Spokane-area apartment market favors renters
While Spokane’s economy slowly gains steam, one group that’s coming out ahead, so far anyway, is apartment renters.
Renters across the Spokane region are finding they have plenty of apartments to choose from as builders of multifamily housing crank out hundreds of units a year. Despite all this activity, apartment rents are stable and much lower than those in the Seattle area, where rents are soaring.
Last year, builders added 888 apartment units in Spokane County. This year, with more than two months to go, builders have added 899 units.
So many new apartment units are coming online that many economy-watchers are asking the same question: Who’s moving into them?
Many renters are the traditional younger crowd who don’t want or can’t afford to buy a home. But another factor seems to be a change in homeownership among empty-nesters, said Jim Frank, CEO of Liberty Lake-based Greenstone Homes, one of the region’s largest developers.
“A larger number of empty-nesters and seniors are finding that renting is a preferable lifestyle option,” Frank said.
That choice is driven by the desire to avoid home maintenance and the cost-cutting impulse to downsize into a smaller residence, he said.
“Some of our (apartment) projects have as many as 25 percent of the units occupied by empty-nesters or seniors,” Frank said.
Frank acknowledged the area’s apartment growth also reflects the difficulty younger people have in qualifying for traditional home loans. That effect, coupled with the empty-nester change, probably accounts for “the big shift that increases demand for rental properties,” he said.
Frank is not the only builder trying to play his cards right. The strategy for developers is to feed the market but not get caught when the market is flooded with units.
Three years ago, the Tri-Cities was one of the hottest housing markets, said Chris Bornhoft, a Spokane broker and owner of several Spokane and Clarkston apartment buildings.
At that point, the vacancy rate was near zero and builders started pouring in to satisfy the demand, he said. Then the layoffs began and the boom deflated, Bornhoft said.
“Very quickly, you had 12 percent vacancy,” he said.
Scott Kisting, CEO of AmericanWest Bank, said his institution is still eager to make loans to experienced multifamily developers.
But Kisting said he wouldn’t be surprised to see the pace of growth slow next year.
“Have we hit the peak? I don’t know,” he said, but Spokane’s market was fortunate in not having too many homes built during the last boom, in 2005-07. Without a surplus, there has been enough demand for housing to justify more multifamily construction, Kisting said.
“Spokane is still a good market. It’s not yet saturated (with multifamily units),” he said.
The surge in apartment construction has kept rental rates from going up too fast.
In spring 2012, Spokane’s average rent was $697, said Glenn Crellin, associate director for research at the University of Washington’s Runstad Center for Real Estate Studies. This year Spokane’s average rent is just $2 higher, Crellin said.
In the past year, the statewide average rent went from $960 to $1,017, most of that caused by the King County market where a number of companies, including Amazon.com, are adding jobs and attracting younger workers.
The Spokane market’s current apartment vacancy rate is 3.9 percent, according to figures gathered by Valbridge Property Advisors. That vacancy rate has shrunk even as more units come on the market; in June 2011 the rate was 6 percent in Spokane County.
Bankers become more cautious about lending to apartment developers when the vacancy rate climbs closer to 10 percent.
Meanwhile, new rental projects in the works for 2014 include:
• Kendall Yards will add 24 apartment units in a mixed-use building and another 60 units to be built west of the 84-unit Highline apartments nearly completed. The Highline project is now 75 percent leased, a Greenstone spokesman said.
• Greenstone’s River District development in Liberty Lake will add 50 units, primarily for seniors.
• The Cedar Crossing mixed-use development in northwest Spokane will add 36 apartments. Developer Gib Brumback said those units should be filled quickly, based on his research of the rental market in northwest Spokane.
• Harlan Douglass’ Stonehorse at Wandermere development in north Spokane will add 70 units by May, in the project’s first phase. That will be followed by roughly another 340 apartment and duplex units over the next three years.
• The Wolff Co., which recently completed the 216-unit River House at the Trailhead apartments in Spokane Valley, plans to add another project just north of that development. Alvin “Fritz” Wolff Jr., the company chairman, said the new development will add about 100 new apartments. Like the River House development, they’ll be marketed to those who want access to parks, the Centennial Trail and nearby shopping.