Seattle’s Power and Prestige Grow, Yet Pitfalls Could Await

By Alex Girda, Associate Editor

Even as investors continue  to covet core assets in markets like Manhattan, San Francisco and Washington, D.C., attention is also being paid to a relative newcomer to commercial real estate’s elite markets. Seattle has been humming for some time now and shows no signs of slowing down any time soon. In the latest confirmation of the trend, a recent study from PwC and the Urban Land Institute indicates that the Puget Sound region is steadily climbing the ladder of investor interest.

According to the 2012 edition of the influential Emerging Trends in Real Estate, Seattle’s fundamentals in its economy and real estate are making it increasingly attractive to developers, investors and residential homeowners alike. Using a nine-point scale, the PwC/ULI report ranks 51 major U.S. real estate markets on their prospects for the coming year. Seattle scored in the top seven markets in three major categories. For commercial and multifamily investment, the market took the number five spot. Seattle ranked seventh for both commercial and multifamily development and for single-family homebuilding.

However, today’s high marks also have the potential to produce a downside in a few years. Given that a number of developers have broken ground on a series of multi-family projects in 2011, and additional construction starts are in the pipeline for next year, oversupply is a legitimate concern. It seems entirely possible that developers in Seattle could make the same blunder made by counterparts in Florida, Las Vegas and elsewhere during the previous cycle. In an attempt to capitalize on the booming demand for rental properties, developers could create so much new product that they drive prices down and capsize the market.