By: Nate Gant, SVN Cornerstone Advisor
Between Q2 of 2020 and Q3 of 2022, vacancy rates in Spokane County shrank to historically low levels. At that time, CoStar was reporting between a 1% and 2.1% vacancy rate. As a landlord, if you posted a unit for rent, you probably received more inquiries than you could count or had time to respond to.
The demand to lease units by tenants far outpaced the supply of units that were available. This landscape ultimately led to landlords and property managers increasing rents in an attempt to take advantage of the situation. To ease the burden of too high rents, the Spokane City Council began debating possible solutions. Simultaneously, the private sector saw an opportunity and went to work.
Fueled by historically low interest rates, extreme tenant demand and surging rents, investors and developers began building new units. In Q1 of 2022, vacancy rates in Spokane County were roughly 2% and by the end of 2022, due to the surge in newly available units, vacancy rates reached over 5%. By the end of February in 2023, they had climbed to a staggering 6.2%.
We began seeing hints of higher vacancy rates in September of 2022, and later that same month we saw rents finally peak. In October, demand had decreased significantly, and landlords were no longer able to name their price. Much of my communication with owners at that time related to landlords being forced to give concessions to tenants in the form of free or lower monthly rent, or even both. This was the effect of over 900 new units coming online in 2022.
Currently, an estimated 2,727 new rental units have been permitted and are expected to enter the market in the next twelve months. This is more than double the average 1,200 units built annually in the last decade.
CoStar is projecting that by Q2 of 2024, Spokane County will see vacancy rates climb to 10%, and then most likely begin a slow decline back to standard rates of around 5%. Until then, rising vacancy rates coupled with high interest rates are creating unprecedented headwinds for the foreseeable future in the Multifamily sector.
If you have considered selling your Multifamily property in the next few years, I would strongly encourage multifamily owners to look into available options now. Specifically, by utilizing the opportunity of owner financing, I believe you can achieve the best possible net over the next few years. Our market is fluctuating monthly, and considering the projected progression of vacancy rates and interest rates, I would suggest capitalizing on the present climate as quickly as possible.
Please feel free to reach out to discuss your best options moving forward.
Nate Gant is a commercial real estate broker with SVN Cornerstone in Spokane, WA, specializing in Multifamily and Industrial Sales. With a strong focus on helping multifamily investors maximize their income and financial outcomes, Nate brings a wealth of experience and knowledge to his work. To get in touch with Nate, email nate.gant@svn.com or call 509.993.4440.