The Seattle/Puget Sound industrial market stayed strong in the first quarter of 2018.
The regional vacancy rate increased to 3.4% as rental rates and construction activity remain elevated. The average regional rental rate for industrial properties rose to $0.88/month, the highest recorded rate over the past six years. Two projects delivered during the period: CenterPoint 167 in Kent and Prologis Park Tacoma Building D in Tacoma. Overall absorption came out to a positive 261,322 SF, up by more than 900,000 SF quarter over quarter. The largest project currently under construction is the IPT Tacoma Logistics Center, which will add more than 1.1 million SF to the inventory in Q2 of this year. The number of properties sold jumped significantly quarter over quarter, with Frontier Communications Kirkland location at 12055 Slater Ave NE the largest at $587/SF. Activity from industry players such as Amazon and Walmart continued — and will continue — to impact the market, as both grow their network of distribution centers to better compete. Though the local manufacturing and construction industries continue to decline — each projected to lose over 1,000 workers by Q1 2019 per the Puget Sound Economic Forecaster — the Employment Security Department found that unemployment rates have remained stable since the start of last year. With several construction projects underway or nearing completion and new tenant move-ins looming, the market appears on a positive trajectory.
- 540,606 SF delivered during Q1, representing a decrease of 70% from the same period of last year.
- Going forward, an additional 4.2 million SF is set for delivery in Q2, with the majority in the Pierce County submarket (2,569,736 SF).
- Demand for industrial space remains strong in the Seattle/Puget Sound market. Tenants completing recent notable transactions include: Classic Accessories (220,800 SF), Premier Fixtures LLC (153,385 SF), and Supervalue (121,905 SF). Pierce County had the largest impact on warehouse absorption in Q1 with 308,716 SF of newly occupied space.
- Flex properties recorded nearly 210,000 SF positive absorption in Q1, 71% of which occurred in the Kent Valley market.
- With large block leasing and construction activity increasing, vacancy rates should stabilize as 2018 progresses. Several million SF of new space will deliver in upcoming quarters, which should help alleviate some of the pent-up demand from tenants. Rental rates, which went up another 4% in Q1, will continue to rise until more space becomes available.