to Seattle for the first time in more than two years, before rising high interest rates, high financing costs and slowing rent growth pushed down property values, Krivenko and other analysts said.
"We're starting to see some signs of a return of larger investment firms," Krivenko said. "They still don't represent the outsized impact on total sales and sales volume that they did a couple of years ago, but there are some significant deals."
With fewer apartments breaking ground, the stage is set for a return to sustained rent growth that will “invariably result in a surge in sales prices” in the region, Simon said.
“While still somewhat cautious, investors continued their slow return" in the third quarter, logging $983 million in sales during that time, up 83% year-over-year across 60 transactions, he said. The number of deals also increased 50% from the prior-year period.
Top-dollar deals
The biggest transactions in recent months include the nearly $174 million sale of the brand-new, 29-story Skyglass apartment tower in South Lake Union acquired by an affiliate of Goldman Sachs.
Gemdale, one of China's largest real estate development companies, sold the angled glass tower on July 30 for what was then the highest price paid in the Seattle region for a multifamily property since mid-2022. Virtú Investments, based in the San Francisco Bay area, bought Skyglass just four months after Gemdale finished the project.
This past month, California investment firm Lakevision Capital West's purchase of Parkside Esterra Park in Redmond from an affiliate of Dallas-based Lincoln Property Co. eclipsed Skyglass as the highest-dollar sale in the region in more than two years.
The Parkside property near Microsoft’s headquarters campus sold for about $286 million, making it the largest deal in the region by total price since the 39-story West Edge in downtown Seattle traded for $293 million in February 2022, CoStar data shows.
Parkside Esterra is also the second-biggest sale on record for Seattle's Eastside, where other tech giants such as Amazon, Google and an outpost of Facebook parent Meta have set up shop, providing a steady supply of well-heeled renters.
The recent investment uptick offers more clarity on property values for investors as financial markets adjust to interest rates that have started fall after peaking over the past year, Simon said.
"For owners and potential sellers, this shift suggests that pricing hit a bottom in the past nine months, and the only direction in pricing from here is upward," Simon said.