A string of record-breaking apartment sales is sending a message that might have been difficult to imagine a few years ago: Some of the nation's largest real estate investors are once again making major bets on Seattle.
While employers such as Amazon and Starbucks have spent recent years shrinking office footprints and shifting jobs elsewhere, institutional investors are pouring hundreds of millions into the region's newest apartment properties, betting Seattle's next growth cycle is already taking shape.
The confidence was on display earlier this month when BentallGreenOak, known as BGO, spent more than $500 million to acquire two Seattle apartment properties — including the highest-priced apartment tower sale in city history. A few days earlier, Chicago-based Mesirow Financial paid $157 million for the Island Square apartments on Mercer Island, about 5 miles east of downtown Seattle.
“The past several weeks marked one of the most active periods for institutional capital in the Puget Sound apartment market in years,” Dylan Simon of the Kidder Mathews Simon Anderson Multifamily Team in Seattle said in this month’s market update posted on social media.
The purchases are part of a broader wave of large multifamily deals taking hold across the West Coast this summer, as big buyers return to the market following years of caution. This includes Camden Property Trust's $1.6 billion sale of 11 Southern California properties to BlackRock in the largest U.S. apartment portfolio deal in more than two years.
Rising interest rates, a surge of new construction and slower hiring by major employers weighed on U.S. apartment rent growth and investment activity in recent years. Seattle was hit particularly hard, as the downtown office vacancy rate rose to a record 35% — more than double the nation's average — while nearly 40% of apartment properties are offering concessions as landlords compete for renters.
But recent sales suggest buyers believe Seattle apartment values have bottomed. Investors are betting less on today's market than on where rents, occupancy and values could be in several years as construction slows.
“Institutional investors seem to have decided that Seattle multifamily pricing has reset enough to justify being more active again,” said Elliott Krivenko, CoStar’s senior director of market analytics in Seattle.
Even so, the market's recovery remains uneven. Much like the office market, demand is focused on newer properties, transit-oriented developments and affluent neighborhoods, while many older apartment complexes continue to face slower rent growth, higher vacancies and weaker pricing.
Bottom of the cycle
BGO’s buying spree included the $353 million purchase of The Ayer in Denny Triangle and the $152 million acquisition of the Independent apartments in Seattle's Ballard district.
The Ayer sale surpassed the previous Seattle record set by the 2022 purchase of the Kiara tower in South Lake Union by Spanish retail mogul and billionaire Amancio Ortega. The Ayer sold for more than $777,500 per unit — the highest per-unit paid since PGIM bought the 39-story West Edge for $861,765 per apartment in early 2022.
The willingness to make large purchases appears to stem from where investors think the market will be in a few years, Krivenko said.
“The buying today suggests investors believe the market is much closer to the bottom of the cycle than to the top,” Krivenko added.
The bullishness marks a notable departure from the narrative that has dominated Seattle commercial real estate in recent years, as major employers trimmed office space and cast doubt on the pace of the city's recovery.
Amazon, Seattle's largest private employer with between 48,000 and 50,000 employees, has shed more than 1 million square feet of office space in Seattle over the past six years, even as it has added thousands of workers at offices in Bellevue, Kent, Redmond and other suburbs.
Seattle-based Starbucks, the world's largest coffee chain, is shifting its supply chain operations to Nashville, and will offer positions to dozens of existing Seattle-based employees to relocate.
A fresh start
While those shifts are expected to weaken some demand among renters in Seattle, other property professionals expect the city to be buoyed by the artificial intelligence- and tech-driven growth cycle that has already fueled a sharp rebound in Northern California apartments.
Executives with Essex Property Trust, a firm with 12,658 apartments across 50 properties in Seattle, expect stronger rent growth next year in the region, fueled by expansion plans from big firms and a slower pace of construction.
Essex CEO Angela Kleiman told analysts in the multifamily real estate investment trust's earnings call last month that Seattle is likely to be the next beneficiary of the AI boom that's taking hold in San Francisco and New York.
“What we have seen over multiple cycles is that it starts with Northern California and then it expands out to Seattle, and we're already seeing announcements, public announcements of expansion to Seattle,” Kleiman said.
The strategy aligns with broader national trends. Apartment demand across the United States strengthened in the second quarter as new construction slowed, helping push the national vacancy rate below 8%, according to CoStar's national multifamily report.
CBRE expects U.S. multifamily investment volume to rise 20% this year, the strongest percentage increase among major property types, according to its latest apartment outlook.
Seattle has begun to participate in the recovery. CoStar data shows apartment sales volume in the region reached roughly $5 billion over the past year — about double the level recorded near the market’s low point a couple years ago.
Selective recovery
At the same time, some investors have proven to be fickle.
Newer complexes in urban and transit-oriented locations continue to attract the strongest interest, while some older suburban properties are still struggling to regain value.
That contrast was evident in the recent sale of Bower Village in the Seattle-area suburb of Kent.
The 198-unit property sold for $45 million, only modestly above the $43.3 million paid for the complex in 2019, underscoring the challenges facing owners of many older apartment complexes outside the region’s most sought-after neighborhoods.
Even so, Simon of Kidder Mathews said buyers are no longer just waiting for conditions to improve.
“With office leasing gaining momentum, inbound tech leasing picking up and the development pipeline continuing to shrink, institutional buyers are positioning ahead of the rent growth they believe is coming next," Simon said.