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SEATTLE-The Puget Sound Apartment market continues to struggle but there are signs that vacancy is stabilizing and reason to believe the market will show improvement over the next two years, according to a mid-year report by CB Richard Ellis.

The overall Puget Sound vacancy rate for the first half of 2003 is 7.5%, unchanged from the second half of 2002; however, it is one of the highest vacancy rates on record. “It is necessary to go back to the second quarter of 1992, when overall vacancy was 6%, to find an apartment market as soft as this one,” states the report.

The good news is that several economic indicators that tie directly into the health of the apartment market–job growth, population and net migration–are expected to show improvement over the next two years. According to The Puget Sound Economic Forecaster published by Conway Pedersen Economics, employment growth is expected to edge up 0.1% in 2003 and improve to 1.5% in 2004 while population growth is expected to ramp up to a peak of 1.5% in 2007. Net migration, after falling from 2000 to 2002, is expected to increase from 21,100 between 2002 and 2003 to 36,300 between 2004 and 2005, according to the Washington State Office of Financial Management.

Regionwide, monthly rents over the past six months have decreased 2.58% to an average of $0.98 per sf, not including significant concessions, which include one or two months of free rent, according to CB Richard Ellis. In Seattle, rents decreased 3.91% to $1.23 per sf; on the Eastside, rents declined $0.02 to $1.12 per sf. Rents in the Southend fell 2.25% to $0.87 per sf. Rents in Pierce County fell 2.41% to $0.81 per sf.

Sales of apartment buildings in the first six months of the year was fell to $278 million from $352 million during the second half of 2002. In the first half of 2003, 48 properties with more than 20 units traded hands at an average price per unit of $67,145. The average price during the second half of 2002 was $68,391. Sales volume in Seattle fell from $128 million in the second half of 2002 to $38 million in the first half of 2003. Cap rates regionwide dipped only slightly, from 8.09% in the second half of 2002 to 8.01% during the first half of 2003, according to the report.

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