Tenant activity remained high for industrial space in Puget Sound in Q1 2019,
but excess space from new construction and large relocations continued to impact absorption and vacancy.
The Puget Sound industrial market saw minimal sales activity and more than 490,000 SF of negative absorption in Q1, as large move-outs and unoccupied spaces in Seattle and Kent Valley submarkets caused overall vacancy to reach its highest point in four years at 4.7%. Seattle submarkets saw the greatest change, jumping to 4.7% from 3.4%, followed by Kent Valley which increased to 5.4% from 4.3%. The higher vacancy caused a slowdown in the pace of rent growth, with the overall recorded rate at $0.76/NNN/SF for all property types. This imbalance between supply and demand will likely continue into next quarter as some of the largest projects in the construction pipeline — Dupont Corporate Center and the IAC Commerce Center SeaTac — are scheduled for completion in Q2 2019. Neither of these projects, which total 1.5 million SF combined, have been pre-leased. The largest properties to trade in Q1 were the Park at Woodinville, which sold for $47.2 million ($199/PSF) to Radford & Co. Realtors and the Medline Building in Sumner, which sold for $36.1 million ($158/PSF) to Duke Realty.
- One property, Fennel Creek Industrial Park in Bonney Lake, delivered for 202,000 SF in Q1. This was the lowest construction total for the region since the end of 2017. However, nearly 5.6 million SF of projects are in the pipeline, and close to 5 million SF should top out by Q4 2019.
- Over 66% of under construction projects are located in Pierce County, with only 11% of that space pre-leased.
- Third-party logistics, e-commerce, and big manufacturers continued to drive demand for space in Puget Sound submarkets.
- The biggest signed leases of the quarter included Plush Pippin’s 99,196 SF at Kent Corporate Park – Building F, East Bay Logistics’ 62,000 SF at the Medline Building in Sumner, and Performance Contracting Group’s 61,022 SF at the Mackie Designs I building in Woodinville.
- Despite the uptick in vacant blocks, tenants are still very active and should begin to fill some of the larger spaces as 2019 progresses. At Paine Field, Alaska and United Airlines began offering passengers flights out of Snohomish County. This airport opening will have a huge impact on surrounding businesses and the community, elevating the demand for industrial space in the already tight South Everett market. Over 10.6 million SF of projects have been proposed across the region, with the largest Logistics Property Company’s PLC Frederickson One, a five-building project that will bring more than 2.4 million SF to the market by the end of 2021. This is Logistics Property Company’s first development in the Puget Sound, and showcases the high level of interest that Frederickson’s growing manufacturing sector is garnering from developers outside the region.