The Puget Sound retail market continued to find balance between the local environment and fundamental changes sweeping the overall retail industry in Q1 2019, resulting in ongoing low vacancy and rising rents.
Notable tenant demand and limited space givebacks helped the Puget Sound remain stable in the first three months of the year. This mirrored the general trend across the United States during that period, which saw retail sales numbers climb. March accounted for the largest monthly increase in brick and mortar sales since fall 2017, driven by the auto and furniture industries. As a reminder that the fallout continues, however, national retailers Party City and Dress Barn were the most recent chains to announce store closings, shuttering a total of six Puget Sound locations.
The Puget Sound saw a healthy dose of investor interest in Q1, with property sales volume increasing by 21% from Q4 2018. The largest transactions of the quarter took place in the Bellevue CBD: Onni Group’s purchase of the John Dalz Building at 600 108th Avenue NE for $116 million ($2,882/SF) and Bosa Development’s purchase of the Park Row Shopping Center at 201 Bellevue Way NE for $36 million ($2,027/SF). Onni plans to construct three, 600-foot towers and Bosa will develop condominiums. New retail development also remained viable in the Puget Sound, with a number of new projects proposed or underway. The Northgate Mall redevelopment team, which still awaits final approval of its massive revamp of the site, revealed that the planned 262,000-SF, three-ring, NHL Seattle hockey practice facility will break ground early next year and be completed by Q2 2021. The Village at Totem Lake, the largest project under construction at 400,000 SF, is now 100% preleased and expected to open in mid-2020.
- Nearly 54,000 SF of new retail properties delivered in Q1 — more than three times the deliveries in the same period a year ago.
- The most notable properties completed were the 30,000-SF Lynnwood Crossroads – Building 6 at 6128 196th Street SW in Lynnwood and the 10,000-SF Kenmore Square at 7760 NE Bothell Way in Kenmore. Both properties are fully leased to Sprout’s Farmers Market and Kiddie Academy of Kenmore, respectively.
- Speciality brands continued to dominate leasing activity across all submarkets. In many cases, the goal was to provide traditional shoppers a one-stop shopping opportunity. At CenterCal Properties’ Village at Totem Lake redevelopment, for example, in addition to big brand retailers such as Nordstrom Rack and Ross, the project will feature Trader Joe’s, Whole Foods, Ulta Beauty, and Autozone.
- More than 7,000 stores nationwide have shut down operations, with Payless Shoesource, Gymboree, and Dress Barn accounting for the most recent vacant storefronts. This trend will likely not slow anytime soon as consumers continue to shift their focus towards e-commerce. In Sammamish, Pillar Properties and Innovation Realty are developing the beginning phase of Sammamish Towne Center, an 80-acre, mixed-use development that will bring close to 150,000 SF of new inventory to the market in 2021.