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Can the Past Determine the Future? A Multifamily Analysis Says “Yes”
Many commercial real estate decisions are based on historical trends. Pro formas, after all, incorporate past data to predict what might happen in the future. But given the multiple black swan events within the past several years, is this still the case?
Some analysts at CBRE believe that, yes, the past can determine the future, especially in the multifamily sector. To prove their point, the experts’ “Map of the Month” focused on Seattle as an example.
The analysts explained that there are three submarkets in Seattle:
- Downtown and Capital Hill, in which supply outpaced rent growth during the 2010s. Still, “weak fundamentals have persisted in these submarkets during the past four years,” the analysts said. Rent growth was -0.4% (Capitol Hill/Central District) and -0.6% (Downtown Seattle) since 2020.
- SeaTac/Burien, in which rent growth gained ground on supply during the same time frame; this prompted the analysts to note that “this pattern has continued, with 3.9% compound annual rent growth over the past four years.”
- Inner-ring submarkets, like Seattle/South Seattle and University District/Ballard West, in which rent growth has been sluggish, clocking in at 1.4% and 1.3%, respectively, within the past four years.
The CBRE analysts commented that the dynamic from 2020 on was set up in the 2010s, with “parts of the submarket closer to downtown reflecting the high supply, low rent growth trend in downtown areas” while those submarkets further from the urban core involving the low-supply, high rent-growth type. The “middle-of-the-pack” rent growth in these submarkets is because “they span both geographic trends,” the CBRE analysts commented.
The information culled by CBRE supported the analysts’ belief that, despite the multiple changes in the multifamily sector since 2020, historical real estate fundamentals have a hand in predicting rent growth. “In Seattle, the same neighborhoods that underperformed on rent growth in the 2010s have continued to do so on the current decade,” they added.
- ◦Lease
- ◦Economy
