The Condo Comeback
Following a record apartment construction surge that delivered more than 12,000 new rental housing units in downtown Seattle, it’s curious that, since 2011, only 866 condominiums were added. What’s more extraordinary is that so few of those new condominiums remain available to purchase today. Simply put, 99-percent of what was built for sale in the last five years has been sold and more than two-thirds of what’s planned for delivery by 2019 is already reserved through priority pre-sale.
Among the few planned condominium buildings in the downtown area is NEXUS – a 41-story, 382-unit high-rise, located at 1200 Howell Street, is slated to break ground in January 2017 with occupancy by mid-2019. Its developer, Vancouver-based Burrard Group, took a unique stance on the market by choosing to build for sale, while 94-percent of the historic supply was built for rent. A demand to own was clearly underscored by hundreds of pre-sale buyers lining up on June 4th, some of which slept overnight, in order to secure a reservation for priority pre-sales. Reservations are offered for a $5,000 refundable deposit and provide prospective home buyers with a unit specific and first right of opportunity to purchase when the homes are officially released for sale in the New Year.
NEXUS reservation holders are savvy and now enjoy a preferred position in the next development cycle, according to Michael Cannon, Sales Director for the development.
“Our buyers realize the market is rising and see the value of securing an option to purchase without fear of multiple offers, price escalation or worse – missing out on the opportunity to purchase a home in one of the few developments likely to deliver before 2020,” said Cannon. “NEXUS isn’t quite like anything that has been offered before in downtown Seattle – progressive architecture, flexible floor plans, robust amenities, and high-tech features – NEXUS has become an exclamation point on the buy vs. rent debate.”
Cannon believes an unprecedented number of apartment dwellers are considering their options with ownership, especially at more attainable price points below $600,000, as down payments require are set at 5-percent of the purchase price and mortgage payments are typically the same as prevailing rents in comparable apartments.
More than 80-percent of the homes at NEXUS are currently reserved.
“It’s a stark reminder that when it comes to new construction high-rises, demand can rise much quicker than supply,” says Dean Jones, President and CEO of Realogics Sotheby’s International Realty (RSIR). “It can take three to four years to design, entitle and build a new condominium tower. Median home prices are rising by double-digits year-over-year, which is only driving more demand for pre-sales in today’s escalating housing market.”
The Seattle metro area has become the second fastest-growing home market in the US according to S&P/Case-Shiller, rising 11.4-percent year-over-year in September 2016. Nowhere is that demand more evident than in the center city markets. Year-to-date, as of October 2016, the median home price of a downtown Seattle condominium has increased by 16-percent to $650,000 while total absorption increased by 17-percent year-over-year, per NWMLS analysis by RSIR.
Currently, there are only 7 new construction units available in recently developed towers and fewer than 60 resale homes available on the market, according to NWMLS records. It’s not just the lower priced units in demand either. On November 11th, RSIR broker Scott Wasner closed a sub-penthouse unit at Escala, eclipsing his prior record set in 2010 at The Four Seasons Private Residences. The 5,170-sq. ft. listing was the inspiration for the 50 Shades of Grey book and fetched fifty shades of green at $8 million with one day on the market – that’s $1,547 per sq. ft.
Jones suggests the shortage of new condominiums has less to do with consumer demand and more to do with developer preferences. Rents have risen by more than 40-percent over the last five years, buoyed by a boundless number of new residents chasing thousands of high-paying tech jobs within the expanding urban campuses at Amazon and Facebook, not to mention new facilities planned by Google and Expedia in downtown Seattle. Apple is also rumored to be expanding their offices in the region.
“Seattle has become a preferred job fulfillment center for large tech firms based here and for those headquartered in the Bay Area as well,” said David Speers, Sr. Vice President and Partner of Kidder Mathews, a leading commercial real estate brokerage with offices throughout the West Coast. “It’s far easier to recruit to an urban campus in downtown Seattle because the cost of living is considerably lower than California but the salaries are similar and we don’t have a state income tax in Washington.”
According to the Washington State Department of Licensing, 201,181 out-of-state drivers obtained a Washington driver license in a 12 month period since October 2015, an increase of 4.8% over the same period a year earlier. The top three states which people moved to Washington from include California with 40,923, Oregon with 22,172 and Texas with 11,456. Approximately 40-percent of those new residents established residence in King County and most prefer the urban centers of Seattle and Bellevue.
Despite the boom of development, Speers notes that Millennial tech workers have been filling up office towers and nearby apartment towers as fast as they can be built. As long as the jobs are present, he says that demand to rent and to own will follow suit. But why so few condominiums?
“Sky high rents and low capitalization rates means that apartment builders can sell a rental tower to a single institutional investor at a value similar to selling condos to hundreds of individuals,” explains Jones. “Developers are not in public service – they seek the strongest returns with the lowest risk.”
It makes sense most new residents will initially seek to rent as they settle into their new job but Jones says this trend has been going on for years. “If only 5-percent of the most recent apartment dwellers decided to buy, and I think that’s possible – we’ll be out of new and resale inventory until 2020,” he adds.
The National Association of Realtors states that October 2016 was the strongest month for existing home sales in nearly a decade, spurred by a stable job market, high consumer confidence, and low but rising interest rates. Their nationwide survey states only 33-percent of people planning on purchasing a home were first time buyers in 2016. In 2017 this demographic is expected to jump to 52% with a staggering 61% of the perspective buyers under the age of 35.
Rising lease rates spur an increase in buyers. The median rent for a one bedroom in Seattle is now $1,820 per month, according to Zumper – the 9th most expensive market in the US. Meanwhile Zillow finds 22-percent of Seattle area renters are qualified to buy, having both the incomes and the FICO scores to own. Given the limited supply and rising demand, it’s little surprise Redfin confirms more than two-thirds of houses for sale in Seattle are under contract in less than two weeks.
That’s what happened in Ballard, where a two bedroom, one bathroom home on a 3,900 – sq. ft. lot was listed for $650,000 and sold after 8 days with many offers submitted. RSIR broker Eleanor Heyrich says the closing will set a price per sq. ft. record for the neighborhood as the home has only 940 sq. ft. of finished living area.
“You know it’s highly competitive when a nearly century old home is the same size and price of a high-rise condominium in downtown Seattle,” says Heyrich. “Buyers are laser focused on neighborhoods close to job centers to avoid the freeway traffic jams. Just wait until Expedia relocates thousands of jobs from Bellevue to Interbay – Sound Transit’s expanded light rail may be too little, too late.”
Heyrich calls it like it is with Seattle traffic, “You can see where you are trying to get to but the gridlock won’t let you,”. And that’s not likely to change anytime soon as small town infrastructure struggles with big city growth. There’s nowhere to go but up.
“The high-rise zoned areas of central Puget Sound are effectively limited to downtown Seattle and downtown Bellevue – a combined area of about two miles by ten miles like the island of Manhattan,” says Jones. “Except, we have Lake Washington and single-family zoned neighborhoods that dominate our region unlike New York City. Our urban centers are relatively small, hence the boom of land sales and high-rise development taking place.”
With its enviable location, cutting edge design, and high-tech features NEXUS is unique on many levels. Perhaps its most notable attribute may be the fact that it has inventory for sale — at least for now. Homes at NEXUS will start from the low $300,000s to more than $3 million.