Puget Sound Region Was the Last to Feel the Pain, and Will Be the First to Recover

Jobs: Driving Puget Sound’s economy in 2011 are the growing tech and biotech industries in the region. For example, Conway Pedersen Economics is expecting the region to add 191,500 jobs over the next five years. This is nearly equal to the number of jobs added to the region between 2003 and 2008.

According to Dupre + Scott, the area has approximately 1.72 million jobs and more than 220,000 occupied apartments in buildings of 20 units or larger. Given that ratio of 7.8 jobs per occupied unit, one would expect demand for up to 24,600 additional units over the next five years.

Demographics: Ever since the Tech Boom, Puget Sound has been a relatively young city. That trend will continue: Dupre + Scott anticipates that nearly 80,000 Gen Yers, a demographic with a significantly high propensity to rent, will enter the Puget Sound housing market over the next five years. What’s more, we anticipate that this preference for renting will continue well beyond the historically typical age at which renters become buyers.

Migration: Conway Pedersen Economics estimates that net migration to the region will total 60,000 people over the next five years, or an average of 12,000 people ­annually.

Development: Given the preceding three factors, and a current vacancy rate around 5 percent, Puget Sound will need to add units to its inventory to meet the demand. However, several significant barriers to entry—including the geographical limitations of the market (mountains and water); the limited availability of construction financing; and restrictive zoning requirements—have minimized the current development pipeline.

Dupre + Scott anticipates that developers will add a mere 2,246 units this year. Going forward, 3,400 new units are expected next year; 4,600 units, in 2013; and 2,500 units, in both 2014 and 2015. These forecasts fall well short of the 24,000-plus units’ worth of demand forecast over the same time ­period.

Overall, these factors will result in strong revenue numbers for apartment owners in the future. Most forecasts anticipate average rent growth in Puget Sound of 4 percent to 5 percent compounded annually over the next five years.

If that assertion proves accurate, the Puget Sound multifamily market can expect to hold its position as one of the strongest and most sought-after markets in the ­country.