The multifamily housing market in Spokane County is experiencing a notable shift from underdevelopment to oversaturation. This trend is leading to higher vacancy rates compared to the previous year, influenced by the introduction of numerous new units.
To combat this competitive environment, rent concessions have become increasingly popular, according to industry observers. Carl Durkoop, a senior appraiser at Valbridge Property Advisors, noted the significant amount of ongoing construction.
Recent data from the University of Washington’s Center for Real Estate Research reveals a 23% increase in surveyed apartment units in Spokane County for the first quarter of 2024 compared to the same period in the previous year. Steven Bourassa, director of the Runstad Department of Real Estate at UW, attributes this to the expanded stock from the previous year.
The county’s first-quarter multifamily vacancy rate stands at 4.4%. Over the past year ending in March, 1,700 new apartment units were introduced to the market, with about half being absorbed, as per NAI Black’s Market Report for Greater Spokane and Kootenai County.
Durkoop observes that many projects initiated before the economic changes have contributed to the current oversupply. Consequently, construction starts are slowing, and market equilibrium is expected within the next year.
Multifamily permit data supports this observation, with 318 units permitted in the first quarter of 2024, down 59% from the previous year. One reason for ongoing developments is the rush to submit projects before the new Washington state energy codes took effect in March.
Jordan Tampien, co-founder of 4 Degrees Real Estate, highlights the cost implications of the new codes, which have driven developers to expedite permit submissions. Tampien notes that speculative building during the pandemic, driven by strong housing demand and low financing costs, has led to the current vacancy rate.
Despite a slight decrease in the first quarter of 2024, Spokane County’s vacancy rates have generally increased over the past three years. Multifamily vacancy in the area is slightly higher than the national average, according to Yardi Matrix.
Property owners and managers are increasingly offering rent concessions to boost occupancy. Heather Teston from Goodale & Barbieri Co. mentions that her company has also adopted this strategy to fill vacancies in their properties.
Goodale & Barbieri’s current occupancy rate is at 92%, slightly below the healthy industry standard of 95%. Last year, the company’s occupancy was around 90%, largely due to an influx of evictions following the lifting of restrictions.
Neighborhood occupancy rates vary, with higher rates in North Spokane, Spokane Valley, and Liberty Lake compared to downtown Spokane and lower South Hill. Advertising efforts for vacant units have also increased compared to the pandemic period when Spokane had a 1% vacancy rate.
Tampien estimates 1,200 units under management in 4 Degree’s portfolio in Spokane County, with seasonal variations in occupancy. He anticipates that the multifamily market will eventually stabilize as the current oversupply is absorbed.
First-quarter rents in Spokane County have grown by 1.9% compared to the previous year, with average monthly rents at $1,289. One-bedroom units average $1,099, and two-bedroom units average $1,332.
Factors to watch in the coming year include demand for smaller complexes in infill sites, changes to landlord-tenant laws, and rising legal costs, which could be passed on to tenants.
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By Proptechbuzz
By Ravi Kumar