Is Tacoma’s apartment-building boom over? Here’s what the latest research has to say

The bad news is accumulating when it comes to apartment development in the Tacoma area.

The latest came with a Friday report released by real estate entity Kidder Mathews on Seattle and Puget Sound’s apartment markets.

The company’s multifamily team, led by Dylan Simon and Jerrid Anderson, released its second-quarter research for 2023. The report analyzed market trends and drew from 17 years of data for rental and vacancy rates and sales across King, Pierce, Snohomish and Kitsap counties.

Seattle took perhaps the biggest hits in the report.

“To say that the bloom is off the ‘tech rose’ is a massive understatement,” said Simon in a release accompanying the report. “Rather, the world waits while major employers decide whether to force employees back to downtown corporate offices – or not.”

As a result, “Seattle is on track for the fewest annual apartment sales in over a decade, with only 13 recorded sales in Q1 2023,” according to the report. “Buyers cite interest rates and weak renter demand, while sellers continue to hold tight to yesteryear’s values.”

For Pierce County, the report’s executive summary stated, “Pierce’s reputation as the ‘Sweetheart of the South’ (Puget Sound) suffered during Q1 2023 due to declining sales values and softening fundamentals.”

It noted that as rental rates were pretty much stable, vacancies were on the rise:

“This is especially true for larger properties in urban Tacoma, which are competing for residents at higher price points and against the competition of new construction delivering more supply to downtown Tacoma.”

It also noted that Tacoma’s suburban areas “continue to outperform urban Tacoma.”

It concluded that “apartment developers betting on urbanization and new employment in downtown Tacoma will likely need to wait another year or two as the market absorbs new supply and awaits a return-to-office mandate.”

For Puget Sound overall, the report said the area’s sales volume was “down 50% year-over-year, with smaller (under $5 million) sales truly leading the market. What’s more, apartment sales activity above the $5 million price point slid 75% compared to Q1 2022.”

It saw no relief for the owners of multifamily units anytime soon:

“Although rental rates generally held firm in Q1 2023, operational costs – namely, insurance, payroll, and marketing – continue to escalate and erode net operating income.”

The research underscores recent news coverage of Tacoma apartment projects that have seemingly stalled.

The pace of multifamily property-tax exemptions for developers of new apartments in Tacoma has slowed since last year. By May 12, just nine multifamily property tax exemption requests from developers had received City Council consideration or had been listed as “agenda ready” on the public docket for this year.

In 2022, 21 had been approved by the end of May.

Parties tied to the development of Tacoma Town Center are involved with court proceedings over a settlement with the project’s architect, with its next court date tentatively set for mid-June.

Meanwhile, a July 21 foreclosure auction looms for Tacoma Trax and the developers’ completed Madison Plaza project in Kent after multiple lien filings and two separate cases filed in King County Superior Court seeking to recoup money owed on loans and construction equipment rental. Tacoma Trax, 415 E. 25th St. next to the Tacoma Dome Station, was one of the first major transit oriented developments planned for the city.

And this week, Tacoma-based Harbor Custom Development, which has pivoted more to multifamily-unit development in different U.S. markets in the past few years, announced its founder and CEO was stepping down in mid-July along with other executive moves. That news came after lower-than-expected earnings were reported for the quarter and for 2022 by the company at the end of March.

Of the company’s six Puget Sound area apartment properties put on the market in April 2022, only two have attracted buyers so far.