The Seattle/Puget Sound industrial market has emerged as one of the hottest in the nation as we check off the first quarter of 2017.
The regional vacancy rate is 2.9% following the delivery of 1.8 million SF of industrial supply during the quarter. Net absorption for Q1 topped 490,000 SF across the Puget Sound as industrial users continue to expand at newer developments built with modern distribution requirements and existing tenants extend their leases. Des Moines Creek Business Park Phase III in SeaTac delivered over 500,000 SF to Kent Valley submarkets and is already 100 percent leased. Underwood Gartland completed a 200,000 SF warehouse up north in Everett and that project is also fully leased upon delivery. Now, the industrial development pipeline is spreading south to Pierce County, where over 2 million SF is under construction. Possible trouble ahead comes from Washington State’s largest employer, Boeing, which is still shedding employment in response to a slowdown in aircraft orders over recent years, having lost more than 8,600 jobs since the start of 2013. Similarly, the aerospace industry in the Puget Sound region lost 7,300 jobs over the last twelve months. However, trade added 3,700 jobs from November to February, suggesting that Amazon’s entry and expansion into the industrial world is paying dividends for the Seattle/Puget Sound industrial market – offsetting any concern over Boeing layoffs.
- All industrial properties under construction are scheduled to deliver by the end of the year, adding over 3.1 million SF of inventory to the region, or 1.2% of existing inventory.
- Of the 1.8 million SF that delivered in Q1, 49% (873,108 SF) fell in Kent Valley and 39% (701,892 SF) was in Pierce County.
- Kent Valley remains the largest leasing driver with over 300,000 SF absorbed during Q1 in warehouses, alone. Kent warehouses made up 56% of Q1 regional warehouse absorption.
- The Northend is still where the manufacturers go. Despite the industry’s recent slide, the Northend recorded almost 54,000 SF of net absorption in Q1 while the Seattle region posted -13,167 SF overall.
- As the e-commerce world continues to inject additional demand into industrial markets, the Puget Sound should be well situated to continue its year-over-year growth in rental rates for the next couple years, with vacancy finally beginning to rise later this year with a string of new deliveries planned.