Published April 2004

Phone call signals hope
for sluggish rental market

It was the first call from this particular referral source that I’d gotten with a bit of good news in literally three years: “Tom, we have some people coming in from Korea who are vendors to the 7E7 program. They need to rent apartments. Can you help us find something for them?”

I had to pause a moment just to take in what had happened. Instead of disappointing economic news, he was calling with a need to rent apartments. A new need. New people. New jobs. Not someone moving from one end of town to another.

“Sure. Somewhere in the double-digit current vacancies throughout Snohomish County, I’m sure we could find them something,” I replied in a professional but eager manner.

The vacancy situation with most of Snohomish County apartment product today is anywhere from 8 percent to 18 percent when you count the number of units in which no one is living. This is the number of units that are, as the name suggests, physically vacant at any point in time.

But when you add in rent specials or move-in incentives like those we see advertised every day, you add another 5 percent on top of that, pushing the true economic vacancy loss into the 13 percent-to-23 percent range, depending on location. South Everett may have been the hardest hit, since the direct linkage to the Boeing layoffs since 9/11 is more pronounced there.

If the economy is, indeed, expanding, then it’s only a matter of time until existing business capacity is reached and jobs are created. With the speed that we achieve more efficiencies in business now, we’ll probably have to get used to economic recovery that takes a little longer to create these jobs, as this one seems to be teaching us. But it’s just a matter of time before the job growth will come if the economy continues to expand.

In Snohomish County, the Boeing 7E7 program may be just the sort of shot in the arm this market needs to dig out of the current vacancy situation over the next couple of years. Biotech and some other sectors that are expanding are also apt to create jobs soon if not already.

Fortunately, there’s little new supply of apartment product in the pipeline, so developers are wisely behaving cautiously during these soft times. In fact, it’s likely to be some time before demand is adequate to fill up the existing supply countywide and stimulate any meaningful apartment development.

The X-factor of what mortgage interest rates might do looms as well, since low rates foster the exodus of renters to home ownership. A 1 percent increase in the mortgage rate might do more to stabilize the rental market than a comparable reduction in the jobless rate.

There’s always room, of course, for a well-located product. Broadly speaking, though, we’ll need a year or two of meaningful job growth to absorb a temporarily oversupplied market in Snohomish County. Patience, for most investors in rental properties, is wearing thin, though, as they have endured this market condition since 2001.

For most, the economics of today’s rental market suggest a sluggish, flat quarter ahead — but with a light now visible at the end of the tunnel.

Tom Hoban is CEO of Everett-based Coast Real Estate Services, a property management and real estate advisory company specializing in multi-family and commercial investment properties. He can be contacted by phone at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.

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