Spokane County's multifamily market is shifting from one extreme of being underbuilt to one of oversaturation with more new units on the market in 2024 contributing to higher vacancy rates than last year. 

As a result, rent concessions are becoming more popular as a way to attract tenants in a more competitive environment, some apartment market observers here say.

"There's obviously been a lot of construction going on," says Carl Durkoop, senior appraiser at Valbridge Property Advisors, Inland Pacific Northwest, of Spokane Valley.

The number of apartment units surveyed in Spokane County in the first quarter of 2024 increased 23%, compared to the year-earlier quarter, according to data in the latest Washington State Apartment Market Report by the University of Washington's Center for Real Estate Research. 

An increase of surveyed units in the first-quarter report is due to expanded stock from a year earlier, Steven Bourassa, director of the Runstad Department of Real Estate at UW, explains in an emailed response to the Journal.

Spokane County's first-quarter multifamily vacancy rate is 4.4%, according to the report.

In the last 12 months ending in March, 1,700 new apartment units, about half of which have been absorbed, entered the Spokane-area market, information from NAI Black's Market Report for Greater Spokane and Kootenai County states.

"We're starting to see a lot of oversupply with a lot of projects that were in the pipeline before (economic) conditions changed," says Durkoop. "Construction starts are finally slowing down, and I suppose we'll reach some sort of equilibrium in the next year or so."

Spokane County multifamily permit data coincides with Durkoop's market observations.

There were 318 multifamily units permitted in the first quarter of 2024 in Spokane County,  down 59% from 769 units in the year-earlier quarter, real estate research data shows.

One reason new apartment units are still being developed despite Spokane County's cooling multifamily market is because many developers were trying to submit their projects for approval before the March effective date for new Washington state energy codes.

Jordan Tampien, developer and co-founder of Spokane-based 4 Degrees Real Estate, says, "If you got in for permits before March 15, you could build under the old energy codes. After that, it can cost $6,000 to $8,000 more per unit."  

He adds that increased permit activity likely will be tempered by experienced developers who will pace projects. 

"Even I submitted seven permits before March 15," says Tampien. "It made sense to get the most bang for your buck."

Tampien attributes the current vacancy rate to speculative building that boomed during the pandemic, due in large part to strong demand for housing coupled with in-migration to the area. At the time, many developers were excited about high rent growth trends and lower financing costs for new projects.

Washington state vacancy rates align with Tampien's tempered market expectations.

Although vacancy is slightly down 0.3 percentage points in the first quarter of 2024 from a year earlier, vacancy rates generally have increased year-over-year in Spokane County in the last three years, when vacancy was 0.5% in spring 2021, 3.5% in spring 2022, and 4.9% in the first quarter of 2023, data shows.

Multifamily vacancy in Spokane County is slightly higher than national vacancy rates as well, according to a May multifamily market report by Santa Barbara, California-based real estate data and research company Yardi Matrix.

To attract tenants, some residential property owners and managers say that increased concessions are necessary in the rental market to help boost occupancy rates at multifamily properties in the Spokane-area.

"We're starting to see, if not outright rent reductions, at least rent concessions are being offered," Durkoop says.

Heather Teston, of Goodale & Barbieri Co., says the company has started offering rent concessions to attract tenants at some properties in Spokane County.

| Erica Bullock

Heather Teston, residential department manager at Goodale & Barbieri Co., says the Spokane-based commercial real estate company has over 75 multifamily properties in its portfolio.

"As a third-party management company, we are struggling to get people in the door, and we have vacancy," she says. "We've had to make concessions to get some apartments filled because they sat vacant so long."

Teston says occupancy at Goodale's properties is currently behind a "healthy" industry standard occupancy rate of 95%, where rental prices aren't priced too high or too low for the market.

Current occupancy is at 92% for Goodale's multifamily assets, a rise of two percentage points from June 2023.

Goodale & Barbieri's multifamily occupancy last year was about 90% due to an influx of evictions, she explains.

"Last June, we were going through a mass eviction process. Restrictions were lifted, and we had so many (evictions) to do, unfortunately ... due to nonpayment of rent," she says. "Last year was a really tough year for the staff and for myself and obviously for the tenants."

"This year, I think we're finally starting to see slow movement back to somewhat normal levels," she adds.

Teston says some neighborhoods, such as North Spokane, Spokane Valley, and Liberty Lake, have higher occupancy than downtown Spokane and the lower South Hill.

"Occupancy is definitely growing in certain areas," says Teston, adding that some tenants are saying there are more affordable rental options and safer communities further away from downtown Spokane.

The multifamily market this year also includes more money being spent on advertising vacant units than was spent on rental ads during the pandemic, she says.

"The market has a lot of options for rental space that you didn't see during COVID, when Spokane had a 1% vacancy rate in the city," says Teston.

Tampien estimates that there are about 1,200 units under management in 4 Degree's residential property management portfolio in Spokane County. 

At some properties, Tampien says occupancy changes seasonally. "We had 56 units in the Valley with no rentals through February and then we leased up 38 of the 56 units when spring came around." 

Tampien says the outlook for Spokane's multifamily market is similar to a pendulum shifting from an extremely underbuilt market to oversaturation. 

About 1,900 new units were submitted for permit approval through March this year in Spokane County, he says. New units are expected to impact Spokane's multifamily market significantly if all of the units were introduced at the same time, Tampien says.

"I think it's going to start to get affordable (for tenants)," says Tampien.

If residential rental market conditions hold steady for the next few years, eventually any excess supply of units likely will be absorbed, Durkoop says. In the meantime, rent prices may become more affordable for Spokane-area tenants.

"I'm still shocked every time I see what people have to pay for rent," Durkoop says. 

First-quarter rents for all types of units have grown 1.9% in Spokane County from a year-earlier, according to data from the Center for Real Estate Research.

The average rent for all types of apartments is $1,289 per month, the research report states. One-bedroom apartment rents average $1,099, up 1.3% from the first quarter of 2023. The average rent for two-bedroom units has increased 2% to $1,332. 

Rent information in the report excludes studios and units with three or more bedrooms and focuses on one one- and two-bedroom units, that make up the majority of units statewide.

Other multifamily market factors to watch in the next 12 months that may impact apartment occupancy include an increased demand for smaller complexes located in infill sites, changes to landlord-tenant laws, and rising legal costs, Durkoop says.

"We'll see how the market accepts those kinds of properties," says Durkoop, adding that any cost increases likely will get passed along to tenants.