South Sound multifamily market remains hot, and investors are taking notice

By Shawna De La Rosa  –  Reporter, Puget Sound Business Journal Article

The Tacoma multifamily market is reaching historic highs in both sales volumes and pricing.

A recently released Kidder Mathews report shows the South Sound city already had a year-to-date sales volume of $129 million by the end of third quarter compared with $28 million for all of 2020, and a year-to-date price per square foot of $270 compared with $181 last year. For this workforce housing town, those numbers are exceptional.

Kidder Mathews held a webinar Tuesday on the South Sound’s multifamily market dynamics. The panelists were in agreement about the region’s growing strength.

Brian O’Connor, owner and principal of O’Connor Consulting Group, said Pierce County may be coming into its own. Typically, the market absorbs 500 to 700 units a year, he said. So far this year it has absorbed 3,000 units.

The growing demand is no surprise to the city of Tacoma, which has been scrambling to encourage more development as new residents relocate from higher-priced areas in the region. The City Council recently reworked the city’s multifamily tax exemption (MFTE) program to encourage more affordable housing and is working to accommodate higher-density development through its Home in Tacoma program.

The South Sound is now on developers’ radar.

“Pierce and Thurston used to be more about cash flow than appreciation, but I’m wondering if that’s changing,” O’Connor said. “Pierce County is starting to see more of its yield coming from appreciation.”

Beau Madsen, director of investments at RISE Properties Trust, said previously investors could never capitalize on a deal in Tacoma. But that is changing.

“Today we have partners calling us and asking us to find them deals in Tacoma,” he said.

With more institutional multifamily investors entering the market, Kathy Dobler of Dobler Management Co. said her 60-property firm is now seeking land acquisitions. It costs less to build in Pierce County than to buy.

O’Connor expects the market to settle down after 2024.

Though he hasn’t done an analysis of unit starts in Pierce County, he notes King and Snohomish county rental units starts are significantly below typical levels. He attributes that to the slowdown during the pandemic.

“I bet we will be under-supplied until 2024,” O’Connor said. “It will take that long for the machine to catch up.”

O’Connor thinks Tacoma is the region’s strongest market, though it currently has the highest concentration of apartment unit supply.

“Tacoma UW’s branch campus is an engine that isn’t going to quit and that’s significant,” he said. “I also like Puyallup. But if you are looking for an urban market, it’s Tacoma.”