Development trends

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Dupre + Scott Apartment Advisors, Inc

The party has been going on for almost a year and there are no signs it's stopping anytime soon. We have updated information this week on more than 200 apartment projects that are under construction or in the planning phase, so we wanted to share some preliminary results.

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Forecasts are beautiful things to observe. Okay, maybe not as beautiful as a Chihuly glass garden. But just as fragile. That’s why the first rule of forecasting is, don’t. And the second rule is, if you must forecast, do it often. We won’t update our forecast for rents, vacancies, net income, development, and price trends until October. But since we’re almost half way through 2014 this is a good time to look at two key factors that will impact our next forecast.

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When we saw Daft Punk win Record of the year for “Get Lucky” at the Grammy’s last week, we were blown away by how meaningful those lyrics are to a lot of people in our region’s apartment market, especially developers, investors, professional property managers, and their on-site teams. So their record, “Get Lucky” got us thinking about some issues. And, in addition to looking at some of these current trends, we've added a little humor with something different, a song paying tribute to the tireless efforts of the on-site property management team. The next couple of years will be challenging as they find new creative ways to fill more new apartment units than our region has seen in almost 25 years, and back-fill existing ones.

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Dupre + Scott Apartment Advisors, Inc

Behind me is the Dente del Giante, or Giant’s Tooth, in Italy. I told our guide that it looked more like a thumb to me. That started me thinking about apartments and useful rules-of-thumb investors can use. For example: The economic news always focuses on the unemployment rate. I don’t want to sound cold and uncaring, but that’s not the most important statistic right now. At least it isn’t for apartment investors who want to figure out what will happen to vacancies and rents.

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Apartment demand rule of thumb

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Dupre + Scott Apartment Advisors, Inc

A lot of investors are bullish on our region’s apartment market. They have seen rents climb over the past few years and expect more of the same. Others are worried that new development will increase vacancies and lower rents and values. The key is for investors to look at all of the inflationary and deflationary trends in the market, not just the one thing they might be fixated on today. It’s like the Patriots letting air out of footballs. Let's see how.

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We usually talk about trends for 20-unit and larger apartments. But there are a lot more investors involved in smaller rental properties like single-family rentals, multiplexes, and 5 to 19 unit apartment buildings. This spring we surveyed just over 2,200 20-unit and larger properties for our Apartment Vacancy Report and more than 6,400 smaller properties for our 1-19 Unit rent & Vacancy Report. So this week we will talk about some of the trends we found in King County from our smaller property survey.

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According to the two finest philosophers of the past 100 years, when you are negotiating to buy an apartment building you have to decide on one of two strategies. The philosophers, Jagger & Richards in their 1968 treatise, “Let it Bleed”, identified the “Get what you want strategy” and suggested an alternate “Get what you need strategy.” Let’s start with the “get what you want” strategy.

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We take a look at migration trends every month. They are important to our region's housing market so it pays for investors to keep tabs on what's happening. And month after month we have been reporting better news than the month before. You have to start wondering when the good news will stop. Well, maybe this is the month. There is good news. A lot of it. But we’ve found some bad news too. First, let’s look at the good news.

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